Episode #401: Clay Gardner, Titan – Funding Administration Providers 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 traders.
Date Recorded: 3/8/2022 | Run-Time: 47:50
Abstract: In immediately’s episode, we kick it off with an outline of Titan and the corporations’ funding philosophy. Clay touches on a few of their totally different choices, which now contains crypto. We hear concerning the firm’s content material technique, which assist each educate traders and maintain them invested available in the market throughout risky durations. Then we hear what different asset lessons Clay is pondering of increasing to sooner or later.
As we wind down, we hear concerning the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith.
Sponsor: When you’re searching for the much less apparent and are curious concerning 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 developed over time
- 21:49 – Clay’s ideas on hedging
- 27:39 – Clay’s ideas on the way forward for Titan
- 30:42 – The profile of the typical Titan consumer
- 40:32 – Fundraising from a16z, Will Smith and Kevin Durant
- 41:30 – The Energy Regulation: Enterprise Capital and the Making of the New Future
- 43:36 – Clay’s most memorable funding
- 44:25 – Be taught extra about Clay: titan.com; Twitter
Transcript of Episode 401:
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Meb: What’s up, y’all? We bought an excellent present immediately. 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 traders. In immediately’s episode, we kick it off with an outline of Titan and the agency’s funding philosophy. Clay touches on a number of the totally different choices, which now embody crypto. We hear concerning the firm’s content material technique will assist each educate traders and maintain them invested available in the market throughout risky durations. Then we hear what different asset lessons Clay’s pondering of increasing into the long run. As we wind down, we hear concerning 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 immediately?
Clay: So I’m in New York Metropolis. We’re catching a bit little bit of spring right here.
Meb: Man, I miss it. I must get to New York. Bryant Park, perhaps Could. It’s been a few years. What’s the vibe? It’s good.
Clay: Issues are good. Yeah, they’re beginning to get a bit bit extra reopened. So a number of the orifices that people put up because of COVID, there’s eating places have spilled over into the streets, all that great things. Persons are simply searching for a purpose to get out and have the New York Metropolis spring-summer. So wanting ahead to that.
Meb: Effectively, I’ll be part of you right here in a couple of months, we make our means up there. It’s nice to have you ever immediately, 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 following Constancy. And what we imply by that’s an funding platform the place anybody can principally push a button and get invested with professional managers throughout over time. Just about any asset class, particularly targeted on people who traditionally haven’t been accessible to retail traders. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We finally expanded into crypto final summer time. So immediately we now have 4 merchandise, we name them merchandise or methods.
In a pair minutes, you’ll be able to obtain the app, like a financial institution, and get invested throughout these 4 methods, that are managed in-house by our staff. And then you definately’re basically driving shotgun whereas your supervisor calls the photographs, buys, sells securities or crypto.
Meb: What’s the origin story behind the title by the best way?
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 believe lots of people affiliate the phrase hedge funds and PE with the phrase titan. I believe it’s like one of many extra frequent when 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 believe Titan for us, one, I believe it alerts to we’re in battle, form of combating in opposition to the established order when it comes to legacy cash managers. But additionally Titan is form of this type of revered determine of authority and standing, whether or not its monetary standing or simply authority on the planet. And I believe it touches a nerve for lots of our traders, who’re traditionally used to not with the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.
Meb: What do you suppose is essentially the most distinctive proposition for you guys? As a result of we’ve had form 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 making an attempt to type of democratize that. What do you guys see as form of the principle, I don’t know if muscle motion’s the proper 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 the entire above?
Clay: We’ve began with public equities as a result of the core wedge, the core downside we’re fixing is individuals know they need to be invested in shares. However a number of them don’t have the time, information, or sources to do it themselves. They need greater than common. They need greater than they consider 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 really consider it’s a large market. We expect it might be the vast majority of no less than youthful generations.
When you ship the proper infrastructure, you construct the proper tooling for them to comprehend this doesn’t have to be your mother or father’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 may be introduced alongside, as managers are going to work, going to bat doing analysis, figuring out securities, with personal’s public’s crypto. And so our development immediately is no less than confirmed to us that it’s perhaps it’s a area of interest to many individuals, nevertheless it’s really fairly a giant and fast-growing area of interest and really profitable one.
Meb: Inform us a bit bit about your base first choices, in a world the place Vanguard is principally you should purchase the market cap index for nothing, or near nothing. I assume you guys, like us, usually are not charging nothing. So what’s it you guys are providing? What are you doing and what’s form of the framework for the way you guys take into consideration these first few methods?
Clay: We have now 4 merchandise immediately, three of them are in public equities. We began with the normal “blue chip,” some firms which are family names, the FANG shares. We’re enormous followers of lots of these companies, and so they’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 received’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 over 4 years now.
The technique was designed, Flagship, with the concept that we are able to tease out alerts to determine nice high quality compounding companies, not overpay, and simply form 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 advocate most of our purchasers put the vast majority of their Titan pockets share in immediately, for a handful of various causes from a danger tolerance standpoint.
The second is we’ve type of moved down the market cap spectrum. So we launched a product targeted on small-cap equities. The normal analog is just like the Russell 2000 Index, for instance. These are like very off-the-beaten-path, under-the-radar 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 now have an in-house analysis staff that’s really tactically and actively managing these portfolios. However that is one particularly targeted on not devalued, however like off the crushed path, extra esoteric securities, roughly 15 to 25 securities. It’s known as Alternatives, and it is vitally opportunistic in nature.
The third we launched was Titan Offshore. Sounds precisely what you suppose. It’s worldwide securities, primarily by means of with record equities and ADRs. So we’re not investing in any new offshore markets immediately at the moment. 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 nicely suppose that a number of People 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 believe sooner or later that tide could flip, we wish to make sure that 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 meant to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when individuals…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on shifting into digital belongings this quickly. It was very a lot, it was by far essentially 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 staff 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 consider is form 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 consider, for us to ship worth, ought to over a 3 to five-plus yr rolling foundation have gotten extra worth than they might do, both on their very own of their self-directed account, or a median 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 going on as we’re doing this interview, individuals ought to know precisely how they’re positioned. What’s my Russia publicity? How does the U.S. ban on imported oil from Russia have an effect on? What cash ought to I be including on this volatility? Ought to I be dollar-cost averaging?
We’ve seen that truly instilling confidence and explaining alongside the best way is definitely actually vital 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. Quite a lot of companies will use content material advertising or schooling as a form of development 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 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 understand what, I’m the PM and these are all my decisions,’ you bought a staff? After which how do you guys go about making the requires what goes in, what comes out? For most individuals, that’s a, accurately for an energetic 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 measurement is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for a couple of totally different causes. One is for certain companies simply have a risk-reward prospect that we predict smaller measurement can justify the upside. So, for instance, as of this writing, we now have a small place in Coinbase in Flagship. For a handful of causes, we consider it’s each basically low cost and misunderstood. But additionally we consider if and after we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We have now different securities like Microsoft or Apple, that are extra considerably higher-weight, nearer to mid to excessive single-digit proportion of the portfolio.
However stepping again, I’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 consider have entrenched aggressive moats, aggressive benefits. That is the form of sleep at evening, get up in 10 years. If the markets closed for 10 years, we received’t bat a watch, feeling nice that we’d have the ability to get up and wish to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply make sure that we don’t overpay.
After which your query on turnover, the world modifications. And so I’d draw the road between us and the normal notion of like a Buffett, I really don’t consider in buy-and-hold, I consider, buy-and-hold, and I’m not going to say this time is totally different, 4 very harmful phrases, however this time, it type of is totally different. Take into consideration what we’re going by means of proper now, even since November, the final rising price and development drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of traders who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being an incredible enterprise.
Behind the hood, Meb, what occurs is we now have a staff of roughly 60 analysts. A few of them frolicked at personal fairness funds, household workplaces, hedge funds, others at sell-side corporations for his or her analysis, or knowledge analysts. And what we’re making an attempt to do internally is continually construct a backlog of companies which are on our purchasing record at a sure value. So validate these are high quality companies, there’s one thing particular about what they’re doing that may’t be simply replicated.
These are in secularly rising industries or markets, some could also be extra cyclical, some could also be extra secular. However 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 observe report of delivering worth, after which a margin of security.
So we don’t wish to pay by means of the eyeballs for an incredible enterprise. As a result of if something, if the previous few months have taught us something, it’s like I stated, you’ll be able to pay 40 instances gross sales for an incredible 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 making an attempt to leap over 20-foot hurdles from a valuation standpoint.
So when it comes to turnover, it usually 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 greater 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 enlargement, because of QE, and unprecedented stimulus. And lots of people paying up probably means an excessive amount of for development.
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 means 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 form of wholesome danger administration debate internally. However I’ve an incredible staff 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 an incredible staff right here.
Meb: So how does that staff work? You guys do like a day by day weekly obtain assembly the place individuals had been pitching shares? As a result of a number of hedge funds have totally different… I’m not making an attempt to check you on to a hedge fund however a number of energetic funds have a special course of. Generally it’s the lone wolf PM, generally it’s staff, generally they do eight-month deep dive, generally it’s a committee. Like how do you guys go about really placing stuff in and pulling stuff out? Is there form 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 form of like a mannequin portfolio. We have now 50,000-plus purchasers, and every of those purchasers has his or her personal SMA or individually managed account. So that they have a brokerage account. They’ll pop in, they’ll see the securities we maintain on the finish of each month. Clearly, they’re participating typically day by day, weekly with the app the place they’ll see video updates from our staff, tax updates, they’ll ask questions. There’s community-driven options so you’ll be able to pop in immediately and see what questions have been requested by different traders 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 believe 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 usually a two- to three-week analysis course of. I’m typically of the idea of everybody must be macro conscious, and attempt to cross-pollinate and study and be increasing your circle of competence. We should always ideally have some semblance of like a compass for focus. And in order that’s what we do internally.
So we now have 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. So that they have a universe of companies they’re aware of. They’re continuously making an attempt to broaden that, as a result of clearly, there’s new points, there’s firms IPLA, there’s M&A exercise. So continuously making an attempt to construct out their purchasing lists after which it actually simply says, ‘Do you belong on the core? Do you belong within the beginning 5?’ so to talk.
So each analyst is continually re-underwriting and from their viewpoint, there’s this different title on my purchasing record I’ve been doing work on. Is that this a better alternative price than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after latest market volatility than this current 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 now have a chosen satan’s advocate, we’re not a yes-man, or yes-woman sort of agency. We wish wholesome debate, we wish to perceive the bear case, have the ability to refute it higher than the neatest bear on the road. I believe that’s a extremely clever 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 function is absolutely to step in. After which from a danger supervisor standpoint, I’m being hyper-aware of like, what are our sector overweights or underweights versus the benchmark? What are components that we could also be inadvertently lengthy? Are we tremendous lengthy momentum, are we tremendous quick high quality, are we quick worth? After which, that’s the place I’ll type of take the analysts’ collective knowledge and proposals and attempt to measurement issues appropriately. Attempt to verify we’re not too far tilted come what may. So it’s actually wholesome course of. And we’re clearly studying, we don’t faux to know all of the solutions. However thus far, it’s labored out rather well. And I believe it aligns incentives in a extremely good means.
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 concerning the screening course of, and 13F, form of diligence, and seeking to see what a few of these different fund managers are doing. How does this course of evolve? Has it been constant this entire time? Are you guys type of doing the identical stuff you’re at all times doing? Do these nonetheless play a task? 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 authentic concepts. And the rationale I convey 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 knowledge 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 no less than no different good fishermen are heading for. And so 13Fs, as you talked about, for many who aren’t acquainted, 13Fs are simply quarterly filings that almost all hedge funds or RIAs above a sure threshold within the U.S. must file. And people present all their lengthy holdings, in order that they don’t present any quick holdings or some esoteric securities derivatives aren’t proven.
However when 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 an excellent searching floor for like what are some fascinating concepts. So like, there are many good individuals on the market, fund managers I love, investor letters I learn. And looking and serving to use that to tell what the purchasing record must be, that’s finally what helped us go from, okay, how can we begin with 10,000-plus international securities and slim it to a pool of perhaps 100, 200?
So we no less than know which rocks are price turning over. In order that knowledgeable a number of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised a bit extra enterprise capital, we’ve actually bootstrapped our means and began rising income, and bought worthwhile, can we construct up the staff. So we went from simply myself and a colleague to now a staff of eight funding analysts, employed a analysis analytics affiliate from AQR. We constructed out a knowledge science staff internally. And so in consequence, we’ve been capable of transcend simply 13Fs and have the ability to fish in lots of, many alternative ponds and likewise entry a much wider swath of information.
On the similar time, we noticed COVID hit in early 2020. And I believe we realized that what’s a transparent, name it the price aspect of the cost-benefit of utilizing a 13F technique. The fee is during times of exceptionally excessive volatility, even getting knowledge on a 90-day delay, you’re lacking a significant image of what’s happening beneath the floor of those managers. So for instance, when you bear in mind, like, COVID actually occurred in March 2020. We didn’t actually begin to see the ramifications of how individuals would react till April, Could. 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 when 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 totally different image. You’d successfully be wanting 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 time, after which you can argue a number of the chance was capitalized on. So we heard from our shopper base loud and clear that they needed us to develop into extra energetic 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 development traders, not simply being wed to at least one particular supply of concepts. But additionally in some ways purchasers had been like, ‘Guys, we wish 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 wish 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 believe we nonetheless bought to a extremely enjoyable place. And actually importantly, I believe a greater place for traders long-term, which remains to be sticking to the technique of shopping for high quality compounding companies, aiming to carry them for a 3 to 5-year horizon. Usually not doing a lot except alternative price warrants it in our view. But additionally have the ability to take part within the volatility and reap the benefits of dislocations in a means {that a} actually systematic or completely quantitative technique in any other case wouldn’t have the ability to do.
Meb: So are you guys nonetheless enthusiastic about hedging as nicely? Or is that much less of a task than at prior instances?
Clay: No, that’s an excellent name out. So every thing I’ve described thus far, you’re spot on, is on the lengthy aspect. We’re not a protracted, quick agency. However you’ll be able to say we successfully provide customers quick publicity as a result of we do hedge. And so I believe we chatted about this during the last couple of years, Meb, at totally different closing dates, we don’t at the moment use leverage outright. So we don’t quick futures, we don’t purchase put choices. So we’re really not taking particular leverage or shorting securities outright. However I believe it’s vital to offer individuals a method to cut back beta.
So let me take a latest instance, we really began hedging, we placed on inverse ETFs. So principally going alongside an inverse instrument that strikes every day reverse the market in a one to at least one means on the finish of February 2020. That was, in hindsight, a reasonably prescient determination. Heading into a kind of, I believe it was a 30-plus per cent peak to trough drawdown on the S&P in only a month, we should mitigate the diploma of that drawdown considerably. I believe it was solely 70% or 80%, draw back seize that our purchasers had versus had they’d been absolutely invested within the index.
So a working example of getting an energetic analysis staff have the ability to monitor. We’re not macro traders however we’re macro conscious. And after we get sure knowledge factors from our community of parents who’ve simply been over in China for investor day, saying, ‘The world’s concerning the shutdown’, that set off an alarm bell in our thoughts, and we stated, ‘Okay, we predict it might behoove us to placed on some universe CTF publicity to scale back market publicity, i.e., beta for purchasers’.
By the best way, 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 means 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 wanting good. And I’m not a chartist. We’re not technicians by nature. However we do consider like charts finally do replicate sentiment in markets. And a number of instances they are often telling you one thing that you could be be lacking.
And so a mixture of technicals, and likewise some elementary knowledge we’ve been monitoring led us to consider that, opposite to the everyday purchase and maintain index traders, traders in Titan ought to have their beta diminished, and they need to be ‘hedged’. So it’s one thing that we’re offering, it’s fairly distinctive within the total scheme of funding advisors. That is clearly par for the course in long-short hedge fund land like that is, most long-term traders are outright shorting securities, and perhaps they’re shorting futures as nicely.
Leveling up, I believe it’s actually thrilling to have the ability to provide one thing like this to retail traders, particularly not taking leverage. There’s something I believe we as a platform study from the GameStop, AMC period, is that there’s an actual price to shorting securities, it may well 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 form of like a max hedge quantity you guys would contemplate, how do you consider that? As a result of purchasers, you bought 50,000 individuals together with your cellular phone quantity now, Clay. And I’m joking, perhaps it’s simply the app, however that’s a number of traders when the world’s going loopy because it has been the previous few years. I imply, it’s type of at all times going loopy, in fact, however significantly loopy now, is there form of a framework the place you consider that? And the way set in stone is it enthusiastic about that form of image of hedging as a result of it may be a subject that’s sensitive for lots of people?
Clay: I agree. I believe in a dream world, we’d be 100% web lengthy 100% of the time. And I believe each means you narrow it, empirically talking, you have to be invested more often than not. Markets do go up and to the proper. We are able to clearly debate, sure, the historic return the S&P has been, I don’t know, what, 6%, 7%. Is that top? Is that low? From a go-forward foundation do we predict it’s extra like 2% or 3% going ahead? We might debate precisely the place we shake out. However I believe GDP, productiveness development, these types of issues take international economies up and to the proper, and markets are inclined to comply with. So it is smart why you have to be absolutely invested more often than not.
To that diploma, we’ve set form of a framework in thoughts from just like the macro in a hedging standpoint, the place our web lengthy publicity, which is only a fancy means of claiming like, for each $100 you may have invested, how a lot are literally outright being uncovered to market danger? It ought to typically be the vast majority of these $100. So for us, Meb, we ship out to 80% to 100% is form of the vary of web lengthy publicity. I’ll caveat that we’ve launched the idea of what we name strategic money as nicely.
So it’s actually vital, I believe, for individuals to comprehend that money is an funding determination. It’s zero per cent yielding safety and I’m being a bit 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, detrimental in actual phrases now given the place inflation’s heading. It’s a alternative that you simply actively make. And we, as an energetic supervisor, have added that final couple of years to our toolkit, as a method to cut back market publicity as a result of money has zero beta.
So with that, as we discuss immediately, Meb, we’re at about 70% lengthy publicity. So for our aggressive purchasers, we now have a 5% hedge of these $100, about $5 are allotted to hedge. For reasonable conservative purchasers, it’s nearer to 10% to twenty%. However we are also holding money, as a result of we fairly actually, in lots of the markets we’re taking a look at and plenty of sectors, don’t see any alternatives the place you’re not overpaying for the standard of development you’re getting. Otherwise you’re not going down-market and shopping for “Low cost” securities, however with all types of landmines from a aggressive dynamics from a secular development standpoint.
So, in different phrases, there’s no simple solutions on this market, money can generally be the most effective various. It’s a supply of dry powder in order that if and after we clearly consider when the macro image improves, we might reap the benefits of it. So over time, I believe we’ll shake out $2 of our $100 a shopper could have invested with Titan, relying on their danger 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 believe we must be. We’re not market timers.
Meb: So that you guys have been constructing this platform, 50,000 traders, rising the AUM, look out within the horizon, what’s the long run appear to be 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 are 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 traders. Issues I’m pondering by means of from a non-public asset standpoint, enterprise. Placing apart the market to market nature of the enterprise, which I believe in and of itself if correctly understood, and gauged to somebody’s danger profile, traders are human by nature, and seeing scary-looking charts each day doesn’t do any higher for his or her monetary well being. I want markets simply closed or a consumer couldn’t open their app, during times of volatility, they’d be higher off as a result of we’re all human.
That’s considered one of, I believe, 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 might joke and say that’s detrimental, I really suppose it might be a optimistic to retail traders.
I believe getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise development companies with a correct sizing, once more, gauge to their danger profile, so this isn’t going to be applicable 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 chance 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 can even go deep down the crypto rabbit gap of all of the fascinating issues I believe are taking place from like a staking and lending standpoint. So we now have a number of work to do. It’s not going to be as simple as our first 4 merchandise. I’ll let you know that a lot. It’s not going to be as simple as rent a staff from our community from buy-side, sell-side analysts, create the technique, create the analysis course of, and growth, flip a swap on. There’s much more infrastructure and tooling that must be constructed. B2B relationships have to be constructed to attain a number of the stuff I discussed.
Meb: Do you foresee these being like, are they going to be separate accounts, will they be funds? As a result of a few of these are quite a bit more durable to personal with 50,000 individuals.
Clay: No, I completely agree.
Meb: How do you consider it or you might not know but? I imply it could be it’s now within the course of.
Clay: No. Quite a lot of the arduous work we’re doing proper now is determining what I name fund operations, a number of that like back-end stuff. Do we have to use SPVs? Do we have to use this fascinating closed-end fund construction, like what are the nuts and bolts we have to do on the again finish to really make it doable for a retail unaccredited investor to spend money on SpaceX or Stripe? I consider it’s doable, 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 believe large issues like this are price fixing. As a result of when you remedy it, you’re speaking about trillions of {dollars} of capital that may abruptly be unlocked for retail and I believe it might typically be a significantly better world.
Meb: It’s going to be enjoyable to observe. What’s the profile for many of your traders? Has it modified over time, as you’re onboarding a number of digital native shoppers? I assume it skews youthful, however you can appropriate me. And the place are you discovering most of those associates, is it referrals? Is it by means of social channels, Tremendous Bowl advertisements, what?
Clay: It’s humorous you talked about that. We did our first Linked TV marketing campaign, it was at a couple of East Coast airports on AFC/NFC Championship Sunday. So we really 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 advertisements in Barron’s. We’re very curious and wish to attempt issues out at small measurement and at all times simply questioning if anybody really sees it. So I used to be like, ‘Does anybody really see this?’ Everyone seems to be like, ‘No’, however I bought one response. I do know we bought to no less than one individual. Okay. Effectively, inform me, TVs and airports?
Clay: Linked TV, it’s enjoyable. I volunteered myself to do the industrial. So starring yours actually, we filmed it in Brooklyn again in June, and it lastly went reside the previous few months.
Meb: Good.
Clay: No, it’s superior. I’ve had household associates. I’ve had individuals I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to advertisements and I noticed a industrial.’ It was type of a cool second. No, however for us core demographic, the mode is 30 to 35. That’s form 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 number of founders, entrepreneurs.
So these are those that typically like are actually, actually good at their craft, however usually are not good at investing. They need they had been pretty much 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 number of them have been spinning their wheels day buying and selling crypto or equities and so they’re like, ‘I’m out. I do know I want my cash invested, however I’m not doing this myself, it’s time to cross this to the consultants.’
We’ll additionally get a number of of us that come from the normal like robo-advisory, like taxa world, wanting extra. Like look, ‘I don’t know what’s happening, I wish to take part and be extra energetic, actively concerned. Sure, I’d clearly love higher than common returns.’ And so we’ll get a number of the normal robo and likewise older cash like Legacy, Constancy, Schwab accounts, moved over to the platform. So it’s a broad swath, we’ll get 20-year-olds, we’ll get 80-year-olds on the platform, it’s actually cool to see this enchantment to differing types.
However I’d say individuals which are in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m probably not glad with any of them. I’m actually good at my craft and aspire for experience each time I do, I want I can even have that for my cash’, is form of just like the core downside and consumer-type that we see. Clearly, as we launch extra merchandise, and likewise account varieties like IRAs, we’ve additionally seen a extremely fascinating demographic shift. So like we’re seeing individuals now open accounts for his or her spouses, or they’re asking us to open custodial accounts for his or her youngsters. They’re rolling over outdated 401(okay) cash.
So I’d say like the following time we chat, Meb, like the buyer sort, age, demographic will in all probability change. And I believe one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you deal with 20-year-olds for the following 20 years? So immediately’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 together with your investor base?
That’s form of an fascinating downside and problem we’re pondering by means of, I believe it’s going to be a bit little bit of each. I believe we want to verify we’re rising and being good, considerate about including different account varieties, options, to verify individuals can name Titan a spot dwelling for the following 40, 50 years. However we don’t wish to be too many issues to many individuals. We have now 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 fascinating stuff you guys I’m positive are enthusiastic about, about incorporating that consumer base as an asset for the platform too. I’ve seen a number of fascinating whether or not it’s group suggestions involvement. For individuals who haven’t opened a Titan account, and it’s titan.com by means of the app or web site, clarify what the precise consumer expertise on the communication is. Is it largely video, print, schooling? You talked about there’s form 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 now have various kinds of individuals which are from all walks of life, and have totally different life, totally different routines. So we now have those that do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF once they wish to hearken to a podcast on the prepare, or on the subway or within the automobile. We have now day by day audio notes, we name them content material franchises. Content material franchises are principally we’re making an attempt to construct rituals the place we are able to meet clients the place they’re and meet traders, no matter their routines or habits are, get them the knowledge they should know from the portfolio managers, the proper media, run on the proper time. So for these types of individuals, we now have a day by day, fast minute to two-minute audio be aware. Somewhat mini podcast they’ll hearken to and get the three issues that matter for his or her portfolio immediately.
Meb: Individuals hearken to that?
Clay: Individuals hearken to it, that was some of the engaged franchises we now have. We even have an e mail type. So we now have very first thing in your inbox every single day it’s a e-newsletter known as ‘Three Issues’, the three most salient issues we consider you might want to know associated to the world of enterprise investing and the way we’re managing capital.
Meb: It’s humorous to consider form of the behavioral aspect of that, too, as a result of we’ve put out a number of content material over time. And I really feel prefer it’s nearly a barbell, the place there’s the those that wish to interact that. However then there’s the opposite individuals which are like, ‘I don’t even wish to hear about it as a result of I didn’t even know I must be worrying about this’, you understand. And so it’s at all times an fascinating 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 would like it, you may get it however some individuals may be like, ‘Dude, depart me alone’. Do you guys do any form of rocketing on who will get it? Or do they type of self-select out?
Clay: We’re constructing much more personalization, so you’ll be able to type of have just like the ‘consumer’ preferences. Like I wouldn’t say like, we’ve gotten fairly a great distance with a really half-baked rudimentary method. If you’re a Titan investor, Titan shopper, Meb, it’s like all or nothing. You get all of the content material franchises and you need to…clearly you’ll be able to 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 should even state your preferences. We should always Intuit primarily based in your conduct. ‘Oh, Meb hasn’t checked our opening or closing bell audio be aware, perhaps let’s pull that off the house display screen.’ De-emphasize that, emphasize one thing fascinating, and information that perhaps he’s inquisitive 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 now have discovered work rather well are video and community-based options. And I believe these are like two of essentially 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 normal cash supervisor RIA, let’s say you may 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 believe a number 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 sort, the decrease the margins, the extra powerful for companies to construct. And then you definately get all types of bizarre incentives.
So I believe know-how has unlocked the flexibility for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I believe when you polled most of our 50,000 customers, Meb, I believe a number of them would really feel like they know me on a first-name foundation. I’ve by no means met these individuals, however they see my face, they knew who I’m, they affiliate me with a model or one of many portfolios sort. So it’s fascinating, as we launch extra merchandise, we’re making an attempt 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. If 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 believe that’s…we see a number of engagement, a number of referrals round that. And it’s additionally stored individuals invested during times of volatility. They’re like, “Oh, my man or my lady’s caring for 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 means of the noise.
After which the opposite factor is on group. So the opposite factor you’d see within the app immediately known as ATA or Ask Titan Something. That is form of an inside beta hackathon thought, which was what are all of the questions that retail traders might be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, when you discover a firm on Twitter, you’ll be able to tag them and broadcast to the world and say, “Hey, I’ve a query.” Whether or not you’re Cathy Wooden otherwise you’re engine primary or any of those managers which have stated, “We wish to actively interact with retail,” you don’t actually have many choices. Are you going to jot down them a submit mail letter or are you going to tweet at them? Neither of these are nice choices.
So we stated, nicely, what when you might actually add like actually sort in tweet type within the Titan app, submit that, it’ll route it to the analyst or the individual on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.
They’ve a portal internally the place they’ll go into our inside Titan portal, reply that query, broadcast it out. Not solely does that authentic 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 individuals on our platform accrue worth and get schooling and understanding from one thing that perhaps they received’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% immediately,” typical retail investor conduct is transfer to money, promote, make the bleeding cease. Titan investor conduct is, “Oh, proper appended to this chart of my cash being down 5%, I click on an data bubble. It pops to ATA requested by Brian Smith in Georgia, asking exactly why is my cash down 5%?” Which an analyst responds and rationale why it’s down and what strikes we’re making together with your cash.
So instantly, not solely did you discuss them off the ledge, however that have we’ve created methods so you’ll be able to share that so you’ll be able to 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 development is individuals being like, “Wow, not solely is my cash in good palms, however I’ve a straightforward method to share the worth I’m getting with my family and friends.”
Meb: It’ll be enjoyable to observe you guys in your journey. Inform us a bit bit about you type of went the VC route, but in addition raised some cash with some fascinating names in your cap desk. That appears to be one thing that’s modified over time, definitely within the final 10 years as this a part of the cycle is having some fairly cool traders take part. How was that course of? And what are you guys going to spend all that cash on?
Clay: I believe it would final us a very long time, knock on wooden. It will final us perpetually. Within the early days, for us, it was very arduous to boost cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have traders throwing cash at us. Actually, we bought advised no by over 110 VCs in a row. We needed to elevate cash …
Meb: …110 VCs there’s now.
Clay: Yeah, we needed to go undoubtedly off the crushed path to even discover investor 51. It was not simple.
Meb: Effectively, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be making an attempt to poke a bit enjoyable at my VC associates as a result of it was in Sebastian Mallaby’s new guide 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 stated, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However an incredible guide, by the best way, listeners, anyway. Okay, so.
Clay: It’s really been on my record. Yeah.
Meb: Yeah, it’s enjoyable. I imply, look, for people who find themselves aware of that world, it’s in all probability much less you can type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s an incredible historical past. So okay, I interrupted you. Sorry, maintain going.
Clay: No worries. So it was not simple to boost cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, development solves all issues. There’s something I’ve taken away as an entrepreneur, it’s development solves every thing, from hiring, to storytelling, to elevating capital, to constructing new modern merchandise. So for us, 2020, everybody remembers it because the yr of COVID and was a horrible yr for lots of industries, a number of human life.
The one upshoot of it was I believe a number of traders that in any other case perhaps would have waited years to develop into traders bought pulled into the markets, you can say, as a result of they’re sitting at dwelling of their pajamas and casinos or sports activities betting was closed down. Or you can say it was simply there are a lot stimulus, a lot alternative to earn money. Irrespective of how you narrow it, it was an incredible yr for FinTech, usually.
For our house, it was a interval of outstanding volatility. And so individuals needed lots of people that had been previous traders or had been DIY traders had been like, “I’m out, man, I don’t know what I’m doing. I’m shifting 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 number of shopper inflow. And like I stated, development solves all issues.
In order that yr is late 2020 we raised our Sequence A. That was the primary actual type of fairness spherical at Titan, led by Common Catalyst, an incredible agency. And we’re rocking, rolling, after which development 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 enormous followers of Andreessen Horowitz. Yeah, it’s about 48 hours from the time they reached out to reengage to the time we had practically $60 million within the financial institution and raised our Sequence B.
Meb: What’s been your most memorable funding? You’ve been at a profession that preceded Titan but in addition you stated you began shopping for shares while you had been 12. So something come to thoughts?
Clay: It’s not very attractive, 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 really I neglect how I sourced that. However I held it to 2008 and it wasn’t simple. In order that’s in all probability what involves thoughts.
Meb: I used to go to the personal Google events once I was residing 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 individuals go in the event that they wish to discover what you guys are as much as, open an account, shoot you some messages, what’s the most effective place?
Clay: Yeah, the best place is titan.com. Tremendous easy. You possibly can study extra about what we’re constructing, methods, join, tremendous simple, $100 minimal. You will discover me on Twitter as nicely. I don’t tweet usually. I wish to maintain a excessive signal-to-noise ratio. So hopefully once I do, it’s one thing moderately priceless. However I’m on there day by day and I reply to DMs and so forth. So digital clay, @virtualclay is my deal with.
Meb: Superior.
Clay: Yeah, it’s been a pleasure.
Meb: Clay, thanks for becoming a member of us.
Clay: Thanks.
Meb: Podcast listeners, we’ll submit present notes to immediately’s dialog at mebfaber.com/podcast. When you love the present, when you hate it, shoot us suggestions at [email protected]. We like to learn the critiques, please assessment us on iTunes and subscribe to the present anyplace good podcasts are discovered. Thanks for listening, associates, and good investing.
