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Episode #401: Clay Gardner, Titan – Funding Administration Companies for The On a regular basis Investor
Visitor: Clayton Gardner is the Co-Founder and Co-CEO of Titan, a retail funding administration platform aimed on the new era of on a regular basis buyers.
Date Recorded: 3/8/2022 | Run-Time: 47:50
Abstract: In right now’s episode, we kick it off with an outline of Titan and the companies’ funding philosophy. Clay touches on a few of their completely different choices, which now contains crypto. We hear concerning the firm’s content material technique, which assist each educate buyers and hold them invested out there throughout risky intervals. Then we hear what different asset lessons Clay is considering 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: For those who’re looking 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 all the time evolving. Take heed to The Lively Share on Apple Podcasts, Google Podcasts, Stitcher, Spotify or TuneIn or go to right here.
Feedback or options? Concerned about sponsoring an episode? E mail us [email protected]
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 Legislation: 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 a superb present right now. Our visitor is Clay Gardner, co-founder, and co-CEO of Titan, a retail funding administration platform aimed on the new era of on a regular basis buyers. In right now’s episode, we kick it off with an outline of Titan and the agency’s funding philosophy. Clay touches on among the completely different choices, which now embrace crypto. We hear concerning the firm’s content material technique will assist each educate buyers and hold them invested out there throughout risky intervals. Then we hear what different asset lessons Clay’s considering of increasing into the longer term. 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 right now?
Clay: So I’m in New York Metropolis. We’re catching a bit of little bit of spring right here.
Meb: Man, I miss it. I have to get to New York. Bryant Park, possibly Might. It’s been a few years. What’s the vibe? It’s good.
Clay: Issues are good. Yeah, they’re beginning to get a bit of bit extra reopened. So loads of the orifices that people put up on account of COVID, there’s eating places have spilled over into the streets, all that great things. Individuals are simply on the lookout for a motive to get out and have the New York Metropolis spring-summer. So wanting ahead to that.
Meb: Properly, I’ll be part of you right here in just a few months, we make our method up there. It’s nice to have you ever right now, 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 skilled managers throughout over time. Just about any asset class, particularly centered on those who traditionally haven’t been accessible to retail buyers. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We finally expanded into crypto final summer time. So right now now we 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 primarily using shotgun whereas your supervisor calls the pictures, buys, sells securities or crypto.
Meb: What’s the origin story behind the identify by the best way?
Clay: I used to be sitting at my co-founder Joe’s desk in his residence and it simply type of got here to me. I believe lots of people affiliate the phrase hedge funds and PE with the phrase titan. I believe it’s like one of many extra widespread in case you Google “hedge fund Wall Road Journal” or “hedge fund New York Occasions”, it’s one of many extra generally cited phrases in these headlines is “hedge fund titan XYZ buys a $50 million mansion within the Hamptons.”
And so I believe Titan for us, one, I believe it alerts to we’re in battle, kind of combating in opposition to the established order by way of legacy cash managers. But additionally Titan is kind 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 buyers, who’re traditionally used to not with the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.
Meb: What do you suppose is essentially the most distinctive proposition for you guys? As a result of we’ve had kind of the digital onboarding for people, whether or not it’s a Betterment or Vanguard or Wealthfront with the allocation aspect. We’ve had personal investments over right here and areas attempting to type of democratize that. What do you guys see as kind of the primary, I don’t know if muscle motion’s the proper phrase, however what’s the large wedge or affect 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 drawback we’re fixing is individuals know they need to be invested in shares. However loads of them don’t have the time, data, or assets to do it themselves. They need greater than common. They need greater than they imagine they’d get in a low-cost index fund. However they don’t belief themselves to day commerce their financial savings in Tesla name choices on a Robinhood. And so the contrarian concept that Titan was born on was the concept that that market is definitely not a distinct segment. It was seen as a distinct segment and nonetheless is by many, however we truly imagine it’s a large market. We expect it may very well be the vast majority of no less than youthful generations.
For those who ship the proper infrastructure, you construct the proper tooling for them to understand this doesn’t should be your mother or father’s mutual fund, which is a five-letter ticker the place you’re a 5-year, 10-year, 3-year efficiency chart and that’s the product expertise. You might 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 right now is no less than confirmed to us that it’s possibly it’s a area of interest to many individuals, but it surely’s truly fairly an enormous and fast-growing area of interest and really profitable one.
Meb: Inform us a bit of 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, should not charging nothing. So what’s it you guys are providing? What are you doing and what’s kind of the framework for a way you guys take into consideration these first few methods?
Clay: We have now 4 merchandise right now, three of them are in public equities. We began with the standard “blue chip,” some corporations which can be family names, the FANG shares. We’re large followers of lots of these companies, and so they’re wildly worthwhile and we expect they deserve a slot on the roster of large-cap U.S. equities. There are additionally some under-the-radar names many individuals received’t have heard of or personal of their self-directed accounts. So we name that Flagship. Titan Flagship is the most important technique on our platform. It’s been round for a bit of over 4 years now.
The technique was designed, Flagship, with the concept that we will tease out alerts to establish nice high quality compounding companies, not overpay, and simply kind of do nothing. Be good and tactical with actively managing that, however we’re not reinventing the wheel. It’s only a conventional Warren Buffett, Terry Smith-like framework for figuring out nice companies. In order that’s Flagship. And that’s what we suggest most of our shoppers put the vast majority of their Titan pockets share in right now, 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 centered on small-cap equities. The standard analog is just like the Russell 2000 Index, for instance. These are like very off-the-beaten-path, under-the-radar corporations. A few of the corporations we’ve 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 now we have an in-house analysis staff that’s truly tactically and actively managing these portfolios. However that is one particularly centered 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 extremely 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 presently. But it surely’s an effective way for us, we expect, to present our shoppers publicity to worldwide markets the place…and I do know you’ve been an enormous proponent. I as properly suppose that loads of People have under-invested in developed and rising markets. August of final 12 months, particularly, has been rocky. And it’s been a decade interval of relative underperformance between developed rising markets within the U.S. However I believe in some unspecified time in the future that tide could flip, we wish to make certain our shoppers have publicity there in some type.
After which lastly, is Titan Crypto. That is actually thrilling. This was by no means one thing we meant to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when individuals…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on transferring into digital property this quickly. It was very a lot, it was by far essentially the most demanded retail product we’ve ever had.
Individuals have been successfully yanking it out of our palms. And so we employed an analyst, constructed a staff round it. And the aim there’s primarily blue-chip liquid cryptocurrencies, crypto-assets. So we personal Bitcoin, we personal ETH, we additionally personal different layer 1 blockchains, after which some extra esoteric cryptos. However the aim there’s we took what we imagine is kind of the S&P equal in crypto.
And to your earlier query, like what’s the aim from Titan? The aim is, one, monetary outcomes. So like over time, investor on our platform, we imagine, for us to ship worth, ought to over a 3 to five-plus 12 months rolling foundation have gotten extra worth than they may do, both on their very own of their self-directed account, or a mean low-cost index fund.
And two, which we’ll most likely dig into extra, they need to really feel considerably smarter and extra educated on how their capital is invested and why. For instance, the Russia Ukraine state of affairs 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 really instilling confidence and explaining alongside the best way is definitely actually essential to really getting the monetary worth. Like, you must keep invested to really reap the returns of the companies that your supervisor’s investing in. So I type of view them as synonymous. Numerous companies will use content material advertising and marketing or schooling as a kind of development lever IQS or product.
Meb: You guys been at this for what is that this 4 years-ish on the primary Flagship? Inform us a bit of extra. So is that this a method? Like, what kind of turnover does this have? And are you guys…is that is simply Clay, waking up within the morning and saying, ‘You realize 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 lively technique, fairly concentrated portfolio so inform us the way you guys put this collectively.
Clay: It’s undoubtedly concentrated, 15 to twenty securities, usually talking, we conviction-weight them. So the default for any place measurement is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for just a few completely different causes. One is for certain companies simply have a risk-reward prospect that we expect smaller measurement can justify the upside. So, for instance, as of this writing, now we have a small place in Coinbase in Flagship. For a handful of causes, we imagine it’s each essentially low-cost and misunderstood. But additionally we imagine if and after we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We 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 ideas, like discover nice companies that we imagine have entrenched aggressive moats, aggressive benefits. That is the kind 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 be capable to get up and wish to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply make certain we don’t overpay.
After which your query on turnover, the world modifications. And so I’d draw the road between us and the standard notion of like a Buffett, I truly don’t imagine in buy-and-hold, I imagine, buy-and-hold, and I’m not going to say this time is completely different, 4 very harmful phrases, however this time, it type of is completely different. Take into consideration what we’re going by means of proper now, even since November, the final rising fee and development drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of buyers who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being an important enterprise.
Behind the hood, Meb, what occurs is now we have a staff of roughly 60 analysts. A few of them frolicked at personal fairness funds, household places of work, hedge funds, others at sell-side companies for his or her analysis, or knowledge analysts. And what we’re attempting to do internally is consistently construct a backlog of companies which can be on our procuring record at a sure worth. So validate these are high quality companies, there’s one thing particular about what they’re doing that may’t be simply replicated.
These are in secularly rising industries or markets, some could also be extra cyclical, some could also be extra secular. However usually, these are industries for fixing a transparent drawback. There’s a large tam for them to penetrate. Administration groups with incentives align like, we perceive. They’re aligned with shareholders, they’ve a monitor document of delivering worth, after which a margin of security.
So we don’t wish to pay by means of the eyeballs for an important enterprise. As a result of if something, if the previous few months have taught us something, it’s like I mentioned, you’ll be able to pay 40 occasions gross sales for an important enterprise for a Snowflake or a Datadog, the market goes to punish you throughout sure environments. You’re going to pay up for that high quality, maybe an excessive amount of. And so ensuring we’re not attempting to leap over 20-foot hurdles from a valuation standpoint.
So by way of turnover, it sometimes I’d say traditionally, in intervals 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 12 months, significantly within the software program sector, the place I noticed a lot a number of growth, on account of QE, and unprecedented stimulus. And lots of people paying up probably method 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, corporations which have IPO’d. So I’ll be a supply of concepts and serving to push again and satan’s advocacy and that kind of wholesome danger administration debate internally. However I’ve an important 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 important staff right here.
Meb: So how does that staff work? You guys do like a each day weekly obtain assembly the place individuals have been pitching shares? As a result of loads of hedge funds have completely different… I’m not attempting to match you on to a hedge fund however loads of lively funds have a special course of. Typically it’s the lone wolf PM, typically it’s staff, typically they do eight-month deep dive, typically it’s a committee. Like how do you guys go about truly placing stuff in and pulling stuff out? Is there kind of a framework, which you guys apply for it? As a result of I assume it’s composite that goes with one portfolio for the Flagship is all the identical shares for all the identical shoppers, proper?
Clay: That’s precisely how I give it some thought. Give it some thought kind of like a mannequin portfolio. We have now 50,000-plus shoppers, and every of those shoppers has his or her personal SMA or individually managed account. In order that they have a brokerage account. They’ll pop in, they’ll see the securities we maintain on the finish of each month. Clearly, they’re participating usually each 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 right now and see what questions have been requested by different buyers on our platform, upvote, and so on. It’s a extremely cool method to keep knowledgeable and engaged.
However by way of our course of, we didn’t actually reinvent the wheel right here, having spent a while on the buy-side myself. I’ve seen what works, what doesn’t. I believe for our temperament and our funding mandate, we do a proper Funding Committee. So each determination has to have a proper memo and mannequin. The memo has to doc all of the findings of what’s sometimes a two- to three-week analysis course of. I’m usually of the assumption of everybody must be macro conscious, and attempt to cross-pollinate and be taught 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 now we have a devoted analyst who’s centered on shopper and media, a devoted analyst who’s centered on our investments in software program and semiconductors, one devoted to industrials, and so forth. That’s how they information their time. In order that they have a universe of companies they’re aware of. They’re consistently attempting to develop that, as a result of clearly, there’s new points, there’s corporations IPLA, there’s M&A exercise. So consistently attempting to construct out their procuring lists after which it actually simply says, ‘Do you belong on the core? Do you belong within the beginning 5?’ so to talk.
So each analyst is consistently re-underwriting and from their viewpoint, there’s this different identify on my procuring record I’ve been doing work on. Is that this a better alternative value than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after latest market volatility than this present software program identify we personal? And if that’s the case, let me take that to the committee and pitch that change. And so it’s actually serving to now we have a delegated 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, be capable to refute it higher than the neatest bear on the road. I believe that’s a extremely clever remark that Charlie Munger made. It is best to be capable to refute your individual bull case, higher than every other bear, debate in opposition to your self, and nonetheless come out feeling excited.
After which my function is admittedly 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. Strive to verify we’re not too far tilted by some means. So it’s actually wholesome course of. And we’re clearly studying, we don’t fake to know all of the solutions. However to date, it’s labored out very well. And I believe it aligns incentives in a extremely good method.
Meb: If I keep in mind in years again, I’ve been following you guys for some time, it’s good to see the expansion, kudos. And I keep in mind in some unspecified time in the future, the method, you guys talked about different elements of the portfolio, whether or not it’s hedging. We talked concerning the screening course of, and 13F, kind 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 all the time doing? Do these nonetheless play a job? After which how do you consider type of incorporating the varied items of the puzzle over time too?
Clay: I just like the phrase or the quip that there’s no unique concepts. And the explanation I deliver that up, Meb, is as a result of within the early days after we have 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 have been a extremely lean, agency. And so naturally, if you’re constrained from a useful resource standpoint, it’s useful to fish in a pond that you just 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 the majority hedge funds or RIAs above a sure threshold within the U.S. have to file. And people present all their lengthy holdings, in order that they don’t present any quick holdings or some esoteric securities derivatives aren’t proven.
However in case 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 12 months to 12 months. And so we used these within the early days, similar to I did at my previous agency at Fairlawn and the fund I used to be at simply after Fairlawn, as a superb looking 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 procuring record must be, that’s finally what helped us go from, okay, how can we begin with 10,000-plus world securities and slender it to a pool of possibly 100, 200?
So we no less than know which rocks are value turning over. In order that knowledgeable loads of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised a bit of extra enterprise capital, we’ve actually bootstrapped our method 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 an information science staff internally. And so in consequence, we’ve been capable of transcend simply 13Fs and be capable to fish in lots of, many alternative ponds and in addition entry a much wider swath of knowledge.
On the similar time, we noticed COVID hit in early 2020. And I believe we realized that what’s a transparent, name it the associated fee aspect of the cost-benefit of utilizing a 13F technique. The associated 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 occurring beneath the floor of those managers. So for instance, in case you keep in mind, like, COVID actually occurred in March 2020. We didn’t actually begin to see the ramifications of how individuals would react till April, Might. Individuals repositioning from the bodily out-of-home corporations to the work-from-home beneficiaries, the stay-at-home story shares, just like the Pelotons to the … and so forth, you didn’t actually seize that in Q1.
And so in case you have been relying strictly on 13Fs, which once more, are solely up to date as of quarter-end, you’d be a completely completely different image. You’d successfully be wanting on the world as if COVID had not existed. And also you wouldn’t be capable to have a clearer, extra up to date image of the world till that summer time, after which you possibly can argue loads of the chance was capitalized on. So we heard from our consumer base loud and clear that they needed us to grow to be extra lively over time.
And so it was very a lot a mixture of us with the ability to fish in additional ponds and be much less resource-constrained, and be extra true and tried high quality development buyers, not simply being wed to at least one particular supply of concepts. But additionally in some ways shoppers have been like, ‘Guys, we would like you to be extra tactical. We wish you to have the ability to take a look at issues that possibly different funds aren’t , we would like to have the ability to take benefit intramonth, intraquarter, versus being a “slave” to the method’.
And so it was a mixture of push and pull each client-led and internally-led. I believe we nonetheless bought to a extremely enjoyable place. And actually importantly, I believe a greater place for buyers long-term, which continues to be sticking to the technique of shopping for high quality compounding companies, aiming to carry them for a 3 to 5-year horizon. Typically not doing a lot until alternative value warrants it in our view. But additionally be capable to take part within the volatility and benefit from dislocations in a method {that a} really systematic or completely quantitative technique in any other case wouldn’t be capable to do.
Meb: So are you guys nonetheless enthusiastic about hedging as properly? Or is that much less of a job than at prior occasions?
Clay: No, that’s a superb name out. So all the pieces I’ve described to date, you’re spot on, is on the lengthy aspect. We’re not an extended, 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 over the past couple of years, Meb, at completely different cut-off dates, we don’t presently use leverage outright. So we don’t quick futures, we don’t purchase put choices. So we’re truly not taking particular leverage or shorting securities outright. However I believe it’s essential to present individuals a method to scale back beta.
So let me take a latest instance, we truly began hedging, we placed on inverse ETFs. So principally going alongside an inverse instrument that strikes each day reverse the market in a one to at least one method 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 must mitigate the diploma of that drawdown considerably. I believe it was solely 70% or 80%, draw back seize that our shoppers had versus had they’d been totally invested within the index.
So a working example of getting an lively analysis staff be capable to monitor. We’re not macro buyers however we’re macro conscious. And after we get sure knowledge factors from our community of oldsters 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 mentioned, ‘Okay, we expect it will behoove us to placed on some universe CTF publicity to cut back market publicity, i.e., beta for shoppers’.
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 method you take a look at it, you don’t have particular person inventory stage or on an index stage, whether or not it was the S&P, the Russell, the NASDAQ, issues weren’t wanting good. And I’m not a chartist. We’re not technicians by nature. However we do imagine like charts finally do mirror sentiment in markets. And loads of occasions they are often telling you one thing that you could be be lacking.
And so a mixture of technicals, and in addition some elementary knowledge we’ve been monitoring led us to imagine that, opposite to the standard purchase and maintain index buyers, buyers in Titan ought to have their beta decreased, and they need to be ‘hedged’. So it’s one thing that we’re offering, it’s fairly distinctive within the total scheme of funding advisors. That is clearly par for the course in long-short hedge fund land like that is, most long-term buyers are outright shorting securities, and possibly they’re shorting futures as properly.
Leveling up, I believe it’s actually thrilling to have the ability to provide one thing like this to retail buyers, particularly not taking leverage. There’s something I believe we as a platform be taught from the GameStop, AMC period, is that there’s an actual value to shorting securities, it might probably actually take the whole agency down, if not correctly managed. So this permits us to hedge for our shoppers with out taking the kinds of dangers that might jeopardize them in our enterprise long-term.
Meb: As you consider this macro, we’ve had a ton of macro crosscurrents previous few years, is there kind of like a max hedge quantity you guys would think about, how do you consider that? As a result of shoppers, you bought 50,000 individuals together with your cellular phone quantity now, Clay. And I’m joking, possibly it’s simply the app, however that’s loads of buyers when the world’s going loopy because it has been the previous few years. I imply, it’s type of all the time going loopy, after all, however significantly loopy now, is there kind of a framework the place you consider that? And the way set in stone is it enthusiastic about that kind 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% internet lengthy 100% of the time. And I believe each method you chop it, empirically talking, you need 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 prime? Is that low? From a go-forward foundation do we expect it’s extra like 2% or 3% going ahead? We might debate precisely the place we shake out. However I believe GDP, productiveness development, these types of issues take world economies up and to the proper, and markets are likely to observe. So it is smart why you need to be totally invested more often than not.
To that diploma, we’ve set kind of a framework in thoughts from just like the macro in a hedging standpoint, the place our internet lengthy publicity, which is only a fancy method of claiming like, for each $100 you’ve gotten invested, how a lot are literally outright being uncovered to market danger? It ought to usually be the vast majority of these $100. So for us, Meb, we ship out to 80% to 100% is kind of the vary of internet lengthy publicity. I’ll caveat that we’ve launched the idea of what we name strategic money as properly.
So it’s actually essential, I believe, for individuals to understand that money is an funding determination. It’s zero per cent yielding safety and I’m being a bit of bit hyperbolic, 0.004% of no matter your native banks paying you, for all intents and functions, it’s a zero per cent yielding safety, destructive in actual phrases now given the place inflation’s heading. It’s a alternative that you just actively make. And we, as an lively supervisor, have added that final couple of years to our toolkit, as a method to scale back market publicity as a result of money has zero beta.
So with that, as we speak right now, Meb, we’re at about 70% lengthy publicity. So for our aggressive shoppers, now we have a 5% hedge of these $100, about $5 are allotted to hedge. For reasonable conservative shoppers, 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 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 straightforward solutions on this market, money can typically be the perfect various. It’s a supply of dry powder in order that if and after we clearly imagine when the macro image improves, we might benefit from it. So over time, I believe we’ll shake out $2 of our $100 a consumer could have invested with Titan, relying on their danger profile. They’ll see someplace between $50 to $100 of that 100 be totally in danger out there. We 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 buyers, rising the AUM, look out within the horizon, what’s the longer term appear like for you guys subsequent month, subsequent 12 months, subsequent couple years? Give us a peek backstage, what can we look ahead to for Titan and choices, neighborhood, all that great things?
Clay: It goes a lot additional past blue-chip equities, mid-cap equities, blue-chip crypto. Issues which can be on our thoughts, Meb, personal property, huge, in my thoughts, a contributor to the wealth divide but in addition simply clearly inaccessible to unaccredited retail buyers. Issues I’m considering 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, buyers are human by nature, and seeing scary-looking charts day after 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 one in all, I believe, the nice benefits that the enterprise neighborhood has is there’s undoubtedly volatility in personal corporations, you simply don’t see it day by day. Like I do know there are corporations within the personal markets being marked up being marked down each week, each month by way of their intrinsic worth, you simply don’t see it as an LP. Whereas I might joke and say that’s destructive, I truly suppose it will be a optimistic to retail buyers.
I believe getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise development companies with a correct sizing, once more, gauge to their danger profile, so this isn’t going to be acceptable for everybody. However so long as they perceive the dangers round liquidity, you’re not going to have the ability to pull your cash out day by day, possibly it’s month-to-month, quarterly, yearly, you perceive the charges, you perceive the danger profile, that’s one thing that retailers by no means had entry to.
One other large sector is personal fairness. Actual property is one other one. I may also 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 now we have loads of work to do. It’s not going to be as straightforward as our first 4 merchandise. I’ll inform you that a lot. It’s not going to be as straightforward as rent a 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 should be constructed to attain among the stuff I discussed.
Meb: Do you foresee these being like, are they going to be separate accounts, will they be funds? As a result of a few of these are lots more durable to personal with 50,000 individuals.
Clay: No, I completely agree.
Meb: How do you consider it or you might not know but? I imply it might be it’s now within the course of.
Clay: No. Numerous the arduous work we’re doing proper now is determining what I name fund operations, loads 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 imagine it’s doable, it was a extremely, actually arduous drawback. That is if you get into like custodial and clearing preparations, and all types of furry stuff. It’s very, very regulatory intensive, however I believe large issues like this are value fixing. As a result of in case you resolve it, you’re speaking about trillions of {dollars} of capital that may impulsively be unlocked for retail and I believe it will usually be a a lot better world.
Meb: It’s going to be enjoyable to observe. What’s the profile for many of your buyers? Has it modified over time, as you’re onboarding loads of digital native customers? I assume it skews youthful, however you possibly can right me. And the place are you discovering most of those buddies, 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 just a few East Coast airports on AFC/NFC Championship Sunday. So we truly are testing some greater bets by way of out-of-home consciousness, however…
Meb: We have been joking on Twitter the opposite day I used to be like, we tried a pair advertisements in Barron’s. We’re very curious and wish to attempt issues out at small measurement and all the time simply questioning if anybody truly sees it. So I used to be like, ‘Does anybody truly see this?’ Everyone seems to be like, ‘No’, however I bought one response. I do know we bought to no less than one particular person. Okay. Properly, inform me, TVs and airports?
Clay: Linked TV, it’s enjoyable. I volunteered myself to do the business. So starring yours really, we filmed it in Brooklyn again in June, and it lastly went dwell the previous few months.
Meb: Good.
Clay: No, it’s superior. I’ve had household buddies. I’ve had individuals I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to advertisements and I noticed a business.’ It was type of a cool second. No, however for us core demographic, the mode is 30 to 35. That’s kind 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, loads of founders, entrepreneurs.
So these are those who usually like are actually, actually good at their craft, however should not good at investing. They want they have been nearly as good at investing as they’re of their craft. Possibly you’re a senior engineer, or possibly you’re employed at McKinsey, or possibly you’re an actual property agent. These individuals who like are actually, actually good at what they do however they want that translated to investing. And loads 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 move this to the consultants.’
We’ll additionally get loads of people that come from the standard like robo-advisory, like taxa world, wanting extra. Like look, ‘I do not know what’s occurring, I wish to take part and be extra lively, actively concerned. Sure, I’d clearly love higher than common returns.’ And so we’ll get loads of the standard robo and in addition older cash like Legacy, Constancy, Schwab accounts, moved over to the platform. So it’s a broad swath, we’ll get 20-year-olds, we’ll get 80-year-olds on the platform, it’s actually cool to see this attraction to differing kinds.
However I’d say individuals which can be in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m probably not happy with any of them. I’m actually good at my craft and aspire for experience at any time when I do, I want I may also have that for my cash’, is kind of just like the core drawback and consumer-type that we see. Clearly, as we launch extra merchandise, and in addition account sorts 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 previous 401(ok) cash.
So I’d say like the following time we chat, Meb, like the patron sort, age, demographic will most likely change. And I believe one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you give attention to 20-year-olds for the following 20 years? So right now’s 20-year-olds are going to be 30-year-olds in 10 years. Are you all the time centered on that very same younger archetype? Or do you develop together with your investor base?
That’s kind of an fascinating drawback and problem we’re considering by means of, I believe it’s going to be a bit of little bit of each. I believe we want to verify we’re rising and being good, considerate about including different account sorts, 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 a number of various things we will do. However by way of the place we discover that, it’s principally natural, it’s principally referrals and that.
Meb: One of many cool elements 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 certain are enthusiastic about, about incorporating that consumer base as an asset for the platform too. I’ve seen loads of fascinating whether or not it’s neighborhood 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 principally video, print, schooling? You talked about there’s kind of like a suggestions messaging characteristic and the way do you count on that to evolve within the coming quick future?
Clay: It actually runs the gamut. Our aim is like now we have various kinds of individuals which can be from all walks of life, and have completely different existence, completely different routines. So now we have those who do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF after they wish to take heed to a podcast on the practice, or on the subway or within the automobile. We have now each day audio notes, we name them content material franchises. Content material franchises are principally we’re attempting to construct rituals the place we will meet prospects the place they’re and meet buyers, 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, now we have a each day, fast minute to two-minute audio observe. A bit of mini podcast they’ll take heed to and get the three issues that matter for his or her portfolio right now.
Meb: Individuals take heed to that?
Clay: Individuals take heed to it, that was one of the crucial engaged franchises now we have. We even have an e-mail type. So now we have very first thing in your inbox day by day it’s a publication known as ‘Three Issues’, the three most salient issues we imagine it’s essential know associated to the world of enterprise investing and the way we’re managing capital.
Meb: It’s humorous to consider kind of the behavioral aspect of that, too, as a result of we’ve put out loads of content material over time. And I really feel prefer it’s nearly a barbell, the place there’s the those who wish to interact that. However then there’s the opposite individuals which can be 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 all the time an fascinating contact level on is it an excessive amount of? Is it too little? After which how do you section that? Which is the cool half, as a result of if you need it, you may get it however some individuals may be like, ‘Dude, go away me alone’. Do you guys do any kind 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. While you’re a Titan investor, Titan consumer, Meb, it’s like all or nothing. You get all of the content material franchises and you must…clearly you’ll be able to go in and decide and select what you take heed to. However we solely assist curate that.
Like, there’s a ton of alternative for us to say, you don’t must even state your preferences. We should always Intuit based mostly in your habits. ‘Oh, Meb hasn’t checked our opening or closing bell audio observe, possibly let’s pull that off the house display.’ De-emphasize that, emphasize one thing fascinating, and information that possibly he’s eager about. After which he takes and he clicks and engages with that, we will ask him and we’ll make that a part of his habits.
Issues that now we have discovered work very 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 standard cash supervisor RIA, let’s say you’ve gotten 100 shoppers, even that’s untenable, doing 100 Zoom calls a day, are you able to think about? Like there’s a motive I believe loads of advisors go for bigger account sizes, and it makes whole sense, it’s like the associated fee 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 expertise has unlocked the flexibility for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I believe in case you polled most of our 50,000 customers, Meb, I believe loads 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 attempting to construct extra model and persona round every product. So like, for instance, Titan Alternatives, within the coming quarters, you’re going to know there’s an individual and also you’re going to know who that man or woman is on Alternatives. While you see a video or e-mail or content material franchise from that particular person, 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 loads of engagement, loads of referrals round that. And it’s additionally saved individuals invested during times of volatility. They’re like, “Oh, my man or my woman’s caring for my cash. I do know I’m in good 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 neighborhood. So the opposite factor you’d see within the app right now is known as ATA or Ask Titan Something. That is kind of an inner beta hackathon concept, which was what are all of the questions that retail buyers may very well be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, in case 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 mentioned, “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 mentioned, properly, what in case 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 particular person on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.
They’ve a portal internally the place they’ll go into our inner Titan portal, reply that query, broadcast it out. Not solely does that unique query asker get an 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 possibly 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% right now,” typical retail investor habits is transfer to money, promote, make the bleeding cease. Titan investor habits 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 speak 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 an enormous 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 of 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 buyers take part. How was that course of? And what are you guys going to spend all that cash on?
Clay: I believe it’ll final us a very long time, knock on wooden. This can final us endlessly. Within the early days, for us, it was very arduous to lift cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have buyers throwing cash at us. The truth is, we bought instructed no by over 110 VCs in a row. We needed to increase cash …
Meb: …110 VCs there’s now.
Clay: Yeah, we needed to go undoubtedly off the crushed path to even discover investor 51. It was not straightforward.
Meb: Properly, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be attempting to poke a bit of enjoyable at my VC buddies as a result of it was in Sebastian Mallaby’s new ebook on VCs known as “The Energy Legal guidelines.” However there was a quote from Andy Grove, well-known Intel result in John Doerr, the place he mentioned, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However an important ebook, by the best way, listeners, anyway. Okay, so.
Clay: It’s truly been on my record. Yeah.
Meb: Yeah, it’s enjoyable. I imply, look, for people who find themselves aware of that world, it’s most likely much less you possibly can type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s an important historical past. So okay, I interrupted you. Sorry, hold going.
Clay: No worries. So it was not straightforward to lift cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, development solves all issues. There’s something I’ve taken away as an entrepreneur, it’s development solves all the pieces, from hiring, to storytelling, to elevating capital, to constructing new revolutionary merchandise. So for us, 2020, everybody remembers it because the 12 months of COVID and was a horrible 12 months for lots of industries, loads of human life.
The one upshoot of it was I believe loads of buyers that in any other case possibly would have waited years to grow to be buyers bought pulled into the markets, you possibly 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 possibly can say it was simply there are a lot stimulus, a lot alternative to generate profits. Irrespective of how you chop it, it was an important 12 months for FinTech, usually.
For our house, it was a interval of outstanding volatility. And so individuals needed lots of people that have been previous buyers or have been DIY buyers have been like, “I’m out, man, I do not know what I’m doing. I’m transferring cash to the consultants.” And so once I talked about we begin hedging, and like, actually leaned into that a part of our price prop, noticed loads of consumer inflow. And like I mentioned, development solves all issues.
In order that 12 months 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 if you’re not on the lookout for cash is exactly the time when each investor desires to present you cash. And so we’re large followers of Andreessen Horowitz. Yeah, it’s about 48 hours from the time they reached out to reengage to the time we had 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 mentioned you began shopping for shares if you have 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 truly I neglect how I sourced that. However I held it to 2008 and it wasn’t straightforward. In order that’s most likely what involves thoughts.
Meb: I used to go to the personal Google events once I was residing in Tahoe. In San Francisco I had just a few 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 have been simply printing tons and tons of cash. I ought to have simply purchased it and held on to it. The previous Peter Lynch type, however anyway. All proper, my man, it has been enjoyable. The place do individuals go in the event that they wish to discover what you guys are as much as, open an account, shoot you some messages, what’s the perfect place?
Clay: Yeah, the best place is titan.com. Tremendous easy. You possibly can be taught extra about what we’re constructing, methods, enroll, tremendous straightforward, $100 minimal. You could find me on Twitter as properly. I don’t tweet typically. I wish to hold a excessive signal-to-noise ratio. So hopefully once I do, it’s one thing moderately useful. However I’m on there each day and I reply to DMs and so forth. So digital clay, @virtualclay is my deal with.
Meb: Superior.
Clay: Yeah, it’s been a pleasure.
Meb: Clay, thanks for becoming a member of us.
Clay: Thanks.
Meb: Podcast listeners, we’ll submit present notes to right now’s dialog at mebfaber.com/podcast. For those who love the present, in case you hate it, shoot us suggestions at [email protected]. We like to learn the evaluations, please evaluate us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, buddies, and good investing.
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