Ep744: Mike Philbrick – Just Because You’re Winning Doesn’t Mean You’re Smart

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. And I want to thank you for joining that mission today. Fellow risk takers this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with feature guests, Mike Philbrick, Mike, are you ready to join the mission?

Mike Philbrick 00:36
I am absolutely ready to join that mission. I love it. Let's knock down a few more people on that counter to a million.

Andrew Stotz 00:42
Exactly. And that's how we do it one person at a time, one listener at a time. And I want to introduce my audience to this one person, Mike filbert. He's the CEO of resolve Asset Management. He has over 30 years of experience in investment management serving in senior investment industry positions with several major financial services firms, and is responsible for investment decisions coaching and strategic leadership. And his co authored the book adaptive asset allocation, dynamic global portfolios to profit in good times, and bad. As well as several white papers and research focused on adding new insights to the quantitative global asset allocation, space, adaptive allocation, asset allocation and return stacked portfolio solutions have been made popularized by he and his team at resolve. preceding his investment career, Mike played professional football in the CFL, winning the Grey Cup Championship in 1999. And then being inducted into the Hamilton Tiger cat walk of fame in 2015. Might take a minute and tell us the unique value you're bringing to this wonderful world.

Mike Philbrick 01:56
Oh, wow. Well, I think I've got a lot of battle scars to share with folks. And some perspectives, I think that are a little bit different. So having played in sports, you know, there's a whole level of candor that I think we employ at resolve that is, you know, extreme, if you will, and it stems from my days and being coached in that domain and having clear goals and having them set regularly. I think those are some things in and I think I've got a lot of battle scars to share with people on how they might think through some of the very deceptive trap apps that are out there that can confound your investment success.

Andrew Stotz 02:43
So it's kind of full contact company, is it ever because we're in a full contact world of investing?

Mike Philbrick 02:50
We tried to get Terry tight, Terry Tate the office linebacker on but you know, we tried to hire him, but he was just too expensive.

Andrew Stotz 02:57
Yeah, and just getting people knocked down in the you know, in the lobby and stuff. It just gets ugly. After a while got

Mike Philbrick 03:03
to put your you got to put your cover on your TPS reports. Come on.

Andrew Stotz 03:09
There's two things that I wanted to talk to you briefly about, before we get into the big question. Given that you're, you know, an expert in global diversification, risk reduction, managed futures, these types of things. The first thing I wanted to talk about is like, given all of your experience in that space Take, take somewhat of an amateur like myself for many of my listeners that we invest, and we invest in asset allocation, and we're looking for ways to reduce risk. And I know that you've spent a lot of time looking at, like, the correlation between assets. And, you know, and I'm not sure if all of my listeners can get access, for instance, to the futures market in certain ways. So I'm just trying to think about what are some general guidelines that you could give us on risk management and then later, we'll talk a little bit about what we talked about before about understanding the debt situation and what that means. But I really would love just to hear a little brief given your battle scars about risk management.

Mike Philbrick 04:10
Yeah, I think that you don't have to go into the futures market to start thinking about diversification. Right? We live in a world where we don't know nearly as much as we think we know. There was a quote in I should have looked it up the Art of Motorcycle Maintenance, where I forget the fellas name, but he's holding up a handful of sand. And this is his knowledge. He has all the knowledge in the world. And he thinks he knows so much. But while he's holding that handful of sand, he's standing on a beach. What you don't know, Trump's by orders of magnitude what you think you know. And no matter how much you want to put time into the initial buy decision, the sell decision, you just don't know a lot. And I think that's something to keep in mind, which leads to well, if I don't know a lot, I should prioritize preparation over prediction. Which is another way to say prioritize diversification. Right? So if we go back to a simple mental model, we have two dimensions. One is inflation, and one is growth. And growth can be either rising or falling and inflation can be rising or falling. Those create four quadrants, those four quadrants have asset classes that do well, when inflation is rising and growth, global growth is enough that it can withstand that inflation think, you know, 2003 to 2008, China's growing commodities going through the roof, but there's enough growth in the world that the price of inflation can actually be absorbed in the economy. Well, in that case, you're going to want to look to emerging markets, you're going to want to look to emerging market debt, you're going to want to look to commodities, those are going to be the best performing ad sets. Now contrast that when you have fallen growth and disinflation, ie deflation or disinflationary times, now you're talking about return of your principal, not on your principal. So things like gold and bonds do well. Now, I think we want to think through those four quadrants, I'm not going to go through all four of them. And we probably want to balance the risk that we're going to take in those four quadrants. And then hold a position there and consider that a neutral portfolio, consider that sort of the market portfolio, the global market portfolio by risk of all the assets that could be owned, then, if we would like to take bets against that, ie we'd like to tilt that we should measure our success until tick against that portfolio that has these sort of thoughtful construction, where it says, Well, I don't I'm wrapping my hands around all of the world's assets, and their trading every day when someone's trading gold and bonds and stocks etc. I own all those risk premia, and I've balanced them off in a way that makes sense. Now, if I want to impart some sort of prediction to that, I can do so. But I've also got a measuring stick against which I can measure my performance against what I think is a pretty good portfolio, that accounts for the fact that we don't know much. And we certainly don't know the future. And I think those are things that I think can help folks from the standpoint of, you don't have to go into, you know, really esoteric products, and lock yourself up for long periods of time. That's not a requirement actually thinking through your portfolio. Thinking through three questions that I would consider that people asks and ask themselves about their portfolio? Have I fully exploited diversification? Do I have something in my portfolio that responds to these four potential different outcomes? And are the second question is, are the risk premiums that I'm harnessed harnessing, are they well balanced? So for example, you have a 5050 stock bond portfolio? Well, that's 80% risk in stocks, and while probably 85% risk in stocks and 15% risk in bonds, so well, on a capital basis, you have what looks like equal exposure on a risk basis, the maniacs are running the asylum, most of the risk in that portfolio is going to come to stocks. And this comes to the last point: are you allowing the market to dictate the risk and the structural characteristics of your portfolio? Or are you imparting that? Are you saying I would like this portfolio of these assets, and I would like the risk to be, you know, in this neighborhood, and think of you doesn't have to get much fancier than that most certainly can get live.

Andrew Stotz 08:59
And what is in such a portfolio that you've described it for a typical person that would look at that one of the questions that I would have is, what is the benchmark that we would use? I don't like benchmarks at all, because I think they mess us up in our minds. But is there a what what would be a typical type of benchmark that we would think, for that type of

Mike Philbrick 09:25
benchmark encompass all the assets globally? Throughout the world, commodities, stocks, emerging markets, stock market stocks, the bond complex, whether those be US bonds, or global bonds? So you're really taking the entire investable universe, and you're saying, Well, I'm going to consider all of that, right. And I and then I want to categorize it into these four areas where they're going to do they're going to do different things based on the structural economic environment timing, right. And diversification is always having some Think in your portfolio that's killing it, and then have something in your portfolio that's killing you. That that is diversification. Right? So but now you're harnessing all the risk premium as possible in doing that, that gives you now you could look at that global market portfolio as a market cap weighted version of that, that that is, but that often excludes commodities. It excludes a number of asset classes that actually do well in inflationary times. So for inflation shocks, you're going to want things like, you know, tips, bonds, that that are inflation linked, and commodities, those are the things that do well in those periods of time. And when those are doing well, your bonds, your normal nominal nominal bonds are not going to be doing particularly well, as we noted in 2022. And as we noted today, and the strange thing that's occurring today, that has not occurred, since the 70s, is the correlation between stocks and bonds is also rising. Right. So we've, we now have a period where the efficient frontier rather than that being that nicely bent C shaped curve is just a straight line. And in fact, in the 70s, it was a straight line, you could add bonds to your stock portfolio, which reduced risk, but there was no curve, there was just a simple reduction of risk. So what does that mean? Well, that also means for safe withdrawal rates for individual investors, if the volatility of a portfolio is higher, your withdrawal rate is lower the volatility Gremlins eat up your portfolio. So we're in this very strange period today where you're going to have to prioritize diversification in order and include strategy that you may not have heard of, that may not be common that your friends might not be using. In order to try and smooth out the ride a little bit. 2022 was a really tough year, both stocks and bonds were down about 20%. At the same time, that hasn't happened in a long time.

Andrew Stotz 11:57
And when we do that for through, like, we do that through, like some examples are in inverse ETFs, as an example, where some people may say, Okay, I'm gonna hold a certain amount of an inverse ETF or another person may say, Okay, I'm gonna think about cash for managing that risk, or is this, you know, managed futures is the best way to do it. Like what, if you really want it to then, you know, or is it just build those four quadrants, you know, preparation for those core quadrants? And you've got enough?

Mike Philbrick 12:30
You do, here's what happened. So in these these had been built a number of times MEB favors track a few of them. Ray, Dalio had had one of his portfolio was tracked in the Tony Robbins book, which was just basically a simple ETF portfolio that covered off all of this stuff. The challenge with that portfolio is tracking error. Right? Because, and you mentioned the benchmark, yeah, I wish people would stick to their benchmark, the benchmark, people are highly susceptible to the benchmark being whatever the friends are doing. The benchmark for clients in Texas is different than the benchmark for investors in Silicon Valley. Those are two very different benchmarks. They're both in the United States of America, they're both have their current, their base currency, and that whatever they're planning for is denominated in US dollar. But Texas, and Silicon Valley, they're not going to be at all the same portfolio. So you know, I think that when you think about your investment portfolio, and we cover this in the book, that the ultimate goal is to reach the goal that you need to reach in real terms with the kind of the smoothest ride. And which means if you're going to be diversified like this, you will be underperforming the s&p 500 this year, and because you're going to be underperforming, whatever has The Magnificent Seven in it. And that is where tracking error gets.

Andrew Stotz 13:59
And you're going to be outperforming in that you're going to have lower volatility.

Mike Philbrick 14:04
Correct. So coming back to what happens in this very well diversified portfolio. Even if you're fully invested, you get a vault of like six or seven, which is very low. If you also get a return minutes, you know, kind of six or seven need a Sharpe ratio, it's 50 basis points. But it's like, well, what if that doesn't achieve my financial goals? Well, you can leave for that portfolio. That's where futures can come in to be quite effective in providing the leverage to a portfolio. You can also do return stacking, where you can say okay, well I'm actually I don't, you know, I don't want all the commodities and that sort of stuff, because I don't know them and I'm not coming from with them yet. Because we did the Oh 3207 Run and we loved bricks, and we loved Canada and we loved oil. And you know, the US stock market had his last decade and then now we don't like any of those things as much anymore. So there's a definitely the tastes of the investors change. But so now you can take this well, diversity I'd portfolio and lever it up. So if you said Well, no, I actually need 10% or 12%. Okay, well, let's take this portfolio and buy $2 for every $1. We haven't invested. And in doing so we have a, we have a portfolio with a 12 Vol, it is a similar vol to, let's say, equities, excluding tail events, and you get equity like returns, right. But with this smoother I bought with tracking error and over a full cycle, which is 10 1215 years, 20 years even as a full cycle. Yeah, I mean, the interest rate cycle went from 82 to 2022. Yeah, that's a 40 year cycle. So the timelines are, I think this is another one of the major challenges for investors is expanding their timeline. And understanding that underperforming for one or two or three years, a benchmark that has little or no relevance to your financial goals? Is something that's a distraction. Yep.

Andrew Stotz 15:58
You mentioned MEB Faber, and he's got so much great stuff on this on his I love listen to his podcast, he was episode 165, on my worst investment ever. And then, earlier, before we turned on, you talked about Cory Hoff Steen, and he was episode 60, another, you know, real, you know, impressive guys that are doing some interesting things like yourself. And I love one of those guys. Yeah, I wanted to just briefly talk about the idea you were talking about debt, you and I were talking before we turn this on about government debt or debt to GDP and how things are different now, compared to let's say, I remember the 70s When I was a kid, you know, I was, you know, we sat in lines at the gas station and stuff like that. And then you had Volcker come in, and really start cranking up the interest rates in In early, the early 80s, which just was intense, you know, the amount of interest rate increase? And, you know, we're going through a fast increase cycle right now. And I'm just curious, what's the difference? Or what are your thoughts on that?

Mike Philbrick 17:05
Yeah, I think the main difference is thinking about the debt in the 70s. And thinking about, let's say, there was 35 cents of debt to the GDP of the nation. So when the central banks are increasing interest rates, they're trying to subdue the demand side of the equation, they're trying to slow down the growth in the economy, they're trying to slow down the GDP, there is a cost to doing that, because this in the 70s, this 35 cents of debt, whilst you're increasing interest rates, the cost of borrowing is going up for the government. Well, the government's deficit is actually stimulus, it doesn't really matter whether it's fiscal stimulus, monetary stimulus, or stimulus on bonds that already exist. So in the 70s, when you're going through this period, where we had a baby boomers coming of age, we had all of the demand for all of the housing to washing machines. Right and and to slow this down, and we got some wage inflation and wage inflation is a mother trucker. Once that gets going, that's really hard to stop button. So you have 35 cents of debt you're paying on that you're increasing what you're paying, but you're slowing 100 cents of debt in the economy. So together, there is a slowdown in the economy, when you view all of the stimulus going into

Andrew Stotz 18:28
Okay, so let me just summarize that for a second for the beginners. Um, my mom's listening, so I'm going to try to explain it that way. So basically, what you're saying is that when you make a ratio of debt to GDP, basically, in the, in the 80s, as an example of the 70s, the debt levels weren't there, that high, they were just 35% of debt to GDP. So now, let's put it in 100% terms, GDP is 100. debts, 35. You're trying to slow down what you're earning on that 100. Maybe you're earning, you know, five 4% or 3%, or something, and you're gonna slow that down by slowing down that GDP growth. But the consequences, you're also increasing the amount that you're paying the government's paying on that debt, that 35 in debt. And the impact of that is it tilts in the favor of slowing down the GDP because that's the 100 versus the other impact on the 35, which is a much smaller number a is that is that explaining it correctly? Or

Mike Philbrick 19:32
yeah, and the 35 cents, that debt is being paid by the government, to the economy. Yep. So that's stimulative. So let's say you slow the economy down by 5%. That's five bucks, but you pay 5% more in interest? Well, that's one point. 1.7 $5. Right. So together, you've accomplished a contraction. Fast forward today when we have you know, Call it calling for easy math debt to GDP is one to one. So we're trying to slow down the economy, we're trying to break the demand, we want to slow this $100 down. At the same time we have $100 in debt, and that $100 in debt has owners and we are paying the government is paying those owners that money which puts the government in a significant deficit. Well, deficit spending is stimulative. So whilst you're trying to slow down the GDP, you're also increasing the amount of money you're putting into blocks and the baby boomer generation, some of them have pensions that are indexed. So they're getting more and more money as they go through this, which is, again, they're spending that money. It's a bit stimulative. So you have these two contrary, contrary forces that are, you know, because debt is so high, that it paints the Federal Reserve into quite a corner. And we're seeing that play out.

Andrew Stotz 20:58
And just to go back to this again, what it sounds like is this is kind of a recipe for hyperinflation because the stimulative part in the numerator, which is the debt is, you know, big and significant. And the contraction part is trying to say big and growing. And a contraction part is, is equal size and slowing. Is this stagflation? I mean, we had stagflation in the past without this ratio being at risk that it's at, but I'm just curious, does this stagflation or what does this mean?

Mike Philbrick 21:39
Yeah, it can mean stagflation, it probably means that we're going to see higher rates for longer, much longer than most people would ever imagine. And, and potentially, I'm not sure if it's higher, it might be just a lot longer than people think it probably is a little higher, we're starting to get to a period where bonds have some attractiveness with respect to the yield that they have. That curve is starting to seeing them. The bond vigilantes come back again, you certainly see that law on end of the curve, steepening the bear steepen, or as they call it, and that's going to do some work as well for the Fed. So when the curve was inverted, though, that was challenging. So it'll be interesting to see is the curve reasserts itself to more normal view, if that doesn't start to take the wind out of the sails a bit more of the economy, then you layer on top of that, the geopolitical risks that we have right now. And we have to remember that the last 40 years was an anomaly on a few levels. The first anomaly is that you had interest rates, start at whatever call it 20% and go to zero. Alright, so that's predominantly declining interest rates, that's a bond bull market. And when that's occurring bonds are negatively correlated to stocks, which then the 6040 portfolio that everyone knows and loves so much, does even better even has a better Sharpe ratio. And the Sharpe ratio Pete back in 2021, of that balanced portfolio, relative it spends a lot of time at a Sharpe of call it one, I mean, the Sharpe and the portfolio's 35. So if you spend a bunch of years at one, in order to get back to the average 35, you got to spend some time below that. So you know, risk adjusted returns on that portfolio, probably going to be significantly lower. And again, the risk adjusted matters because it does affect the withdrawal rate that you could take from the portfolio. So you've got to seek other sources of diversification beyond bonds in the new regime that we have today.

Andrew Stotz 23:48
And those other diversification, let's say, for some people, they could be like land, you know, and then for others, it could be just time to get commodity exposure or what Yeah.

Mike Philbrick 24:02
Well, think about, think about your diversification. So you can have asset classes that have certain characteristics that diversify the portfolio. That's what there's also strategies like what we do manage futures in a systematic way, you know, we were trading at five different markets, and we're trading those markets long and short. Right? The challenge there is there's no intuition for that for investors, investors haven't owned managed futures products in any kind of significant form for 15 or 20 years. But so there are strategies there are tail hedging strategies as well and strategies that can pay off in the unlikely event of large corrections, which are lovely because those provide cash to invest when things are really bad. But they do drag on the portfolio for a number of years before they pay out. And there's a behavioral cost to all of these strategies. So you want to think through okay, what are my first level of responders they're just asset class. says that perform well. They're easy to buy, they're cheap and cheerful, I do have to think about how I'm balancing them. Right? So am I maximizing diversification? Am I maximizing the balance amongst those risk premiums? And am I looking at the portfolio as a whole to understand the diversification of that risk that I'm taking? Or am I letting the maniacs run the asylum? If you do those three things, first responders are your asset classes. Second responders can be some strategies that are just have been non correlated in the past. So systematic managed futures, whether that be trend or that be more full complement suite of the products of the of the factors within that are good places that have demonstrated to be able to perform in those areas. Long Short is okay. The problem with long short is you get a very low vol. So you know, again, we come back to the initial portfolio, it returns 6%, it's got a six vol. Well, if you own 10% of that, that's great. But if your portfolio is down 20, you own 10% of six, you know, the outcome is not that different. Yeah. And then you can get into the last layer defense, which I would put the tail hedging guys at night where you probably have a negative VIG on that year after year, but you know, every fourth, third 12th year it pays off big.

Andrew Stotz 26:18
I haven't gotten. I haven't gotten the black swan guy on to talk yet. My dream was to get to live on but I made a smartass comment on his Twitter and he blocked me so I'm maybe there's no. So he,

Mike Philbrick 26:34
I think in today's I mean, he's certainly got some gravitas when it comes to followers and that sort of thing. So you get people to watch. There's another phenomenon called the grey Rhino, which is clear and present danger that's ignored. And I forget the author's name, she's lovely. But they're like we have several gray rhinos. COVID was a grey Rhino. There's a pandemic happening in China. It was happening in November, December, January, but in February, everyone decided it mattered. So

Andrew Stotz 27:08
gentlemen, yeah, ladies and gentlemen, that was episode 633. Herman's name is Michelle Walker. And we talked about a rhino. In fact, Michelle and I had a really nice dinner together on the river here in Bangkok, with my mother, it was fantastic. So yeah, love it. Yeah. And

Mike Philbrick 27:29
a big fan of Michelle's work as well, we've chatted with her too. But again, I think today's circumstances are much more like a gray Rhino than they are a Black Swan. Taiwan. Is that unknown? No, Ukraine? No, you know, global geopolitical tension. pretty pervasive, actually. Yeah.

Andrew Stotz 27:50
Well, there's so much to talk about. And I appreciate you sharing, you know, all of that. I think that helps all of us to think about it. But now it's time to share your worst investment ever. And no one goes into their worst investment thinking will be tell us a bit about the circumstances leading up to it, then tell us your story.

Mike Philbrick 28:07
Yeah, it was early in my career, where you know, as so often you will be entering this business full of enthusiasm, and vim and vigor and the, you know, the, you have infinite capabilities. And, you know, this was, this is God, this is going back to 1993, four or five in that era. Anyway, there was, you know, in Canada, there's lots of mining going on, and there was some mining stocks. And, you know, I'd started in the business that wasn't making a ton of money. But, you know, said, Well, you know, I forget what UCR was a similar trade on Vancouver. Anyway. I remember that. I don't remember the name. But I bought it because a guy told me about a thing like, exactly the stuff you're not supposed to do. I'm at a urinal, and a guy tells me what to stock. And I'm like, That sounds amazing. Of all the research, and you could do, and I don't think that was the urinal one, but of all there, he was sort of like, I'm like, What a great idea. And it wins, and have a couple more wins. But they're not because I'm a genius. It's because that area was in fire. And so emboldened with early success and massive ignorance, I wiped all of that out in no time to a zero easily so the funny thing is about this game is that when you think you know something, I have this weird quirky now if we're doing well, I'm terrified. If we're in drawdown, I'm actually pretty happy. Because I know both of those. And so I'm always kind of looking at going well, drawdown means people should be getting in this is actually this is when you should be excited. And when you're like everyone's singing your praises, and they're inviting you to cocktail parties and parading you on their shoulders. You need to leave that party because As you're going to be cleaning up soon, and cleaning up is never fun. So, you know, early in the career doing all the mistakes you could do buying stocks that I have no idea what they do on tips from people who have no idea what they do. And then actually, a couple of wins to embolden you to put more money in, and it just being eviscerated. Like it's just the, it's the best lesson ever. It's just so good.

Andrew Stotz 30:28
Can you remember a day when it was like, back in those days where you're like, I gotta stop this or something's wrong or something like that?

Mike Philbrick 30:39
Ah, no, I think I was so stupid. The head I was just, I just thought I, you know, I don't understand why it's not working. It always works. I would do this and it would work. And I would do this and it would work. And I would do this and it would work. And then I did it and it didn't work. Well, of course, I just average down. Of course, that's what you would do at that point, you would just add more money you put more money in. So you know, I didn't just lose the capitalized started with and build it. I built it up and said, Well, this is working. I'm a genius. Of course. And that just withered away to nothing like I mean, Twitter. And maybe that's not the right word, anyway, dwindled away to nothing. Right? The companies that were left in that portfolio overall delisted and con, Moose pasture resources special. Anyway, so just because you're winning, doesn't mean you're smart, or you're good at these things. So that led me through some journey of introspection led me to be a lot more systematic. You know, what is it that I'm invested in? What should the bat size be? How much risk Am I willing to take? And, you know, it really is people have to look at their personality types. Because I've seen a lot of investors who've done very well ignoring risk, but they've also ignored it in companies that were much more major than this silly nonsense that I was looking at in those early days. But that still doesn't guarantee anything you know, you've had GE do exceptionally well, and then do nothing for 20 years, Pfizer was another one. All of them go through these long periods of quiet times. Yeah. And, you know, by the time your buddy tells you about it, or the cab guy tells you about it, like, really, what's the edge by the time it's in the media, like if it's if the investment ID you have is on the Today Show, you know, make sure your stops are tight, too

Andrew Stotz 32:43
late, too late.

Mike Philbrick 32:46
While you're getting the last people in on that one, but make sure you stop who's getting tight.

Andrew Stotz 32:51
Exactly, or CNBC. So one of my takeaways I was just visualizing, like the market is a hornet's nest of activity. And everybody is competing against each other. And there's some very brilliant people on the other side of every trade. And if you're an amateur, and you decide, hey, I'm just going to put my hand in this Hornet's Nest, without any protection without any risk management without a glove or anything like that, or a suit. It's just guaranteed you're gonna get stung. And so this is a great story that helps everybody, particularly in the beginning, who's saying, I'm going to start I found some really interesting things. Make sure you've got some protection on before you go into that Hornet's Nest, because particularly when you don't know much about it, it can be brutal. Now, let me ask you based on what you learned from this story, and what you've continued to learn, what one action would you recommend our listeners take to avoid suffering the same fate?

Mike Philbrick 33:49
Well, I think that it does start with diversification. Right? It does start with, you know, kind of thinking but just remembering that you don't know as much as you think, you know. Right? It come back to our earlier discussion. He's just standing there with a handful of sand and you think that is the world and you're but you're standing on a beach and you don't even see the beach? You just so what does that mean that you should do? Well, it means you know, maybe you should diversify, maybe should be less confident. Maybe you should manage risk with stop losses, maybe you should manage risk at the portfolio level on an ongoing basis. There are a number of ways to take this approach to take different approaches. So there's, you know, I'm not being totally prescriptive and saying you must do this. I think the answers lie with it. Like understand what kind of investor you are, can you withstand 90% decline? Can you buy Amazon and get three 90% declines? Can you buy something and they can ignore it? You know, I had a client who was getting a quarterly dividend that was her ACB on Royal Bank in Canada. Why cuz she owned it for 50 years. hers, she never blinked ever, World War, whatever, you know, pestilence, you know, comment could wipe out the didn't care don't care, ignore, ignore, ignore. And you know, this is the thing between individual securities and more index based things, indexes don't tend to go bankrupt. I mean, we have some examples Russia closed their stock market. And, you know, there are examples of that. But if you think about it through a global lens, you can own those assets for a very long time, but they will go through long periods of underperformance. And you know, Soviet think about your taxes, but think about how you would What's your internal preference? Can you be honest with yourself? Are you someone who's super nervous at the first sign of trouble loses? I know, a lot of great investors that, that's their thing. I mean, they get a whisper, and they're, they're out of everything in two seconds. Now, there's a cost to that as well. But you know, if you know, that's kind of your proclivity, then you know, it, the answers lie within I would say, and largely, but that, you know, there's some big, you know, block, you don't over leverage, that's the other thing.

Andrew Stotz 36:14
You know. And for the listeners out there, the book that you're referencing is Zen and the Art of Motorcycle Maintenance by Robert Pirsig. And he bought that book out in about 1970s, you know, mid 1970s, he didn't think it was going to be much of a hit, but it ended up selling about 5 million copies in its initial launch. Unbelievable.

Mike Philbrick 36:39
cult classic. It's a wonderful book, too. It's, it's, it is a lot about that looking and were heard. And it there's a twist at the end, if you haven't, if listeners haven't read it, that is actually a wonderful book to read.

Andrew Stotz 36:53
Yeah, I'm gonna put a link in the show notes for that one too, along with your book. So, but let's, let me ask you, what's the resource that you'd recommend for our listener? I mean, first thing is, who is your book written for? And who should get it to learn more about the topic?

Mike Philbrick 37:08
So our book is written for pretty much I think your listener, it goes through steps that you would take, first of all to maximize diversification, how you might use the factor of momentum to enhance that. So how might we add prediction to preparation, so a tempting a way to tilt. So you're prepared because you've got this global asset allocation framework, you've got commodities, you've got long bonds, you've got all of these asset classes that perform in these different time for these different circumstances. And then we tilt that with momentum, a well known factor that helps performance, owning more of what's done well. In fact, it's kind of the opposite unless of what's done really badly. That's how you should do it, you don't really need to own more of what's done really well just don't less of what's dragging on the portfolio from a momentum factor that enhances returns, it just gives you a framework to think through what we're talking about today. Right? What we'll have, I think that that would be very, very helpful place for people to start. And it also contemplates the financial planning side of it to where, you know, investing is hasn't a means. I mean, there's a means to an end, the end is that you're foregoing consumption today. So at some point down the road, when you aren't working or don't want to work anymore, you can use up that consumption. And withdrawing from that portfolio has some consequences as well. So I'll

Andrew Stotz 38:35
have links to that in the shownotes. Ladies and gentlemen, adaptive asset allocation. And here's a little thing on the Amazon, it says, and it walks you through a uniquely objective and unbiased investment philosophy and provides clear guidelines for execution. All right. Last question. What's your number one goal for the next 12 months?

Mike Philbrick 38:56
My number one goal for the next 12 months is to get my firm to a billion and a half. And that's exciting is very selfish goal. But that's what it is. Yes. That I think so too.

Andrew Stotz 39:09
And where do you think that's going to come from? What are the type of people that would be that would that would want to put their money into that?

Mike Philbrick 39:19
Well, I think that we might have some tailwinds. For all the reasons we've talked about today that there are certain types of diversification that may not work as well. And so you know, as that plays out, I think will attract more attention. In the return stacked universe or return stacked portfolio solutions. We have model portfolios and basically their word stacking your ticket beta, stock, beta, Bond beta and stack on top of it. A managed futures trend following replication strategy that's goal is to replicate the trend index. And those managed futures trend indexes tend to have those diversifying effects that we talked about And we think are going to become more and more important. So we are seeing advisors and investors today pay more attention to the geopolitical and macro framework that's going on. And they are experiencing the lack of diversity they're getting from their bond portfolio. And so they're starting to look at these products. And so the products are not high fee, they're lower fee, they're a beta, plus a tracking of strategy that typically has done well, in times like this, the 70s were a wonderful time for trend following manage features. So I think that will be a good source of returns and learning. We just launched those this year. So we're excited about the opportunity for what those might bring in, then we have some other products as well.

Andrew Stotz 40:46
And what's the best place for people to go to, I mean, obviously, to follow you is one thing, but the other is just learn about strategies,

Mike Philbrick 40:53
invest result.com, and then return stacked ETFs and restrict return stock portfolio. solutions.com. Fantastic. And well, that'll give you lots of learning as well. And one of the books I've read was the Tao putao. It's a book from the 70s. And it's very small book, right? Oh, it's the Tao of

Andrew Stotz 41:22
the Tao of leadership. No, it's

Mike Philbrick 41:25
asset management. But it's a very zen take on how you would manage your portfolio. And I think that's kind of a wonderful, neat, quirky book that is very interesting. It's out of print too. As

Andrew Stotz 41:42
well, management. Gotta look for that.

Mike Philbrick 41:46
I have it on my Yeah, shelf. It's just not here. It's just in the other but it's a good if you want I can grab it for it. But just, it's entertaining and small

Andrew Stotz 41:56
outlets get it afterwards, you sent me the link and then I'll put it in the show notes so people got it. Alright, listeners, there you have it. Another story of laws to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. And I think we've made a step forward today. As we conclude, Mike, I want to thank you again for joining the mission and on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Mike Philbrick 42:27
Um, yeah, stay true to yourself.

Andrew Stotz 42:30
Beautiful, beautiful. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your words podcast host Andrew Stotz saying. I'll see you on the upside.