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 era of on a regular basis buyers.
Date Recorded: 3/8/2022 | Run-Time: 47:50
Abstract: In at this time’s episode, we kick it off with an outline 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 buyers and preserve them invested available in the market throughout unstable durations. Then we hear what different asset lessons Clay is pondering of increasing to sooner or later.
As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith.
Sponsor: For those who’re 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 at all times evolving. Take heed to The Lively Share on Apple Podcasts, Google Podcasts, Stitcher, Spotify or TuneIn or go to right here.
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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 advanced over time
- 21:49 – Clay’s ideas on hedging
- 27:39 – Clay’s ideas on the way forward for Titan
- 30:42 – The profile of the common Titan person
- 40:32 – Fundraising from a16z, Will Smith and Kevin Durant
- 41:30 – The Energy Legislation: Enterprise Capital and the Making of the New Future
- 43:36 – Clay’s most memorable funding
- 44:25 – Study extra about Clay: titan.com; Twitter
Transcript of Episode 401:
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Meb: What’s up, y’all? We acquired a very good 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 era of on a regular basis buyers. In at this time’s episode, we kick it off with an outline of Titan and the agency’s funding philosophy. Clay touches on a few of the completely different choices, which now embrace crypto. We hear in regards to the firm’s content material technique will assist each educate buyers and preserve them invested available in the market throughout unstable durations. Then we hear what different asset lessons Clay’s pondering of increasing into the long run. As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith. Please take pleasure in this episode with Titan’s Clay Gardner.
Meb: Clay, welcome to the present.
Clay: Thanks for having me, Meb. Excited to be right here.
Meb: The place’s right here at this time?
Clay: So I’m in New York Metropolis. We’re catching a bit of little bit of spring right here.
Meb: Man, I miss it. I have to get to New York. Bryant Park, perhaps Might. It’s been a few years. What’s the vibe? It’s good.
Clay: Issues are good. Yeah, they’re beginning to get a bit of bit extra reopened. So a variety of the orifices that folk put up because of COVID, there’s eating places have spilled over into the streets, all that great things. Individuals are simply searching for a purpose to get out and have the New York Metropolis spring-summer. So trying ahead to that.
Meb: Nicely, I’ll be a part of you right here in a couple of months, we make our approach 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’d 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 mainly push a button and get invested with professional managers throughout over time. Just about any asset class, particularly targeted on those who traditionally haven’t been accessible to retail buyers. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We finally expanded into crypto final summer season. So at this time we’ve 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 crew. And then you definately’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 house and it simply type of got here to me. I feel lots of people affiliate the phrase hedge funds and PE with the phrase titan. I feel it’s like one of many extra frequent in the event you Google “hedge fund Wall Avenue Journal” or “hedge fund New York Instances”, it’s one of many extra generally cited phrases in these headlines is “hedge fund titan XYZ buys a $50 million mansion within the Hamptons.”
And so I feel Titan for us, one, I feel it indicators to we’re in battle, type of combating in opposition to the established order when it comes to legacy cash managers. But in addition Titan is type of this type of revered determine of authority and standing, whether or not its monetary standing or simply authority on this planet. And I feel it touches a nerve for lots of our buyers, who’re traditionally used to not with the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.
Meb: What do you 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 aspect. 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 principle, I don’t know if muscle motion’s the appropriate phrase, however what’s the massive wedge or impression 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 downside we’re fixing is folks know they need to be invested in shares. However a variety of them don’t have the time, information, or sources to do it themselves. They need greater than common. They need greater than they imagine they’d 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 considered as a distinct segment and nonetheless is by many, however we truly imagine it’s a large market. We expect it may very well be nearly all of at the least youthful generations.
For those who ship the appropriate infrastructure, you construct the appropriate tooling for them to comprehend this doesn’t should be your guardian’s mutual fund, which is a five-letter ticker the place you’re taking a look at a 5-year, 10-year, 3-year efficiency chart and that’s the product expertise. You will 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 progress at this time is at the least confirmed to us that it’s perhaps it’s a area of interest to many individuals, nevertheless it’s truly fairly a giant and fast-growing area of interest and really profitable one.
Meb: Inform us a bit of bit about your base first choices, in a world the place Vanguard is mainly 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 now have 4 merchandise at this time, three of them are in public equities. We began with the standard “blue chip,” some firms which might be family names, the FANG shares. We’re large followers of a lot of these companies, they usually’re wildly worthwhile and we predict they deserve a slot on the roster of large-cap U.S. equities. There are additionally some under-the-radar names many individuals 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 a bit of over 4 years now.
The technique was designed, Flagship, with the concept that we are able to tease out indicators to determine 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 purchasers put nearly all of their Titan pockets share in at this time, for a handful of various causes from a threat tolerance standpoint.
The second is we’ve type of moved down the market cap spectrum. So we launched a product 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 firms. A number of the firms we’ve recognized have been acquired, some have been spin-offs, some have been activist or transformational M&A types of tales. So these are the place we’ve an in-house analysis crew 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 known as Alternatives, and it is extremely opportunistic in nature.
The third we launched was Titan Offshore. Sounds precisely what you assume. It’s worldwide securities, primarily by way of with checklist equities and ADRs. So we’re not investing in any new offshore markets instantly presently. But it surely’s a good way for us, we predict, to offer our purchasers publicity to worldwide markets the place…and I do know you’ve been a giant proponent. I as properly assume that a variety of Individuals have under-invested in developed and rising markets. August of final yr, specifically, has been rocky. And it’s been a decade interval of relative underperformance between developed rising markets within the U.S. However I feel sooner or later that tide could flip, we need to be sure our purchasers have publicity there in some type.
After which lastly, is Titan Crypto. That is actually thrilling. This was by no means one thing we supposed to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when folks…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on transferring into digital belongings this quickly. It was very a lot, it was by far probably the most demanded retail product we’ve ever had.
Individuals had been successfully yanking it out of our palms. And so we employed an analyst, constructed a crew round it. And the aim there’s basically blue-chip liquid cryptocurrencies, crypto-assets. So we personal Bitcoin, we personal ETH, we additionally personal different layer 1 blockchains, after which some extra esoteric cryptos. However the aim there’s we took what we imagine is type of the S&P equal in crypto.
And to your earlier query, like what’s the aim from Titan? The aim is, one, monetary outcomes. So like over time, investor on our platform, we imagine, for us to ship worth, ought to over a 3 to five-plus yr rolling foundation have gotten extra worth than they may do, both on their very own of their self-directed account, or a mean low-cost index fund.
And two, which we’ll in all probability dig into extra, they need to really feel considerably smarter and extra educated on how their capital is invested and why. For instance, the Russia Ukraine scenario which is occurring as we’re doing this interview, folks ought to know precisely how they’re positioned. What’s my Russia publicity? How does the U.S. ban on imported oil from Russia have an effect on? What cash ought to I be including on this volatility? Ought to I be dollar-cost averaging?
We’ve seen that truly instilling confidence and explaining alongside the way in which is definitely actually necessary to really getting the monetary worth. Like, you need to keep invested to really reap the returns of the companies that your supervisor’s investing in. So I type of view them as synonymous. Lots of companies will use content material advertising or schooling as a type of progress lever IQS or product.
Meb: You guys been at this for what is that this 4 years-ish on the principle Flagship? Inform us a bit of extra. So is that this a method? Like, what kind of turnover does this have? And are you guys…is that is simply Clay, waking up within the morning and saying, ‘You recognize what, I’m the PM and these are all my decisions,’ you bought a crew? After which how do you guys go about making the requires what goes in, what comes out? For most individuals, that’s a, correctly for an lively technique, fairly concentrated portfolio so inform us the way you guys put this collectively.
Clay: It’s undoubtedly concentrated, 15 to twenty securities, typically talking, we conviction-weight them. So the default for any place dimension is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for a couple of completely different causes. One is for certain companies simply have a risk-reward prospect that we predict smaller dimension can justify the upside. So, for instance, as of this writing, we’ve a small place in Coinbase in Flagship. For a handful of causes, we imagine it’s each basically low cost and misunderstood. But in addition we imagine if and after we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We now have different securities like Microsoft or Apple, that are extra considerably higher-weight, nearer to mid to excessive single-digit share of the portfolio.
However stepping again, I’d say it’s very very similar to the Terry Smith or Buffett-like technique in that. It’s like three quite simple rules, like discover nice companies that we imagine have entrenched aggressive moats, aggressive benefits. That is the type of sleep at night time, get up in 10 years. If the markets closed for 10 years, we gained’t bat an eye fixed, feeling nice that we might have the ability to get up and need to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply be sure we don’t overpay.
After which your query on turnover, the world modifications. And so I’d draw the road between us and the standard notion of like a Buffett, I truly don’t imagine in buy-and-hold, I imagine, buy-and-hold, and I’m not going to say this time is completely different, 4 very harmful phrases, however this time, it type of is completely different. Take into consideration what we’re going by way of proper now, even since November, the overall rising price and progress drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of buyers who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being a terrific enterprise.
Behind the hood, Meb, what occurs is we’ve a crew of roughly 60 analysts. A few of them hung out at personal fairness funds, household places of work, hedge funds, others at sell-side companies for his or her analysis, or information analysts. And what we’re attempting to do internally is consistently construct a backlog of companies which might be on our buying checklist at a sure value. So validate these are high quality companies, there’s one thing particular about what they’re doing that may’t be simply replicated.
These are in secularly rising industries or markets, some could also be extra cyclical, some could also be extra secular. However typically, these are industries for fixing a transparent downside. 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 monitor document of delivering worth, after which a margin of security.
So we don’t need to pay by way of the eyeballs for a terrific enterprise. As a result of if something, if the previous couple of months have taught us something, it’s like I mentioned, you may pay 40 occasions gross sales for a terrific enterprise for a Snowflake or a Datadog, the market goes to punish you throughout sure environments. You’re going to pay up for that high quality, maybe an excessive amount of. And so ensuring we’re not attempting to leap over 20-foot hurdles from a valuation standpoint.
So when it comes to turnover, it sometimes I’d 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 modifications per quarter. I’d say the turnover has been larger of late as a result of we’ve simply seen much more alternative. Each to take chips off the desk late final yr, significantly within the software program sector, the place I noticed a lot a number of growth, because of QE, and unprecedented stimulus. And lots of people paying up probably approach an excessive amount of for progress.
So it’s a mixture of artwork and science is what I’d say. Because the PM and CIO, sure, I make the ultimate calls on selections. And I’ll oftentimes spitball concepts, companies I discover by way of my community of founders, firms which have IPO’d. So I’ll be a supply of concepts and serving to push again and satan’s advocacy and that type of wholesome threat administration debate internally. However I’ve a terrific crew round me that does the arduous 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 terrific crew right here.
Meb: So how does that crew work? You guys do like a each day weekly obtain assembly the place folks had been pitching shares? As a result of a variety of hedge funds have completely different… I’m not attempting to match you on to a hedge fund however a variety of lively funds have a unique course of. Generally it’s the lone wolf PM, typically it’s crew, 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 purchasers, proper?
Clay: That’s precisely how I give it some thought. Give it some thought type of like a mannequin portfolio. We now have 50,000-plus purchasers, and every of those purchasers has his or her personal SMA or individually managed account. In order that they have a brokerage account. They’ll pop in, they will see the securities we maintain on the finish of each month. Clearly, they’re partaking typically each day, weekly with the app the place they will see video updates from our crew, tax updates, they will ask questions. There’s community-driven options so you may pop in at this time and see what questions have been requested by different buyers on our platform, upvote, and so forth. It’s a extremely cool method to keep knowledgeable and engaged.
However when it comes to our course of, we didn’t actually reinvent the wheel right here, having spent a while on the buy-side myself. I’ve seen what works, what doesn’t. I feel for our temperament and our funding mandate, we do a proper Funding Committee. So each determination 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 typically of the assumption of everybody needs to be macro conscious, and attempt to cross-pollinate and be taught and be increasing your circle of competence. We must always ideally have some semblance of like a compass for focus. And in order that’s what we do internally.
So we’ve a devoted analyst who’s targeted on client 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 acquainted with. They’re consistently attempting to develop that, as a result of clearly, there’s new points, there’s firms IPLA, there’s M&A exercise. So consistently attempting to construct out their buying 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 consistently re-underwriting and from their viewpoint, there’s this different title on my buying checklist I’ve been doing work on. Is that this a better alternative value than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after latest market volatility than this present software program title we personal? And in that case, let me take that to the committee and pitch that change. And so it’s actually serving to we’ve a delegated satan’s advocate, we’re not a yes-man, or yes-woman kind of agency. We wish wholesome debate, we need to perceive the bear case, have the ability to refute it higher than the neatest bear on the road. I feel that’s a extremely sensible remark that Charlie Munger made. It is best to have the ability to refute your individual bull case, higher than another bear, debate in opposition to your self, and nonetheless come out feeling excited.
After which my position is absolutely to step in. After which from a threat supervisor standpoint, I’m being hyper-aware of like, what are our sector overweights or underweights versus the benchmark? What are elements that we could also be inadvertently lengthy? Are we tremendous lengthy momentum, are we tremendous quick high quality, are we quick worth? After which, that’s the place I’ll type of take the analysts’ collective knowledge and suggestions and attempt to dimension issues appropriately. Strive to ensure we’re not too far tilted in some way. So it’s actually wholesome course of. And we’re clearly studying, we don’t faux to know all of the solutions. However up to now, it’s labored out rather well. And I feel it aligns incentives in a extremely good approach.
Meb: If I bear in mind in years again, I’ve been following you guys for some time, it’s good to see the expansion, kudos. And I bear 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 at all times doing? Do these nonetheless play a job? After which how do you consider type of incorporating the varied 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 deliver that up, Meb, is as a result of within the early days after we had been a one-product firm, we had Flagship, like our blue-chip technique, I used to be the one analyst and PM. I’d one director of analysis who would assist me pull information and construct fashions and so forth. However we had been a extremely lean, agency. And so naturally, while you’re constrained from a useful resource standpoint, it’s useful to fish in a pond that you simply at the least no different good fishermen are heading for. And so 13Fs, as you talked about, for individuals who aren’t acquainted, 13Fs are simply quarterly filings that almost all hedge funds or RIAs above a sure threshold within the U.S. have to file. And people present all their lengthy holdings, in order that they don’t present any quick holdings or some esoteric securities derivatives aren’t proven.
However in the event you’re a buy-and-hold investor and a long-term buy-and-hold investor, a 13F is a reasonably good proxy for like what you personal quarter to quarter or yr to yr. And so we used these within the early days, identical to I did at my previous agency at Fairlawn and the fund I used to be at simply after Fairlawn, as a very good looking floor for like what are some attention-grabbing concepts. So like, there are many good folks on the market, fund managers I like, investor letters I learn. And having a look and serving to use that to tell what the buying checklist needs 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 least know which rocks are price turning over. In order that knowledgeable a variety of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised a bit of extra enterprise capital, we’ve actually bootstrapped our approach and began rising income, and acquired worthwhile, can we construct up the crew. So we went from simply myself and a colleague to now a crew of eight funding analysts, employed a analysis analytics affiliate from AQR. We constructed out an information science crew internally. And so consequently, we’ve been in a position to transcend simply 13Fs and have the ability to fish in lots of, many various ponds and in addition entry a much wider swath of information.
On the identical time, we noticed COVID hit in early 2020. And I feel we realized that what’s a transparent, name it the price aspect of the cost-benefit of utilizing a 13F technique. The associated fee is during times of exceptionally excessive volatility, even getting information on a 90-day delay, you’re lacking a significant image of what’s happening beneath the floor of those managers. So for instance, in the event you bear in mind, like, COVID actually occurred in March 2020. We didn’t actually begin to see the ramifications of how folks would react till April, Might. Individuals repositioning from the bodily out-of-home firms to the work-from-home beneficiaries, the stay-at-home story shares, just like the Pelotons to the … and so forth, you didn’t actually seize that in Q1.
And so in the event you had been relying strictly on 13Fs, which once more, are solely up to date as of quarter-end, you’d be taking a look at a completely completely different image. You’d successfully be trying on the world as if COVID had not existed. And also you wouldn’t have the ability to have a clearer, extra up to date image of the world till that summer season, after which you possibly can argue a variety of the chance was capitalized on. So we heard from our consumer base loud and clear that they needed us to turn into extra lively over time.
And so it was very a lot a mixture of us with the ability to fish in additional ponds and be much less resource-constrained, and be extra true and tried high quality progress buyers, not simply being wed to 1 particular supply of concepts. But in addition in some ways purchasers had been like, ‘Guys, we would like you to be extra tactical. We wish you to have the ability to have a look at issues that perhaps different funds aren’t taking a look at, we would like to have the ability to take benefit intramonth, intraquarter, versus being a “slave” to the method’.
And so it was a mixture of push and pull each client-led and internally-led. I feel we nonetheless acquired to a extremely enjoyable place. And actually importantly, I feel a greater place for buyers long-term, which continues 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 in addition have the ability to take part within the volatility and make the most of dislocations in a approach {that a} really systematic or completely quantitative technique in any other case wouldn’t have the ability to do.
Meb: So are you guys nonetheless desirous about hedging as properly? Or is that much less of a job than at prior occasions?
Clay: No, that’s a very good name out. So all the things I’ve described up to now, you’re spot on, is on the lengthy aspect. We’re not a protracted, quick agency. However you may say we successfully supply customers quick publicity as a result of we do hedge. And so I feel we chatted about this during the last couple of years, Meb, at completely different time limits, we don’t presently use leverage outright. So we don’t quick futures, we don’t purchase put choices. So we’re truly not taking particular leverage or shorting securities outright. However I feel it’s necessary to offer folks a method to scale back beta.
So let me take a latest instance, we truly began hedging, we placed on inverse ETFs. So mainly going alongside an inverse instrument that strikes each day reverse the market in a one to 1 approach on the finish of February 2020. That was, in hindsight, a reasonably prescient determination. Heading into a kind of, I feel it was a 30-plus per cent peak to trough drawdown on the S&P in only a month, we must mitigate the diploma of that drawdown considerably. I feel it was solely 70% or 80%, draw back seize that our purchasers had versus had that they had been absolutely invested within the index.
So a living proof of getting an lively analysis crew have the ability to monitor. We’re not macro buyers however we’re macro conscious. And after we get sure information 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 mentioned, ‘Okay, we predict it might behoove us to placed on some universe CTF publicity to cut back market publicity, i.e., beta for purchasers’.
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 approach you have 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 imagine like charts finally do replicate sentiment in markets. And a variety of occasions they are often telling you one thing that you could be be lacking.
And so a mixture of technicals, and in addition some basic information we’ve been monitoring led us to imagine that, opposite to the standard purchase and maintain index buyers, buyers in Titan ought to have their beta decreased, and they need to be ‘hedged’. So it’s one thing that we’re offering, it’s fairly distinctive within the total scheme of funding advisors. That is clearly par for the course in long-short hedge fund land like that is, most long-term buyers are outright shorting securities, and perhaps they’re shorting futures as properly.
Leveling up, I feel it’s actually thrilling to have the ability to supply one thing like this to retail buyers, particularly not taking leverage. There’s something I feel we as a platform be taught from the GameStop, AMC period, is that there’s an actual value to shorting securities, it could actually actually take your complete agency down, if not correctly managed. So this enables us to hedge for our purchasers with out taking the types of dangers that would 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 purchasers, you bought 50,000 folks along with your cellphone quantity now, Clay. And I’m joking, perhaps it’s simply the app, however that’s a variety of buyers when the world’s going loopy because it has been the previous couple of years. I imply, it’s type of at all times going loopy, after all, however significantly loopy now, is there type of a framework the place you consider that? And the way set in stone is it desirous about that type of image of hedging as a result of it may be a subject that’s sensitive for lots of people?
Clay: I agree. I feel in a dream world, we might be 100% internet lengthy 100% of the time. And I feel each approach you chop it, empirically talking, try to be invested more often than not. Markets do go up and to the appropriate. 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 predict it’s extra like 2% or 3% going ahead? We may debate precisely the place we shake out. However I feel GDP, productiveness progress, these types of issues take international economies up and to the appropriate, and markets are likely to observe. So it is smart why try to be absolutely 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 approach of claiming like, for each $100 you might have invested, how a lot are literally outright being uncovered to market threat? It ought to typically 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 properly.
So it’s actually necessary, I feel, for folks to comprehend that money is an funding determination. It’s zero per cent yielding safety and I’m being a bit of bit hyperbolic, 0.004% of no matter your native banks paying you, for all intents and functions, it’s a zero per cent yielding safety, unfavourable in actual phrases now given the place inflation’s heading. It’s a selection that you simply actively make. And we, as an lively supervisor, have added that final couple of years to our toolkit, as a method to scale 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 purchasers, we’ve a 5% hedge of these $100, about $5 are allotted to hedge. For average conservative purchasers, 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 taking a look at and lots of sectors, don’t see any alternatives the place you’re not overpaying for the standard of progress you’re getting. Otherwise you’re not going down-market and shopping for “Low-cost” securities, however with all types of landmines from a aggressive dynamics from a secular progress standpoint.
So, in different phrases, there’s no straightforward solutions on this market, money can typically be one of the best different. It’s a supply of dry powder in order that if and after we clearly imagine when the macro image improves, we may make the most of it. So over time, I feel we’ll shake out $2 of our $100 a consumer could have invested with Titan, relying on their threat profile. They’ll see someplace between $50 to $100 of that 100 be absolutely in danger available in the market. We are going to by no means be completely market-neutral, nor do I feel we needs to be. We’re not market timers.
Meb: So that you guys have been constructing this platform, 50,000 buyers, rising the AUM, look out within the horizon, what’s the long run seem like for you guys subsequent month, subsequent yr, subsequent couple years? Give us a peek behind the scenes, what can we stay up for for Titan and choices, group, all that great things?
Clay: It goes a lot additional past blue-chip equities, mid-cap equities, blue-chip crypto. Issues which might be on our thoughts, Meb, personal belongings, huge, in my thoughts, a contributor to the wealth divide but in addition simply clearly inaccessible to unaccredited retail buyers. Issues I’m pondering by way of from a personal asset standpoint, enterprise. Placing apart the market to market nature of the enterprise, which I feel in and of itself if correctly understood, and gauged to somebody’s threat profile, buyers are human by nature, and seeing scary-looking charts everyday 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 feel, the good benefits that the enterprise group has is there’s undoubtedly volatility in personal firms, you simply don’t see it every single day. Like I do know there are firms within the personal markets being marked up being marked down each week, each month when it comes to their intrinsic worth, you simply don’t see it as an LP. Whereas I may joke and say that’s unfavourable, I truly assume it might be a optimistic to retail buyers.
I feel getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise progress companies with a correct sizing, once more, gauge to their threat profile, so this isn’t going to be 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 every single day, perhaps it’s month-to-month, quarterly, yearly, you perceive the charges, you perceive the danger profile, that’s one thing that retailers by no means had entry to.
One other large sector is personal fairness. Actual property is one other one. I may go deep down the crypto rabbit gap of all of the attention-grabbing issues I feel are occurring from like a staking and lending standpoint. So we’ve a variety of work to do. It’s not going to be as straightforward as our first 4 merchandise. I’ll let you know that a lot. It’s not going to be as straightforward as rent a crew from our community from buy-side, sell-side analysts, create the technique, create the analysis course of, and increase, flip a change on. There’s much more infrastructure and tooling that must be constructed. B2B relationships should be constructed to realize a few 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 tougher to personal with 50,000 folks.
Clay: No, I completely agree.
Meb: How do you consider it or you could not know but? I imply it might be it’s now within the course of.
Clay: No. Lots of the arduous work we’re doing proper now is determining what I name fund operations, a variety of that like back-end stuff. Do we have to use SPVs? Do we have to use this attention-grabbing closed-end fund construction, like what are the nuts and bolts we have to do on the again finish to really make it potential for a retail unaccredited investor to spend money on SpaceX or Stripe? I imagine it’s potential, it was a extremely, actually arduous downside. That is while you get into like custodial and clearing preparations, and all types of bushy stuff. It’s very, very regulatory intensive, however I feel large issues like this are price fixing. As a result of in the event you resolve it, you’re speaking about trillions of {dollars} of capital that may hastily be unlocked for retail and I feel it might typically be a a lot better world.
Meb: It’s going to be enjoyable to look at. What’s the profile for many of your buyers? Has it modified over time, as you’re onboarding a variety of digital native customers? I assume it skews youthful, however you possibly can appropriate me. And the place are you discovering most of those pals, is it referrals? Is it by way of social channels, Tremendous Bowl adverts, what?
Clay: It’s humorous you talked about that. We did our first Related TV marketing campaign, it was at a couple of East Coast airports on AFC/NFC Championship Sunday. So we truly are testing some greater bets when it comes to out-of-home consciousness, however…
Meb: We had been joking on Twitter the opposite day I used to be like, we tried a pair adverts in Barron’s. We’re very curious and wish to attempt issues out at small dimension and at all times 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 acquired one response. I do know we acquired to at the least one individual. Okay. Nicely, inform me, TVs and airports?
Clay: Related TV, it’s enjoyable. I volunteered myself to do the industrial. So starring yours 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 pals. I’ve had folks I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to adverts and I noticed a industrial.’ It was type of a cool second. No, however for us core demographic, the mode is 30 to 35. That’s type of the candy spot, 30, 35-year-old. I name them mid-career professionals, demographic of those lots of people from like a profession standpoint are in tech, are in finance, consulting, actual property, a variety of founders, entrepreneurs.
So these are people who typically 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 need that translated to investing. And a variety 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 go this to the consultants.’
We’ll additionally get a variety of people that come from the standard like robo-advisory, like taxa world, wanting extra. Like look, ‘I do not know what’s happening, I need to take part and be extra lively, actively concerned. Sure, I’d clearly love higher than common returns.’ And so we’ll get a variety of the standard robo and in addition 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’d say folks which might be in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m not likely happy with any of them. I’m actually good at my craft and aspire for experience every time I do, I want I may have that for my cash’, is type of just like the core downside and consumer-type that we see. Clearly, as we launch extra merchandise, and in addition account varieties like IRAs, we’ve additionally seen a extremely attention-grabbing demographic shift. So like we’re seeing folks now open accounts for his or her spouses, or they’re asking us to open custodial accounts for his or her children. They’re rolling over outdated 401(ok) cash.
So I’d say like the subsequent time we chat, Meb, like the buyer kind, age, demographic will in all probability change. And I feel one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you deal with 20-year-olds for the subsequent 20 years? So at this time’s 20-year-olds are going to be 30-year-olds in 10 years. Are you at all times targeted on that very same younger archetype? Or do you develop along with your investor base?
That’s type of an attention-grabbing downside and problem we’re pondering by way of, I feel it’s going to be a bit of little bit of each. I feel we’d like to ensure we’re rising and being good, considerate about including different account varieties, options, to ensure folks can name Titan a spot residence for the subsequent 40, 50 years. However we don’t need to be too many issues to many individuals. We now have plenty of various things we are able to do. However when it comes to the place we discover that, it’s largely natural, it’s largely referrals and that.
Meb: One of many cool 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 desirous about, about incorporating that person base as an asset for the platform too. I’ve seen a variety of attention-grabbing whether or not it’s group suggestions involvement. For many who haven’t opened a Titan account, and it’s titan.com by way of 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 quick future?
Clay: It actually runs the gamut. Our aim is like we’ve various kinds of folks which might be from all walks of life, and have completely different life, completely different routines. So we’ve people who do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF after they need to hearken to a podcast on the practice, or on the subway or within the automotive. We now have each day audio notes, we name them content material franchises. Content material franchises are mainly we’re attempting to construct rituals the place we are able to meet prospects the place they’re and meet buyers, no matter their routines or habits are, get them the data they should know from the portfolio managers, the appropriate media, run on the proper time. So for these types of individuals, we’ve a each day, fast minute to two-minute audio notice. Just a little mini podcast they will hearken to and get the three issues that matter for his or her portfolio at this time.
Meb: Individuals hearken to that?
Clay: Individuals hearken to it, that was some of the engaged franchises we’ve. We even have an e mail type. So we’ve very first thing in your inbox every single day it’s a e-newsletter known as ‘Three Issues’, the three most salient issues we imagine that you must know associated to the world of enterprise investing and the way we’re managing capital.
Meb: It’s humorous to consider type of the behavioral aspect of that, too, as a result of we’ve put out a variety of content material over time. And I really feel prefer it’s virtually a barbell, the place there’s the people who need to interact that. However then there’s the opposite folks which might be like, ‘I don’t even need to hear about it as a result of I didn’t even know I needs to be worrying about this’, you already know. And so it’s at all times an attention-grabbing contact level on is it an excessive amount of? Is it too little? After which how do you phase that? Which is the cool half, as a result of if you need it, you will get it however some folks could be like, ‘Dude, depart me alone’. Do you guys do any type of rocketing on who will get it? Or do they type of self-select out?
Clay: We’re constructing much more personalization, so you may type of have just like the ‘person’ preferences. Like I wouldn’t say like, we’ve gotten fairly a good distance with a really half-baked rudimentary method. While you’re a Titan investor, Titan consumer, Meb, it’s like all or nothing. You get all of the content material franchises and you need to…clearly you may go in and choose and select what you hearken to. However we solely assist curate that.
Like, there’s a ton of alternative for us to say, you don’t must even state your preferences. We must 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.’ De-emphasize that, emphasize one thing attention-grabbing, and information that perhaps he’s eager about. After which he takes and he clicks and engages with that, we are able to ask him and we’ll make that a part of his habits.
Issues that we’ve discovered work rather well are video and community-based options. And I feel these are like two of probably the most underpenetrated known as mediums in finance, for a handful of causes. So on video, one, is simply traditionally, has not been very scalable. Like if you consider the standard cash supervisor RIA, let’s say you might have 100 purchasers, even that’s untenable, doing 100 Zoom calls a day, are you able to think about? Like there’s a purpose I feel a variety of advisors go for bigger account sizes, and it makes whole sense, it’s like the price to serve an account is successfully the identical. And so the smaller the account kind, the decrease the margins, the extra powerful for companies to construct. And then you definately get all types of bizarre incentives.
So I feel know-how has unlocked the power for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I feel in the event you polled most of our 50,000 customers, Meb, I feel a variety of them would really feel like they know me on a first-name foundation. I’ve by no means met these folks, however they see my face, they knew who I’m, they affiliate me with a model or one of many portfolios kind. 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 lady is on Alternatives. While you see a video or e 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 feel that’s…we see a variety of engagement, a variety of referrals round that. And it’s additionally saved folks invested during times of volatility. They’re like, “Oh, my man or my lady’s taking good care of my cash. I do know I’m in good palms.” And that humanization of what’s in any other case is a monetary commodity monetary product and an app has allowed us to chop by way of the noise.
After which the opposite factor is on group. So the opposite factor you’d see within the app at this time is known as ATA or Ask Titan Something. That is type of an inner beta hackathon concept, which was what are all of the questions that retail buyers may very well be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, in the event 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 mentioned, “We need to actively interact with retail,” you don’t actually have many choices. Are you going to jot down them a submit mail letter or are you going to tweet at them? Neither of these are nice choices.
So we mentioned, properly, what in the event you may actually add like actually kind in tweet type within the Titan app, submit that, it’ll route it to the analyst or the individual on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.
They’ve a portal internally the place they will go into our inner Titan portal, reply that query, broadcast it out. Not solely does that unique query asker get an e mail saying, “Hey, we simply answered your query. Click on right here to see the reply within the app.” However all the opposite folks on our platform accrue worth and get schooling and understanding from one thing that perhaps they 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 information 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 a giant supply of referrals in natural progress is folks being like, “Wow, not solely is my cash in good palms, however I’ve a simple method to share the worth I’m getting with my family and friends.”
Meb: It’ll be enjoyable to look at you guys in your journey. Inform us a bit of 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 buyers take part. How was that course of? And what are you guys going to spend all that cash on?
Clay: I feel it’ll final us a very long time, knock on wooden. This can final us without end. Within the early days, for us, it was very arduous to lift cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have buyers throwing cash at us. The truth is, we acquired instructed no by over 110 VCs in a row. We needed to increase cash …
Meb: …110 VCs there’s now.
Clay: Yeah, we needed to go undoubtedly off the overwhelmed path to even discover investor 51. It was not straightforward.
Meb: Nicely, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be attempting to poke a bit of enjoyable at my VC pals as a result of it was in Sebastian Mallaby’s new e book on VCs known as “The Energy Legal guidelines.” However there was a quote from Andy Grove, well-known Intel result in John Doerr, the place he mentioned, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However a terrific e book, by the way in which, listeners, anyway. Okay, so.
Clay: It’s truly been on my checklist. Yeah.
Meb: Yeah, it’s enjoyable. I imply, look, for people who find themselves acquainted with that world, it’s in all probability much less you possibly can type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s a terrific historical past. So okay, I interrupted you. Sorry, preserve going.
Clay: No worries. So it was not straightforward to lift cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, progress solves all issues. There’s something I’ve taken away as an entrepreneur, it’s progress solves all the things, from hiring, to storytelling, to elevating capital, to constructing new revolutionary merchandise. So for us, 2020, everybody remembers it because the yr of COVID and was a horrible yr for lots of industries, a variety of human life.
The one upshoot of it was I feel a variety of buyers that in any other case perhaps would have waited years to turn into buyers acquired pulled into the markets, you possibly can say, as a result of they’re sitting at residence of their pajamas and casinos or sports activities betting was closed down. Or you possibly can say it was simply there are a lot stimulus, a lot alternative to generate profits. Regardless of how you chop it, it was a terrific yr for FinTech, on the whole.
For our house, it was a interval of remarkable volatility. And so folks needed lots of people that had been previous buyers or had been DIY buyers had been like, “I’m out, man, I do not know what I’m doing. I’m transferring cash to the consultants.” And so once I talked about we begin hedging, and like, actually leaned into that a part of our price prop, noticed a variety of consumer inflow. And like I mentioned, progress 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 Normal Catalyst, an incredible agency. And we’re rocking, rolling, after which progress solves all issues. It’s like while you’re not searching for cash is exactly the time when each investor desires to offer you cash. And so we’re large 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 mentioned you began shopping for shares while you had been 12. So something come to thoughts?
Clay: It’s not very horny, however one of many first shares I purchased within the mid-2000s was Google. Sure, it was known as Google again then, not Alphabet. There was different bets. It’s just a bit search firm. I truly I neglect how I sourced that. However I held it to 2008 and it wasn’t straightforward. In order that’s in all probability what involves thoughts.
Meb: I used to go to the personal Google events once I was dwelling in Tahoe. In San Francisco I had a couple 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 recognized. They had been simply printing tons and tons of cash. I ought to have simply purchased it and held on to it. The outdated Peter Lynch fashion, however anyway. All proper, my man, it has been enjoyable. The place do folks go in the event that they need to discover what you guys are as much as, open an account, shoot you some messages, what’s one of the best place?
Clay: Yeah, the simplest place is titan.com. Tremendous easy. You possibly can be taught extra about what we’re constructing, methods, enroll, tremendous straightforward, $100 minimal. You could find me on Twitter as properly. I don’t tweet usually. I wish to preserve a excessive signal-to-noise ratio. So hopefully once I do, it’s one thing fairly worthwhile. However I’m on there each 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 submit present notes to at this time’s dialog at mebfaber.com/podcast. For those who love the present, in the event you hate it, shoot us suggestions at [email protected]. We like to learn the opinions, please evaluation us on iTunes and subscribe to the present anyplace good podcasts are discovered. Thanks for listening, pals, and good investing.
