Jay:  Hey, Tadas, thanks so much for joining us. We’re very delighted to have you on board. We appreciate your time.

Tadas:  It’s my pleasure. Thanks for having me.

Jay:  Absolutely. I stumbled upon your work, I believe it was on Twitter. You’ve been an early pioneer in financial blogging. For the audience tuning in from around the world, maybe you could give us a little bit of background on yourself and how you got into investing.

Tadas:  Sure. I’ve been involved in the financial markets pretty much my entire adult life. I feel it’s something that I have been doing for a long time and in a number of different formats, which reminds me, I’ve been blogging before Twitter was actually a thing. That shows you how long I’ve been at this.

Twitter has been instrumental, I think, in the financial markets and in the investment arena, but like I said, I was blogging before there ever was a Twitter.

Like I said, I’ve had a number of different roles in the investment world, including as an analyst, a quantitative analyst, I’ve co-authored a number of papers on various sorts of academic topics, and I’ve written a book as well. I like to say that I have a broad exposure to investments and finance. I know a little bit about a lot of things.

Jay:  The markets are so abundant, it’s one of these huge universes. There are so many rabbits holes you can go down. Certainly, one person’s lifetime is definitely not long enough to capture all of it, let alone even try to master one of these topics.

Tadas:  That’s a great point. I think that’s actually an attraction to a lot of people to get into investments. Like you said, it really is almost infinite in terms of being able to pursue your interests and, like you said, being able to pursue specific topics and take a deep dive.

Jay:  Absolutely. You mentioned that you were an analyst. Was it a quant analyst?

Tadas:  I was a fundamental equity analyst, and I shifted over to do some quantitative research. I’ve kind of had exposure to a lot of different things.

Jay:  That’s interesting because that leads me to my next question. I know you’re a private investor that has been active in the markets for a couple of decades now. What’s your investment style? I’ve spoken to a lot of people, and I’ve been in the markets myself a long time. When I started off, my style has changed dramatically, mostly because I didn’t know anything when I was starting off, and I know a little bit more now, but also I’ve realized what suits my personality and what is more sustainable for me, whereas some of the earlier strategies that I was using were just more trading, momentum-driven, that sort of stuff. I don’t have the energy for that anymore. I feel like I have less of the personality.

I’m just curious, what’s your investment framework now having come from an equity analyst, which is very fundamental, bottom-up type analysis. And then quant is almost, I don’t want to say opposite, but it’s a very different style because you’re using factors and rules as opposed to a fundamental start. So maybe you can share a little bit.

Tadas:  There is a lot there. I would say that my experience kind of parallels yours. I think people who are interested in the markets early on in their career oftentimes don’t know what they don’t know, and they feel like they have the ability to pick stocks or, like you said, engage in relatively high-frequency trading. I’m guilty of that as well. I was that type of person as well. I traded equities, I traded futures, I did all sorts of different things. Like you said, whether it’s a question of personality or aging or really just trying to match up your style with your personality, I think I’ve followed that track as well. And now I’m trying to do less, consciously do less with my portfolio than I did previously.

I think it’s interesting because oftentimes I get a question from people and they’ll say, “What books should I read to learn about investing?”

It’s funny because everybody has their own path. It’s difficult for me to say “Read this book,” or “Read this book,” because it’s going to give you the answer because, like you said, you have to do it. You have to make your mistakes, and hopefully you learn from your mistakes and fashion your education process around that. And so your story rings very true to me.

Like you said, I’m trying to do as little as possible because I recognize that when I do trade, not only am I liable to make a mistake, but it also has a detrimental effect on my energy and my psyche and all of that. So just trying to focus on making the fewest mistakes as possible is really maybe the best summation of my strategy at this point.

Jay:  It’s funny because I feel like when I was younger — I’m curious if this was your same experience — a lot of people when they’re younger, they seem to have less patience. I was on the south side for a long time, which can be one of the best places, but it could also be one of the worst because it’s driven by a lot of greed, I think. Especially when you get thrown into that environment right out of college, you don’t know what you’re doing, and you’re sitting on this desk, and everyone is making more money than you and driving fancier cars, and so you just want that.

Immediately you think, okay, what’s the fastest way that I can go from here getting coffee for the desk to being one of them. It drives you to “Let’s make some quick wins, and let’s try to climb up the scale.”

And then I feel like as time goes on, of course, you learn those painful lessons, like you said. And then maybe you start making some more money, and then you realize, okay, you’ve learned a little bit more about risk-reward and what’s actually worthwhile and what’s not, and you get more patient.

Tadas:  It’s interesting, I wrote a post, and it’s probably been a couple of years ago, talking about not only compounding your returns but also compounding your education. I think, like you said, I think that’s really important in terms of everybody is going to make mistakes along the way and it’s really learning from those mistakes and kind of advancing your knowledge as you move forward. Like you said, it’s not just your knowledge of the markets, it’s also about knowledge of yourself. Knowing your capabilities, knowing your limitations, knowing when you are liable to make a mistake, all of that and being able to, how you said, make incremental advancements along the way is important.

It’s almost folklore at this point, but there is a story where Warren Buffet didn’t become a billionaire until his mid-50s. Obviously he’s worth — I don’t know what it is now, but it’s tens of billions but it’s kind of a slow build. One of the challenges is not making big mistakes along the way that really prevent you from being able to compound your returns over time.

Jay:  And the internet certainly has changed things. It’s a double-edged sword I feel because for all of the access that the internet allows us now, it really just opens up a whole new dimension and just brings down the barrier to entry, so that part of it’s great. But it also has this dark side where you’re exposed to a lot more of that dark side of getting rich quickly and not doing the work and getting rich slowly and that whole mentality of there is no overnight success or whatever — 30-year overnight success or whatever it is.

Tadas:  But that’s not new. I think that’s human nature. I think even before the internet, there were all sorts of get-rich-quick schemes and a lot of people taking a lot of shortcuts. I think, like you said, the internet may accelerate that. It may make them more salient, but I think that’s human nature. And, like you said, I think, unfortunately, people have to learn those lessons the hard way, that those types of tactics and strategies usually don’t work.

I think the internet definitely has changed things. I remember the time before the internet when you had to go to the library to look up stuff about a company or about a mutual fund and things like that. But like you said, human nature doesn’t change. The internet has changed. The acceleration of information certainly has changed, but human nature hasn’t.

Jay:  And greed oftentimes is the least common denominator that drives the markets. Hence, the markets are still the markets.

You got into the online blogging space very early. What drove to you doing that? You’re almost a pioneer in blogging. This was web 1.0.

Tadas:  It was definitely early. And like I said, earlier, prior in my career, I had co-authored a number of papers on various sorts of research topics. So that kind of gave me the bug initially to write about investments and have that be an outlet.

Later on in my career, I was involved in a hedge fund startup. After that came to its conclusion, I wrote a book proposal, essentially hedge funds 101 trying to explain the world of hedge funds, a little bit of a how-to on how to start one and where they might fit in the investment world. Unfortunately, that book proposal didn’t get very far, but that was the spur for me to start the blog and get online and start writing.

Eventually, I wrote my book, but that initial idea for a book was really what drove me to get online. I think it’s interesting because a number of people who were writing when I started writing are still out there. I think it definitely shows you that there is… And over time, I’ve seen a lot of people start writing and then quit for any number of different reasons, but I think it shows you that there is a certain percentage of the population and people out there who really do get some satisfaction and get some energy from writing for a broader audience. I think if nothing else that I do on the Abnormal Returns blog is trying to highlight the work of those people and bring it to a broader audience.

Jay:  I think you’re right. Before I think there was a distinct divergence between industry folks working at major institutions. It was almost like a divide, a compliance divide, if you will. If you’re doing research for a South Side firm or something like that, you wouldn’t really do a blog or anything because you don’t want to get in trouble and this sort of thing.

And then you had your financial publishers, and that model has been around for a long time doing the newsletters and that sort of thing. But then I feel like in the last five to ten years, there has been a lot of crossover, and now I see a lot of people in asset management or fund management or financial advisors having very successful blogs that are high-traffic, and they’ve got a lot of good stuff and podcasts and this sort of thing, and there are ways to very explicitly make sure you’re abiding the SEC rules and not recommending your own funds and this sort of thing. So I like the way that things are moving in that direction.

Having said that, you do mention a good point that it is challenging to write every day or with good frequency, whether it’s once a week or… Even once I week, I even struggle to write once a week. Some of these guys write daily, and I don’t know how they do it. Jared Dillion, I’m sure you know him as well, he writes every day. I actually used to work with Jared at Lehman Brothers. We started there around the same time. But he’s done extremely well, and he puts out good stuff every day, and it’s dense.

Tadas:  It’s definitely a challenge. You mentioned podcasts. I think that’s maybe in the last… First, it was blogs, and then it was financial professionals getting on Twitter and Stocktwits and now I think really the last wave has been podcasting and video.

I really find that podcasting has been hugely educational. Being able to hear from somebody in a long-form format talk about their experiences — whether they’re talking about a book or about something else, I was pleasantly surprised at the quality of content that’s put out in the podcasting arena, and I think, like you said, we were talking earlier, I teach a class on investments, and I have integrated podcasts into the curriculum just because I think not only is it informative, but it’s kind of another way of being able to take in that material instead of just having to read it in a book or read it online. Being able to hear from people in their own voices I think is really helpful.

Jay:  This is maybe a personal quirk a me, but I retain it much better when I’m listening to something on audio than if I’m just reading it. If I’m reading someone’s note or a paper or even a transcript of a conversation, I don’t…

Tadas:  I think some of that is when it’s two people talking, you’re usually telling stories, and stories are much more salient to people. When you’re writing, you’re usually taking, especially in the financial arena, you’re taking a more formal tact and laying out a thesis. But when it’s two people talking either in person or online, you’re usually telling stories, and that’s my guess as to why some of those points are a little bit more salient.

Jay:  Absolutely. I love podcasts. I’m a huge consumer myself.

That was a great little intro there. Let’s dive into a little bit of what’s going on in the world these days. From what we talked about a little bit earlier and some of your work that I’ve read in the past, you probably have a slightly more of a value-type approach when you’re looking at investment opportunities. Am I correct in saying that?

Tadas:  Yeah, it’s funny because I think I probably have a value personality, but over time, I have recognized the efficacy of quantitative techniques. And so a lot of those are, like you said, momentum-based. And so I think there is definitely room for both. We talked about personality as well. I have found that following models is probably a better fit with my personality than trying to do that bottoms-up research and build a portfolio that way.

Jay:  Yeah, definitely. We’ve had a number of quants on, and we’ve spoken about the same sort of stuff. Meb Faber, who I know, he has a great podcast as well. I like his stuff. We were just talking about how with quantitative investing and factor-based investing, it really strips out a lot of the emotions, but he was saying that basically you have all this data that you’re using to produce these models, but even then, at some point, you have to press the trigger. So there is still a human element.

I was making a comparison to, say, pure fundamental investing, value investing, where you find intrinsic value of a security. You build in a margin of error, and then you know where your entry price is, and I take advantage of market dislocations to get in at your price, but that requires a lot of subjective building your confidence and your conviction level. And a lot of times it’s quite lonely. When the markets are dislocating and drawing down and you’re second-guessing yourself, third-guessing yourself, my example, when I was talking to Meb, was in that situation, I think I would feel a lot better if I had 80 to 100 years of back-tested data that has driven these models.

And then he was saying but you still, even though you have this data, there is still a human element because you still have to pull the trigger. You have to act according to those factors.

What’s your strategy when you’re investing? Are you mostly looking at equities or all across a macro view on your portfolio?

Tadas:  It’s really across everything, but I think you’re right in terms of what you said. Quantitative models, they’re built by humans. They’re implemented by humans. And the biggest challenge for an investor, whether it be quantitative or fundamental, is when do you decide that something isn’t working? I think that’s always the challenge. For fundamental investors, having some sort of checklist, having some sort of guidelines which they can check in with over time, I think is helpful. Same with the case for quantitative investors as well.

I like to look at everything across the board. I don’t want to be equity exclusive. I’m really looking at pretty much asset classes across the board.

Jay:  Which I think is important, especially given where we are right now in this current tape. What are your thoughts here? From a value perspective, if we had this conversation one year ago, it would have been probably exactly the same. It would have been like “Okay, markets are not cheap. Valuations are high,” blah, blah. It would have literally been, and we would have missed a lot of this run that, if you’re a momentum guy, you’re loving it because you caught the tail of this bull market run.

So how are you positioned? What are you looking at? What are you afraid of right now? How does this bull market end?

Tadas:  I think there is plenty to be afraid of, which is the natural of financial markets. I think there is always something to be afraid of, and there is always something that can drive you out of the markets. President Trump has been a fount of things to be afraid of. There is no shortage of those things, which underlines why having some sort of discipline in terms of your asset allocation is really important. Like you said, it’s easy to get scared out of a position, and so having some guidelines, which you’re working with, I think is important.

From a US-based investor, it’s hard to find a whole lot of opportunity in either US-fixed income or equity assets. I think some of the things that might look interesting, the value investor in me looks at commodities, might look at energy and say these are two areas where the market is kind of bypassed of late, and I think those are two areas that might be interesting. If you have avoided them to date, then maybe dipping your toes in might be something to look at there.

Jay:  Yeah, I think you’re right, and I think that given where valuations are, like you said, equities and fixed income, it might be prudent to rotate out of some of that, take some chips off the table if you are invested there and look elsewhere. Do you look at Asia at all or international at all? And is there anything that excites you when you look globally?

Tadas:  I was early in my over-allocation to emerging markets and 2017 and late 2016 was finally the time for those markets to shine. That’s been something that I’ve been gratified to see that those markets have played some catchup relative to the US markets.

And Asia, it’s not an unknown story, but I think Vietnam is interesting in the sense that once you have futures in place, I think it makes it more accessible to institutional investors, and the classic transition for an emerging market is once you have greater liquidity and greater institutional investor participation. You might have some potential there for reevaluation.

The other thing in Asia, which I think is understated or maybe underreported is the fact that China A-shares are going to continue to be slowly added to the major emerging market indices. There was a lot of news when it first happened, but that’s a process that’s going to continue over the next few years. I think it’s maybe getting underplayed at this point.

Jay:  Yeah, I agree with you.  I think if you could get ahead of that large tailwind when all these indices are essentially going to have to start adding, including the Chinese shares into their global markets and regional market indices, the trajectory of China is only going one way. It might be a bumpy ride, but it will be in one direction. That’s going to be up.

Again, if you take that timeline and stretch it out and are not bound by quarterly or annual returns, then I think there is a big opportunity there.

Tadas:  Yeah, that’s maybe why people are… It’s not a big bang. It’s not happening all at once, and so maybe that’s why it’s happening a little bit under the radar.

Jay:  The get-rich-slowly thing doesn’t really sell. If you can get it right, it’s far more lucrative, I think.

Let’s talk a little bit about your book which was called the same thing as your website. Is that right? Abnormal Returns.

Tadas:  That’s right.

Jay:  Were you blogging being you wrote that book and that was a collection of your thoughts?

Tadas:  I had been blogging for a long time at that point, and like you said, it was an opportunity for me to… It’s interesting because I started with a blank page. I didn’t take anything that I had written before and cut and paste it into a Word document. I really started with a blank page, so that gave me an opportunity to look at the themes, things I keep coming back to. That was the impetus of writing the book.

I think people who write on a frequent basis almost feel relieved when they write something in the sense that they can get it out of their head. You get it out of your head and put it onto paper, and then you can put it behind you. And that’s oftentimes how I feel about the book. There are a lot of themes bouncing around in my head and getting it down on paper and out into the world. Then you can move on to other things.

Jay:  It’s such a huge undertaking. People that haven’t written a book wouldn’t know how much work actually goes into writing a book, and now, especially now with the way the model is working, no one makes money off books unless you’re writing about vampires or something like that.

Tadas:  I got great advice when I was preparing to write the book, and I’ve given the same advice to people who have talked to me, people who are interested in writing a book afterwards was you have to do it because it’s something you feel like you need to do. Like you said, there is little to no money in it, and if you’re doing it for monetary reasons, that’s likely going to backfire on you. But if you’re doing it because it’s something you feel really compelled to do and that, in a large sense, it’s a calling card saying, “I’m able to organize my thoughts in a sustained fashion and provide you that sort of calling card.”

The hits in the book arena are few and far between, especially in the areas of finance and investment. So it really has to be a passion project as it were.

Jay:  Absolutely. It’s like you said. This idea of shipping. I think Seth Godin talks about it. You have to ship your project or whatever it is. It’s like an urge. You have to check it off the list. It’s strange because I feel like with as much gratification doing a big project like that brings you, and you relieve some of that pressure, that pressure automatically gets filled with another next project or another thing that you have to do. It’s a lifelong struggle, I think. It’s something to be proud of though, absolutely. I think people underestimate how hard it actually is to write a book.

Tadas:  It’s funny because when I first started blogging, I thought one of the main things that I’d do content-wise would be to review books. I knew pretty early on what was involved in writing a book, and frankly, I couldn’t bring myself to write bad reviews. Even a bad book is a measure of somebody’s work and time and effort, and I’d much rather not talk about a book than say something negative about out. Maybe that’s a failing on my part, but I’d much rather highlight the things that I really like and enjoy than try and bring down or say negative things about something I don’t like.

Jay:  It’s really a shame for the author, I think, and it’s a function of both the industry and just the way things have evolved, again, with the internet and this sort of thing of content and how readily available information is now online.

The flipside of that is the reader, it’s like a knowledge arbitrage opportunity. Thank about how much time you spent years of experience gathering and collecting your thoughts on a book that can be purchased for probably $50, or I don’t know how much you’re selling it for, but to me, that’s the greatest education arbitrage that’s out there is books.

Tadas:  Absolutely. Like you said, it’s a concentrated dose of knowledge, and I think when it works, like you said, it’s almost priceless. And so, yeah, I think that is absolutely the case.

Jay:  What was the premise of your book? Give us the executive summary.

Tadas:  It was really just organized around a lot of these different themes. It was kind of soup-to-nuts going all the way from risk and return and talking about equities, talking about fixed income, talking about alternative asset classes, talking about some issues in terms of behavioral finance, talking about how to be a better, more informed consumer of financial media. So it hit on a lot of different themes.

In that sense, the book was probably blog-like in terms of jumping from topic to topic. There wasn’t some overarching theme other than the fact that, as we talked about earlier, investing in difficult. It’s a challenge for everyone, even for both institutional and individual investors and recognizing that and having some humility when it comes to our approach to investing. If there is a theme, that’s it. But it’s really kind of, again, an overview of the investment world as I saw it.

Jay:  That’s pretty interesting. Is that required reading for your class that you teach?

Tadas:  No, I wouldn’t do that to my students. Like you said, it’s something where I’m trying to look forward and hopefully that’s one of the things that I like to do in my class is keep it relevant and try and keep it as up-to-date as possible. When you’re talking about the investment world, things are always changing. So that’s one of the challenges.

I’d say my class is heavily based on podcasts, blog posts, articles, research papers and things like that and less on books.

Jay:  The class that you teach, is it more of a one-on-one type class or is it focused on actual investing strategies and this sort of thing?

Tadas:  It’s actually all about alternative investments. It’s kind of an overview of alternative investing — hedge funds, private equity, venture capital, and some real assets thrown in there as well.

The students at the undergraduate level get a lot of exposure to traditional asset classes. The one thing they don’t do or they don’t get, which I think is important, is get exposure to alternative asset classes, so that’s what the course tries to accomplish.

Jay:  I see. And are you yourself an investor in some of these alternative asset classes and private equity and this sort of thing?

Tadas:  Yeah, I think that’s one advantage I might have in being able to teach a class. I have been involved in hedge funds. I have done some angel investing and an investor in some venture capital things. One area I don’t have direct first-hand knowledge is private equity. But hopefully I can fake it there.

I think having some exposure and having some understanding of the process I think is important. I think that’s hopefully one of the things I bring to the table.

Jay:  As a private investor, I would imagine that it’s difficult at times. Investing can be a lonely craft, and oftentimes it feels like it’s you against the market, and that’s often the case as well. But especially when you’re out there and there are a lot of resources now that we have — newsletters and books and podcasts, as you said. What would be your started toolkit, if you will, for one of your students is like “I want to try my hand at investing as an individual, as a private investor, not going to work for a fund or this sort of thing.” Any recommendations?

Tadas:  I think there are a few recommendations. One is trying to keep your costs as low as possible. And that’s one of the great things about investing today. The cost of investing, the cost of commissions, the annual costs on ETF have come down — not much different than zero practically and in some cases, actually zero. So I think keeping your costs low is important.

The one thing that I think we touched on earlier in our talk is the fact that you really just have to do it. You have to get started. And obviously for somebody who is just getting started doing that in the smallest way possible, there is really no substitute for experience.

You can read all day. You can do as many backtests as you want. You can do all of those things, but until you actually put a dollar on the line, you really don’t have a sense for what it is to be an investor. And I think that’s really the challenge.

I think backtesting is great. I think that can really be informative. But like I said, until you put a dollar on the line, you’re really not going to have a good sense for it.

The analogy I like to use is that when you’re watching a sporting event and you’re watching two teams, let’s say you put a bet on with a friend of yours for five dollars, you’re going to root like crazy for one of those teams. And even though it’s five or ten dollars or even 20 dollars, you recognize that there is an emotional component when you put money on the line. And the same is the case with investing as well.

One of the things that I have found and railed against is at least in the US, sometimes there are these courses for high school students and college students to have, essentially like an investing contest where students pick a few stocks, and it’s always the case where there is some kid who picks a triple-leveraged ETF and wins the contest. Everybody thinks he’s a genius, and it’s like, well, yeah, you’ll do that in a contest when there is no money on the line, but would you do that in real life? So it’s really not much of an educational tool in my mind.

That’s where I think actually having to go out there, put money on the line, even if it’s just a few bucks, is as informative as anything.

Jay:  Yeah, the pain that you feel, it’s very real when you lose money. Some people, when you talk about speculating, speculators are like “Oh, you shouldn’t put money in unless you’re willing to lose it all.” I don’t like hearing that phrase being said, because I feel like that just makes people lazy investors. You should care about every single penny you put into an investment, and you should do as much work as possible to try to learn about the investment and go in and tip the odds as much in your favor before you go into something.

Tadas:  We talked about compounding. Anybody who has worked with a spreadsheet and trying to calculate compound interest knows that big negative numbers are going to kill that compounding rate quite quickly. There is nothing brave about losing a lot of money. There is nothing to be proud of in that regard.

Jay:  No, absolutely not. For the audience, the other thing that I wanted to recommend, Tadas, was your blog and your subscription service where essentially what Tadas does is you shift through all this information, and you put out the best articles of the day. You do that on a daily basis.

Tadas:  Yeah, we do that on a daily basis.

Jay:  I get the email. What we were talking about before where the markets are so massive and there are so many rabbit holes you can go down, it’s like trying to drink from a fire hose a lot of times. I catch myself in the morning, especially in the morning where I’m trying to get through news flow and try to catch up and then I’ll look at the clock, and it’s two hours later because I’ve gone down that rabbit hole of reading some article and then gone down this path.

I think that could be classified as a skill. Once you find your direction of what you’re focusing on, whether it’s equities or fixed income or whatever the trade of the day is, to be able to filter a lot of the news flow — you don’t have to read everything, but you have to find the pertinent information. So I think the product that you put out is actually very valuable and you offer for free, which is amazing.

Tadas:  I appreciate that. The only caveat being these are the things that I find interesting. They may not necessarily be things that I agree with, and hopefully I’m finding things that are challenging to my thinking and to other people’s thinking. That’s the standard that I’m using when I’m trying to decide whether to put something in one of the links — is it interesting? Is it something that’s going to hold up for more than a day or two? In that sense, it’s not a news service. There are plenty of news services out there. I’m really trying to find things that are going to have value or be of interest to readers for a day or two or a week or hopefully even months or years.

Jay:  Absolutely. It’s such a good thing that you do, so I appreciate that. Tadas, thanks so much for your time. It’s been a pleasure chatting with you.

Lastly, is there anything that you’re working on that you’re excited about in the coming months or maybe into next year even that you’d want to share with the audience?

Tadas:  Nothing life-altering, but if anybody wants to come to Abnormal Returns or follow me on Twitter, I think you can get a sense for the process that I use. And, like you said, it’s my view on things, and so hopefully it resonates with people, but if it doesn’t, there are a lot of other people out there doing some of the same things, so I hope everybody enjoyed our talk and hopefully check in with Abnormal Returns going forward.

Jay:  Absolutely. We’ll get that all linked up. Thanks so much for your time, Tadas. We really appreciate it.

Tadas:  Thanks very much. I appreciate it.

Jay:  Alright. Take care.