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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 technology of on a regular basis buyers.
Date Recorded: 3/8/2022 | Run-Time: 47:50
Abstract: In at the moment’s episode, we kick it off with an outline of Titan and the companies’ funding philosophy. Clay touches on a few of their totally different choices, which now consists of crypto. We hear in regards to the firm’s content material technique, which assist each educate buyers and maintain them invested out there throughout risky durations. Then we hear what different asset courses Clay is considering of increasing to sooner or later.
As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith.
Sponsor: In the event you’re in search of the much less apparent and are curious in regards to the ever-changing world and the way it impacts investing, The Lively Share podcast is for you. Hear thought-provoking conversations with thought leaders, firm executives, and William Blair Funding Administration’s personal analysts and portfolio managers as they share distinctive views on investing in a world that’s at all times evolving. Take heed to The Lively Share on Apple Podcasts, Google Podcasts, Stitcher, Spotify or TuneIn or go to right here.
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Hyperlinks from the Episode:
- 0:40 – Sponsor: The Lively Share Podcast
- 1:14 – Intro
- 1:54 – Welcome to our visitor, Clay Gardner
- 2:30 – Overview of Titan
- 9:57 – Titan’s funding philosophy
- 17:21 – How their funding course of has developed over time
- 21:49 – Clay’s ideas on hedging
- 27:39 – Clay’s ideas on the way forward for Titan
- 30:42 – The profile of the typical Titan consumer
- 40:32 – Fundraising from a16z, Will Smith and Kevin Durant
- 41:30 – The Energy Regulation: Enterprise Capital and the Making of the New Future
- 43:36 – Clay’s most memorable funding
- 44:25 – Study extra about Clay: titan.com; Twitter
Transcript of Episode 401:
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Meb: What’s up, y’all? We received an excellent present at the moment. Our visitor is Clay Gardner, co-founder, and co-CEO of Titan, a retail funding administration platform aimed on the new technology of on a regular basis buyers. In at the moment’s episode, we kick it off with an outline of Titan and the agency’s funding philosophy. Clay touches on a number of the totally different choices, which now embrace crypto. We hear in regards to the firm’s content material technique will assist each educate buyers and maintain them invested out there throughout risky durations. Then we hear what different asset courses Clay’s considering of increasing into the longer term. As we wind down, we hear in regards to the agency’s fundraising historical past, which incorporates investments from a16z, Kevin Durant, and Will Smith. Please get pleasure from this episode with Titan’s Clay Gardner.
Meb: Clay, welcome to the present.
Clay: Thanks for having me, Meb. Excited to be right here.
Meb: The place’s right here at the moment?
Clay: So I’m in New York Metropolis. We’re catching a little bit 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 little bit bit extra reopened. So a variety of the orifices that people put up because of COVID, there’s eating places have spilled over into the streets, all that good things. Individuals are simply in search of a motive to get out and have the New York Metropolis spring-summer. So trying ahead to that.
Meb: Effectively, I’ll be a part of you right here in a number of months, we make our method up there. It’s nice to have you ever at the moment, 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 might 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 knowledgeable managers throughout over time. Just about any asset class, particularly targeted on those who traditionally haven’t been accessible to retail buyers. So we launched in 2018. We began with the bread and butter Reno make investments, which is public equities. We finally expanded into crypto final summer time. So at the moment we’ve 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 crew. And then you definately’re primarily driving shotgun whereas your supervisor calls the photographs, buys, sells securities or crypto.
Meb: What’s the origin story behind the title by the way in which?
Clay: I used to be sitting at my co-founder Joe’s desk in his condominium and it simply type of got here to me. I feel lots of people affiliate the phrase hedge funds and PE with the phrase titan. I feel it’s like one of many extra widespread in the event you Google “hedge fund Wall Avenue 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 feel Titan for us, one, I feel it indicators to we’re in battle, type of preventing towards the established order by way of legacy cash managers. But in addition Titan is type of this sort of revered determine of authority and standing, whether or not its monetary standing or simply authority on this planet. And I feel it touches a nerve for lots of our buyers, who’re traditionally used to not having the ability to afford to get entry to the issues that “hedge fund titans” of yesteryear have entry to.
Meb: What do you assume is probably the most distinctive proposition for you guys? As a result of we’ve had type of the digital onboarding for people, whether or not it’s a Betterment or Vanguard or Wealthfront with the allocation facet. We’ve had non-public investments over right here and areas making an attempt to type of democratize that. What do you guys see as type of the primary, I don’t know if muscle motion’s the suitable phrase, however what’s the massive wedge or influence 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 a variety of them don’t have the time, information, or assets to do it themselves. They need greater than common. They need greater than they imagine they might 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 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 an enormous market. We predict it may very well be the vast majority of at the least youthful generations.
In the event you ship the suitable infrastructure, you construct the suitable tooling for them to understand this doesn’t have to be your mum or dad’s mutual fund, which is a five-letter ticker the place you’re taking a look at a 5-year, 10-year, 3-year efficiency chart and that’s the product expertise. You could be introduced alongside, as managers are going to work, going to bat doing analysis, figuring out securities, with non-public’s public’s crypto. And so our progress at the moment is at the least confirmed to us that it’s possibly it’s a area of interest to many individuals, however it’s truly fairly a giant and fast-growing area of interest and really profitable one.
Meb: Inform us a little bit bit about your base first choices, in a world the place Vanguard is principally you should buy the market cap index for nothing, or near nothing. I assume you guys, like us, aren’t charging nothing. So what’s it you guys are providing? What are you doing and what’s type of the framework for the way you guys take into consideration these first few methods?
Clay: We’ve 4 merchandise at the moment, three of them are in public equities. We began with the normal “blue chip,” some corporations which might be family names, the FANG shares. We’re large followers of a lot of these companies, and so they’re wildly worthwhile and we predict they deserve a slot on the roster of large-cap U.S. equities. There are additionally some under-the-radar names many individuals gained’t have heard of or personal of their self-directed accounts. So we name that Flagship. Titan Flagship is the biggest technique on our platform. It’s been round for a little bit over 4 years now.
The technique was designed, Flagship, with the concept we are able to tease out indicators to establish nice high quality compounding companies, not overpay, and simply type of do nothing. Be good and tactical with actively managing that, however we’re not reinventing the wheel. It’s only a conventional Warren Buffett, Terry Smith-like framework for figuring out nice companies. In order that’s Flagship. And that’s what we advocate most of our purchasers put the vast majority of their Titan pockets share in at the moment, for a handful of various causes from a danger tolerance standpoint.
The second is we’ve type of moved down the market cap spectrum. So we launched a product targeted on small-cap equities. The normal analog is just like the Russell 2000 Index, for instance. These are like very off-the-beaten-path, under-the-radar 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 we’ve an in-house analysis crew that’s truly tactically and actively managing these portfolios. However that is one particularly targeted on not devalued, however like off the 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 assume. It’s worldwide securities, primarily by way of with record equities and ADRs. So we’re not investing in any new offshore markets immediately presently. But it surely’s a good way for us, we predict, to present our purchasers publicity to worldwide markets the place…and I do know you’ve been a giant proponent. I as properly assume that a variety of Individuals have under-invested in developed and rising markets. August of final 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 feel in some unspecified time in the future that tide might flip, we need to be sure that our purchasers have publicity there in some type.
After which lastly, is Titan Crypto. That is actually thrilling. This was under no circumstances one thing we supposed to get into as quickly as we did. And I do know I’m going to sound like a boomer within the scheme of issues when individuals…I used to be on Mt. Gox in 2013. I’ll admit, I used to be not that early, we weren’t that early. However candidly, on our roadmap, we weren’t planning on shifting into digital belongings this quickly. It was very a lot, it was by far probably the most demanded retail product we’ve ever had.
Folks had been successfully yanking it out of our palms. And so we employed an analyst, constructed a crew round it. And the objective 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 objective there’s we took what we imagine is type of the S&P equal in crypto.
And to your earlier query, like what’s the objective from Titan? The objective 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 might 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 scenario which is going on as we’re doing this interview, individuals ought to know precisely how they’re positioned. What’s my Russia publicity? How does the U.S. ban on imported oil from Russia have an effect on? What cash ought to I be including on this volatility? Ought to I be dollar-cost averaging?
We’ve seen that really instilling confidence and explaining alongside the way in which is definitely actually vital to truly getting the monetary worth. Like, you need to keep invested to truly reap the returns of the companies that your supervisor’s investing in. So I type of view them as synonymous. Loads of companies will use content material advertising or schooling as a type of progress lever IQS or product.
Meb: You guys been at this for what is that this 4 years-ish on the primary Flagship? Inform us a little bit extra. So is that this a method? Like, what kind of turnover does this have? And are you guys…is that is simply Clay, waking up within the morning and saying, ‘You recognize what, I’m the PM and these are all my decisions,’ you bought a crew? After which how do you guys go about making the requires what goes in, what comes out? For most individuals, that’s a, correctly for an lively technique, fairly concentrated portfolio so inform us the way you guys put this collectively.
Clay: It’s undoubtedly concentrated, 15 to twenty securities, typically talking, we conviction-weight them. So the default for any place measurement is 5% every or 100% divided by on common 20 positions, we’ll conviction-weight for a number of totally different causes. One is definite companies simply have a risk-reward prospect that we predict smaller measurement can justify the upside. So, for instance, as of this writing, we’ve a small place in Coinbase in Flagship. For a handful of causes, we imagine it’s each basically low cost and misunderstood. But in addition we imagine if and once we’re proper, the upside of that safety, even at a 1% place, it deserves a slot within the portfolio. We’ve different securities like Microsoft or Apple, that are extra considerably higher-weight, nearer to mid to excessive single-digit share of the portfolio.
However stepping again, I might 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 type of sleep at evening, get up in 10 years. If the markets closed for 10 years, we gained’t bat an eye fixed, feeling nice that we’d be capable of get up and need to purchase this portfolio each single day. And let the enterprise compounding do our work for us. Simply be sure that we don’t overpay.
After which your query on turnover, the world adjustments. And so I might draw the road between us and the normal 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 totally different, 4 very harmful phrases, however this time, it type of is totally different. Take into consideration what we’re going by way of proper now, even since November, the final rising price and progress drawdown we noticed after which adopted by this geopolitical disaster. There’s loads of buyers who purchased and held Microsoft within the early 2000s and it took them 15 years to get again to breakeven, regardless of it being an ideal enterprise.
Behind the hood, Meb, what occurs is we’ve a crew of roughly 60 analysts. A few of them frolicked at non-public fairness funds, household workplaces, hedge funds, others at sell-side companies for his or her analysis, or knowledge analysts. And what we’re making an attempt to do internally is continually construct a backlog of companies which might 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 typically, these are industries for fixing a transparent drawback. There’s an enormous tam for them to penetrate. Administration groups with incentives align like, we perceive. They’re aligned with shareholders, they’ve a monitor document of delivering worth, after which a margin of security.
So we don’t need to pay by way of the eyeballs for an ideal enterprise. As a result of if something, if the previous few months have taught us something, it’s like I stated, you’ll be able to pay 40 occasions gross sales for an ideal enterprise for a Snowflake or a Datadog, the market goes to punish you throughout sure environments. You’re going to pay up for that high quality, maybe an excessive amount of. And so ensuring we’re not making an attempt to leap over 20-foot hurdles from a valuation standpoint.
So by way of turnover, it usually I might say traditionally, in durations of decrease volatility, it’s been solely a few trades per quarter of these 20 shares, on common in Flagship. Solely a pair adjustments per quarter. I might 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, notably within the software program sector, the place I noticed a lot a number of growth, because of QE, and unprecedented stimulus. And lots of people paying up probably method an excessive amount of for progress.
So it’s a mix of artwork and science is what I might say. Because the PM and CIO, sure, I make the ultimate calls on selections. And I’ll oftentimes spitball concepts, companies I discover by way of my community of founders, corporations which have IPO’d. So I’ll be a supply of concepts and serving to push again and satan’s advocacy and that type of wholesome danger administration debate internally. However I’ve an ideal crew round me that does the arduous work that’s studying the case, the cues, that’s speaking to administration groups, chatting to specialists. So I’m standing on the shoulders of giants in some ways and lucky to have an ideal crew right here.
Meb: So how does that crew work? You guys do like a every day weekly obtain assembly the place individuals had been pitching shares? As a result of a variety of hedge funds have totally different… I’m not making an attempt to check you on to a hedge fund however a variety of lively funds have a unique course of. Generally it’s the lone wolf PM, generally it’s crew, generally they do eight-month deep dive, generally it’s a committee. Like how do you guys go about truly placing stuff in and pulling stuff out? Is there type of a framework, which you guys apply for it? As a result of I assume it’s composite that goes with one portfolio for the Flagship is all the identical shares for all the identical purchasers, proper?
Clay: That’s precisely how I give it some thought. Give it some thought type of like a mannequin portfolio. We’ve 50,000-plus purchasers, and every of those purchasers has his or her personal SMA or individually managed account. In order that they have a brokerage account. They will pop in, they will see the securities we maintain on the finish of each month. Clearly, they’re partaking typically every day, weekly with the app the place they will see video updates from our crew, tax updates, they will ask questions. There’s community-driven options so you’ll be able to pop in at the moment and see what questions have been requested by different buyers on our platform, upvote, and so forth. It’s a extremely cool solution 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 feel for our temperament and our funding mandate, we do a proper Funding Committee. So each determination has to have a proper memo and mannequin. The memo has to doc all of the findings of what’s usually a two- to three-week analysis course of. I’m typically of the assumption of everybody needs to be macro conscious, and attempt to cross-pollinate and be taught and be increasing your circle of competence. We must always ideally have some semblance of like a compass for focus. And in order that’s what we do internally.
So we’ve a devoted analyst who’s targeted on client and media, a devoted analyst who’s targeted on our investments in software program and semiconductors, one devoted to industrials, and so forth. That’s how they information their time. In order that they have a universe of companies they’re accustomed to. They’re continually making an attempt to increase that, as a result of clearly, there’s new points, there’s corporations IPLA, there’s M&A exercise. So continually making an attempt 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 continually re-underwriting and from their viewpoint, there’s this different title on my procuring record I’ve been doing work on. Is that this a better alternative price than the corporate we already personal? Is XYZ Software program Firm now a greater risk-reward after latest market volatility than this current software program title we personal? And in that case, let me take that to the committee and pitch that change. And so it’s actually serving to we’ve a delegated satan’s advocate, we’re not a yes-man, or yes-woman sort of agency. We wish wholesome debate, we need to perceive the bear case, be capable of refute it higher than the neatest bear on the road. I feel that’s a extremely clever remark that Charlie Munger made. It is best to be capable of refute your individual bull case, higher than another bear, debate towards your self, and nonetheless come out feeling excited.
After which my position 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 elements that we could also be inadvertently lengthy? Are we tremendous lengthy momentum, are we tremendous brief high quality, are we brief worth? After which, that’s the place I’ll type of take the analysts’ collective knowledge and suggestions and attempt to measurement issues appropriately. Strive to ensure we’re not too far tilted come what may. So it’s actually wholesome course of. And we’re clearly studying, we don’t faux to know all of the solutions. However up to now, it’s labored out very well. And I feel 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 in regards to the screening course of, and 13F, type 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 complete time? Are you guys type of doing the identical stuff you’re at all times doing? Do these nonetheless play a task? After which how do you concentrate on type of incorporating the assorted items of the puzzle over time too?
Clay: I just like the phrase or the quip that there’s no authentic concepts. And the rationale I deliver that up, Meb, is as a result of within the early days once we had been a one-product firm, we had Flagship, like our blue-chip technique, I used to be the one analyst and PM. I’d one director of analysis who would assist me pull knowledge and construct fashions and so forth. However we had been a extremely lean, agency. And so naturally, while you’re constrained from a useful resource standpoint, it’s useful to fish in a pond that you just at the least 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, so that they don’t present any brief holdings or some esoteric securities derivatives aren’t proven.
However in the event you’re a buy-and-hold investor and a long-term buy-and-hold investor, a 13F is a fairly 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 an excellent looking floor for like what are some attention-grabbing 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 needs to be, that’s finally what helped us go from, okay, how can we begin with 10,000-plus international securities and slim it to a pool of possibly 100, 200?
So we at the least know which rocks are price turning over. In order that knowledgeable a variety of our funding course of for Flagship to some extent for alternatives within the early days. As we clearly raised a little bit extra enterprise capital, we’ve actually bootstrapped our method and began rising income, and received worthwhile, can we construct up the crew. So we went from simply myself and a colleague to now a crew of eight funding analysts, employed a analysis analytics affiliate from AQR. We constructed out an information science crew internally. And so consequently, we’ve been capable of transcend simply 13Fs and be capable of fish in lots of, many alternative ponds and likewise entry a much wider swath of information.
On the similar time, we noticed COVID hit in early 2020. And I feel we realized that what’s a transparent, name it the price facet 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 the event 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. Folks 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 the event you had been relying strictly on 13Fs, which once more, are solely up to date as of quarter-end, you’d be taking a look at a completely totally different image. You’d successfully be trying on the world as if COVID had not existed. And also you wouldn’t be capable of have a clearer, extra up to date image of the world till that summer time, after which you would argue a variety of the chance was capitalized on. So we heard from our consumer base loud and clear that they wished us to develop into extra lively over time.
And so it was very a lot a mix of us having the ability to fish in additional ponds and be much less resource-constrained, and be extra true and tried high quality progress buyers, not simply being wed to at least one particular supply of concepts. But in addition in some ways purchasers had been like, ‘Guys, we wish you to be extra tactical. We wish you to have the ability to take a look at issues that possibly different funds aren’t taking a look at, we wish to have the ability to take benefit intramonth, intraquarter, versus being a “slave” to the method’.
And so it was a mix of push and pull each client-led and internally-led. I feel we nonetheless received to a extremely enjoyable place. And actually importantly, I feel a greater place for buyers long-term, which remains to be sticking to the technique of shopping for high quality compounding companies, aiming to carry them for a 3 to 5-year horizon. Usually not doing a lot except alternative price warrants it in our view. But in addition be capable of take part within the volatility and reap the benefits of dislocations in a method {that a} actually systematic or completely quantitative technique in any other case wouldn’t be capable of do.
Meb: So are you guys nonetheless desirous about hedging as properly? Or is that much less of a task than at prior occasions?
Clay: No, that’s an excellent name out. So all the pieces I’ve described up to now, you’re spot on, is on the lengthy facet. We’re not a protracted, brief agency. However you’ll be able to say we successfully provide customers brief publicity as a result of we do hedge. And so I feel we chatted about this during the last couple of years, Meb, at totally different deadlines, we don’t at the moment use leverage outright. So we don’t brief futures, we don’t purchase put choices. So we’re truly not taking particular leverage or shorting securities outright. However I feel it’s vital to present individuals a solution 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 fairly prescient determination. Heading into a type of, I feel it was a 30-plus per cent peak to trough drawdown on the S&P in only a month, we must mitigate the diploma of that drawdown considerably. I feel it was solely 70% or 80%, draw back seize that our purchasers had versus had they’d been absolutely invested within the index.
So a working example of getting an lively analysis crew be capable of monitor. We’re not macro buyers however we’re macro conscious. And once we get sure knowledge factors from our community of parents who’ve simply been over in China for investor day, saying, ‘The world’s in regards to the shutdown’, that set off an alarm bell in our thoughts, and we stated, ‘Okay, we predict it might behoove us to placed on some universe CTF publicity to cut back market publicity, i.e., beta for purchasers’.
By the way in which, we additionally simply did that in January, we placed on hedges, which weren’t on as early January, you placed on full hedges, in mid-January, for a handful of various causes. We noticed technically, just about any method you take a look at it, you don’t have particular person inventory degree or on an index degree, whether or not it was the S&P, the Russell, the NASDAQ, issues weren’t trying good. And I’m not a chartist. We’re not technicians by nature. However we do imagine like charts finally do mirror sentiment in markets. And a variety of occasions they are often telling you one thing that you could be be lacking.
And so a mix of technicals, and likewise 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 feel 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 feel we as a platform be taught from the GameStop, AMC period, is that there’s an actual price to shorting securities, it will possibly actually take your entire agency down, if not correctly managed. So this permits us to hedge for our purchasers with out taking the kinds of dangers that might jeopardize them in our enterprise long-term.
Meb: As you concentrate on this macro, we’ve had a ton of macro crosscurrents previous few years, is there type of like a max hedge quantity you guys would think about, how do you concentrate on that? As a result of purchasers, 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 a variety of buyers when the world’s going loopy because it has been the previous few years. I imply, it’s type of at all times going loopy, in fact, however notably loopy now, is there type of a framework the place you concentrate on that? And the way set in stone is it desirous about that type of image of hedging as a result of it may be a subject that’s sensitive for lots of people?
Clay: I agree. I feel in a dream world, we’d be 100% internet lengthy 100% of the time. And I feel each method you narrow it, empirically talking, you need to be invested more often than not. Markets do go up and to the suitable. 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 predict it’s extra like 2% or 3% going ahead? We may debate precisely the place we shake out. However I feel GDP, productiveness progress, these types of issues take international economies up and to the suitable, and markets are likely to comply with. So it is smart why you need to be absolutely invested more often than not.
To that diploma, we’ve set type of a framework in thoughts from just like the macro in a hedging standpoint, the place our internet lengthy publicity, which is only a fancy method of claiming like, for each $100 you have got invested, how a lot are literally outright being uncovered to market danger? It ought to typically be the vast majority of these $100. So for us, Meb, we ship out to 80% to 100% is type of the vary of internet lengthy publicity. I’ll caveat that we’ve launched the idea of what we name strategic money as properly.
So it’s actually vital, I feel, for individuals to understand that money is an funding determination. It’s zero per cent yielding safety and I’m being a little bit bit hyperbolic, 0.004% of no matter your native banks paying you, for all intents and functions, it’s a zero per cent yielding safety, damaging in actual phrases now given the place inflation’s heading. It’s a selection that you just actively make. And we, as an lively supervisor, have added that final couple of years to our toolkit, as a solution to scale back market publicity as a result of money has zero beta.
So with that, as we speak at the moment, Meb, we’re at about 70% lengthy publicity. So for our aggressive purchasers, we’ve a 5% hedge of these $100, about $5 are allotted to hedge. For reasonable conservative purchasers, it’s nearer to 10% to twenty%. However we are also holding money, as a result of we fairly actually, in lots of the markets we’re taking a look at and lots of sectors, don’t see any alternatives the place you’re not overpaying for the standard of progress you’re getting. Otherwise you’re not going down-market and shopping for “Low-cost” securities, however with all types of landmines from a aggressive dynamics from a secular progress standpoint.
So, in different phrases, there’s no straightforward solutions on this market, money can generally be the most effective different. It’s a supply of dry powder in order that if and once we clearly imagine when the macro image improves, we may reap the benefits of it. So over time, I feel we’ll shake out $2 of our $100 a consumer might have invested with Titan, relying on their danger profile. They’ll see someplace between $50 to $100 of that 100 be absolutely in danger out there. We are going to by no means be completely market-neutral, nor do I feel we needs to be. We’re not market timers.
Meb: So that you guys have been constructing this platform, 50,000 buyers, rising the AUM, look out within the horizon, what’s the longer term appear like for you guys subsequent month, subsequent 12 months, subsequent couple years? Give us a peek backstage, what can we sit up for for Titan and choices, neighborhood, all that good things?
Clay: It goes a lot additional past blue-chip equities, mid-cap equities, blue-chip crypto. Issues which might be on our thoughts, Meb, non-public belongings, huge, in my thoughts, a contributor to the wealth divide but additionally simply clearly inaccessible to unaccredited retail buyers. Issues I’m considering by way of from a personal asset standpoint, enterprise. Placing apart the market to market nature of the enterprise, which I feel in and of itself if correctly understood, and gauged to somebody’s danger profile, buyers are human by nature, and seeing scary-looking charts everyday doesn’t do any higher for his or her monetary well being. I want markets simply closed or a consumer couldn’t open their app, during times of volatility, they’d be higher off as a result of we’re all human.
That’s considered one of, I feel, the nice benefits that the enterprise neighborhood has is there’s undoubtedly volatility in non-public corporations, you simply don’t see it every single day. Like I do know there are corporations within the non-public 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 may joke and say that’s damaging, I truly assume it might be a optimistic to retail buyers.
I feel getting publicity to an asset class of personal companies, their early-stage, late-stage enterprise progress companies with a correct sizing, once more, gauge to their 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 every single day, possibly it’s month-to-month, quarterly, yearly, you perceive the charges, you perceive the chance profile, that’s one thing that retailers by no means had entry to.
One other large sector is non-public fairness. Actual property is one other one. I may also go deep down the crypto rabbit gap of all of the attention-grabbing issues I feel are taking place from like a staking and lending standpoint. So we’ve a variety of work to do. It’s not going to be as straightforward as our first 4 merchandise. I’ll inform you that a lot. It’s not going to be as straightforward as rent a crew from our community from buy-side, sell-side analysts, create the technique, create the analysis course of, and growth, flip a swap on. There’s much more infrastructure and tooling that must be constructed. B2B relationships have to be constructed to realize a number of the stuff I discussed.
Meb: Do you foresee these being like, are they going to be separate accounts, will they be funds? As a result of a few of these are quite a bit tougher to personal with 50,000 individuals.
Clay: No, I completely agree.
Meb: How do you concentrate on it or you could not know but? I imply it might be it’s now within the course of.
Clay: No. Loads of the arduous work we’re doing proper now is determining what I name fund operations, a variety of that like back-end stuff. Do we have to use SPVs? Do we have to use this attention-grabbing closed-end fund construction, like what are the nuts and bolts we have to do on the again finish to truly make it doable for a retail unaccredited investor to put money into SpaceX or Stripe? I imagine it’s doable, it was a extremely, actually arduous drawback. That is while you get into like custodial and clearing preparations, and all types of furry stuff. It’s very, very regulatory intensive, however I feel large issues like this are price fixing. As a result of in the event you clear up it, you’re speaking about trillions of {dollars} of capital that may rapidly be unlocked for retail and I feel it might typically 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 a variety of digital native shoppers? I assume it skews youthful, however you would right me. And the place are you discovering most of those associates, is it referrals? Is it by way of social channels, Tremendous Bowl adverts, what?
Clay: It’s humorous you talked about that. We did our first Related TV marketing campaign, it was at a number of 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 had been joking on Twitter the opposite day I used to be like, we tried a pair adverts in Barron’s. We’re very curious and wish to strive issues out at small measurement and at all times simply questioning if anybody truly sees it. So I used to be like, ‘Does anybody truly see this?’ Everyone seems to be like, ‘No’, however I received one response. I do know we received to at the least one individual. Okay. Effectively, inform me, TVs and airports?
Clay: Related TV, it’s enjoyable. I volunteered myself to do the business. So starring yours actually, we filmed it in Brooklyn again in June, and it lastly went stay the previous few months.
Meb: Good.
Clay: No, it’s superior. I’ve had household associates. I’ve had individuals I haven’t chatted with since highschool ping me on Fb saying, ‘Hey, Clay, I simply noticed you. I used to be watching a present on Hulu and it went to adverts 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 type of the candy spot, 30, 35-year-old. I name them mid-career professionals, demographic of those lots of people from like a profession standpoint are in tech, are in finance, consulting, actual property, a variety of founders, entrepreneurs.
So these are those who typically like are actually, actually good at their craft, however aren’t good at investing. They want they had been pretty much 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 need that translated to investing. And a variety 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 go this to the specialists.’
We’ll additionally get a variety of of us that come from the normal like robo-advisory, like taxa world, wanting extra. Like look, ‘I don’t know what’s occurring, I need to take part and be extra lively, actively concerned. Sure, I might clearly love higher than common returns.’ And so we’ll get a variety of the normal robo and likewise older cash like Legacy, Constancy, Schwab accounts, moved over to the platform. So it’s a broad swath, we’ll get 20-year-olds, we’ll get 80-year-olds on the platform, it’s actually cool to see this attraction to differing types.
However I might say individuals which might be in that candy spot of, ‘I’ve tried a bunch of investing choices, I’m probably not glad with any of them. I’m actually good at my craft and aspire for experience every time I do, I want I may also have that for my cash’, is type of just like the core drawback and consumer-type that we see. Clearly, as we launch extra merchandise, and likewise account sorts like IRAs, we’ve additionally seen a extremely attention-grabbing demographic shift. So like we’re seeing individuals now open accounts for his or her spouses, or they’re asking us to open custodial accounts for his or her youngsters. They’re rolling over outdated 401(ok) cash.
So I might say like the following time we chat, Meb, like the buyer sort, age, demographic will most likely change. And I feel one of many challenges of a platform is it’s type of like what Snapchat did or has been doing. It’s like, do you give attention to 20-year-olds for the following 20 years? So at the moment’s 20-year-olds are going to be 30-year-olds in 10 years. Are you at all times targeted on that very same younger archetype? Or do you develop together with your investor base?
That’s type of an attention-grabbing drawback and problem we’re considering by way of, I feel it’s going to be a little bit little bit of each. I feel we want to ensure we’re rising and being good, considerate about including different account sorts, options, to ensure individuals can name Titan a spot residence for the following 40, 50 years. However we don’t need to be too many issues to many individuals. We’ve numerous various things we are able to 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 attention-grabbing stuff you guys I’m certain are desirous about, about incorporating that consumer base as an asset for the platform too. I’ve seen a variety of attention-grabbing whether or not it’s neighborhood suggestions involvement. For many who haven’t opened a Titan account, and it’s titan.com by way of the app or web site, clarify what the precise consumer expertise on the communication is. Is it principally video, print, schooling? You talked about there’s type of like a suggestions messaging function and the way do you anticipate that to evolve within the coming brief future?
Clay: It actually runs the gamut. Our objective is like we’ve several types of individuals which might be from all walks of life, and have totally different life, totally different routines. So we’ve those who do the morning commute from Jersey Metropolis to Manhattan, or from the East Bay to SF after they need to hearken to a podcast on the prepare, or on the subway or within the automobile. We’ve every day audio notes, we name them content material franchises. Content material franchises are principally we’re making an attempt to construct rituals the place we are able to meet prospects the place they’re and meet buyers, no matter their routines or habits are, get them the data they should know from the portfolio managers, the suitable media, run on the proper time. So for these types of individuals, we’ve a every day, fast minute to two-minute audio observe. Just a little mini podcast they will hearken to and get the three issues that matter for his or her portfolio at the moment.
Meb: Folks hearken to that?
Clay: Folks hearken to it, that was some of the engaged franchises we’ve. We even have an e-mail type. So we’ve very first thing in your inbox every single day it’s a publication known as ‘Three Issues’, the three most salient issues we imagine you have to know associated to the world of enterprise investing and the way we’re managing capital.
Meb: It’s humorous to consider type of the behavioral facet of that, too, as a result of we’ve put out a variety of content material over time. And I really feel prefer it’s virtually a barbell, the place there’s the those who need to have interaction that. However then there’s the opposite individuals which might be like, ‘I don’t even need to hear about it as a result of I didn’t even know I needs to be worrying about this’, you already know. And so it’s at all times an attention-grabbing contact level on is it an excessive amount of? Is it too little? After which how do you phase that? Which is the cool half, as a result of in order for you it, you will get it however some individuals may be like, ‘Dude, depart me alone’. Do you guys do any type of rocketing on who will get it? Or do they type of self-select out?
Clay: We’re constructing much more personalization, so you’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 strategy. While you’re a Titan investor, Titan consumer, Meb, it’s like all or nothing. You get all of the content material franchises and you need to…clearly you’ll be able to go in and decide and select what you hearken to. However we solely assist curate that.
Like, there’s a ton of alternative for us to say, you don’t must even state your preferences. We must always Intuit primarily based in your conduct. ‘Oh, Meb hasn’t checked our opening or closing bell audio observe, possibly let’s pull that off the house display.’ De-emphasize that, emphasize one thing attention-grabbing, and information that possibly he’s involved in. After which he takes and he clicks and engages with that, we are able to ask him and we’ll make that a part of his habits.
Issues that we’ve realized work very well are video and community-based options. And I feel these are like two of probably the most underpenetrated known as mediums in finance, for a handful of causes. So on video, one, is simply traditionally, has not been very scalable. Like if you concentrate on the normal cash supervisor RIA, let’s say you have got 100 purchasers, even that’s untenable, doing 100 Zoom calls a day, are you able to think about? Like there’s a motive I feel a variety of advisors go for bigger account sizes, and it makes whole sense, it’s like the price to serve an account is successfully the identical. And so the smaller the account sort, the decrease the margins, the extra robust for companies to construct. And then you definately get all types of bizarre incentives.
So I feel know-how has unlocked the flexibility for me, for instance, as a PM, to construct a one-to-many broadcast-type enterprise, the place I feel in the event you polled most of our 50,000 customers, Meb, I feel a variety of them would really feel like they know me on a first-name foundation. I’ve by no means met these 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 attention-grabbing, as we launch extra merchandise, we’re making an attempt 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 lady is on Alternatives. While you see a video or e-mail or content material franchise from that individual, you’re going to instantly set up and affiliate them with a sure a part of your pockets.
So I feel that’s…we see a variety of engagement, a variety of referrals round that. And it’s additionally saved individuals invested during times of volatility. They’re like, “Oh, my man or my lady’s caring for my cash. I do know I’m in good palms.” And that humanization of what’s in any other case is a monetary commodity monetary product and an app has allowed us to chop by way of the noise.
After which the opposite factor is on neighborhood. So the opposite factor you’d see within the app at the moment is known as ATA or Ask Titan Something. That is type of an inside beta hackathon thought, which was what are all of the questions that retail buyers may very well be asking that they don’t have a discussion board to ask us? Traditionally, it’s like, in the event you discover a firm on Twitter, you’ll be able to tag them and broadcast to the world and say, “Hey, I’ve a query.” Whether or not you’re Cathy Wooden otherwise you’re engine primary or any of those managers which have stated, “We need to actively have interaction with retail,” you don’t actually have many choices. Are you going to jot down them a submit mail letter or are you going to tweet at them? Neither of these are nice choices.
So we stated, properly, what in the event you may actually add like actually sort in tweet type within the Titan app, submit that, it’ll route it to the analyst or the individual on Titan’s platform-specific to that safety? So if it’s one thing round reserving holdings or one thing round Twilio, it’ll get routed to the analysts on Titan Flagship.
They’ve a portal internally the place they will go into our inside Titan portal, reply that query, broadcast it out. Not solely does that authentic query asker get an e-mail saying, “Hey, we simply answered your query. Click on right here to see the reply within the app.” However all the opposite individuals on our platform accrue worth and get schooling and understanding from one thing that possibly they gained’t even ask in these questions.
And so in a world the place a retail investor opens our app and sees, “Oh, man, my portfolio is down 5% at the moment,” typical retail investor conduct is transfer to money, promote, make the bleeding cease. Titan investor conduct is, “Oh, proper appended to this chart of my cash being down 5%, I click on an data bubble. It pops to ATA requested by Brian Smith in Georgia, asking exactly why is my cash down 5%?” Which an analyst responds and rationale why it’s down and what strikes we’re making together with your cash.
So instantly, not solely did you 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 a giant supply of referrals in natural progress is individuals being like, “Wow, not solely is my cash in good palms, however I’ve a simple solution 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 little bit bit about you type of went the VC route, but additionally raised some cash with some attention-grabbing names in your cap desk. That appears to be one thing that’s modified over time, actually within the final 10 years as this a part of the cycle is having some fairly cool buyers take part. How was that course of? And what are you guys going to spend all that cash on?
Clay: I feel it’s going to final us a very long time, knock on wooden. This can final us ceaselessly. Within the early days, for us, it was very arduous to boost cash. I talked earlier about just like the wedge I described, how many individuals name it a distinct segment. As a result of it was such a small area of interest earlier than Titan actually began to develop, we didn’t have buyers throwing cash at us. In reality, we received advised 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: Effectively, you guys ended up with some names that everybody will definitely acknowledge. I had a enjoyable tweet yesterday, I used to be making an attempt to poke a little bit enjoyable at my VC associates as a result of it was in Sebastian Mallaby’s new e-book on VCs known as “The Energy Legal guidelines.” However there was a quote from Andy Grove, well-known Intel result in John Doerr, the place he stated, “John, enterprise capital, that’s not an actual job. It’s like being an actual property agent.” I used to be dying laughing at it. However an ideal e-book, by the way in which, 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 accustomed to that world, it’s most likely much less you would type of skim it. There are some enjoyable tales in there. For people who find themselves new to VC, it’s an ideal historical past. So okay, I interrupted you. Sorry, maintain going.
Clay: No worries. So it was not straightforward to boost cash within the early days. However as soon as we discovered product-market match, graduate YC, raised our seed spherical, progress solves all issues. There’s something I’ve taken away as an entrepreneur, it’s progress solves all the 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, a variety of human life.
The one upshoot of it was I feel a variety of buyers that in any other case possibly would have waited years to develop into buyers received pulled into the markets, you would say, as a result of they’re sitting at residence of their pajamas and casinos or sports activities betting was closed down. Or you would say it was simply there are a lot stimulus, a lot alternative to become profitable. Irrespective of how you narrow it, it was an ideal 12 months for FinTech, usually.
For our house, it was a interval of remarkable volatility. And so individuals wished lots of people that had been previous buyers or had been DIY buyers had been like, “I’m out, man, I don’t know what I’m doing. I’m shifting cash to the specialists.” And so once I talked about we begin hedging, and like, actually leaned into that a part of our price prop, noticed a variety of consumer inflow. And like I stated, progress 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 progress solves all issues. It’s like while you’re not in search of 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 almost $60 million within the financial institution and raised our Sequence B.
Meb: What’s been your most memorable funding? You’ve been at a profession that preceded Titan but additionally you stated you began shopping for shares while you had been 12. So something come to thoughts?
Clay: It’s not very attractive, however one of many first shares I purchased within the mid-2000s was Google. Sure, it was known as Google again then, not Alphabet. There was different bets. It’s just a bit search firm. I truly I overlook 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 non-public Google events once I was dwelling in Tahoe. In San Francisco I had a number of Google roommates on the time. And the quantity of sheer cash they spent on renting out Lake Tahoe, Squaw and different venues and flying in all of the Googlers from everywhere in the world, I ought to have recognized. They had been simply printing tons and tons of cash. I ought to have simply purchased it and held on to it. The outdated Peter Lynch type, however anyway. All proper, my man, it has been enjoyable. The place do individuals go in the event that they need to discover what you guys are as much as, open an account, shoot you some messages, what’s the most effective place?
Clay: Yeah, the simplest place is titan.com. Tremendous easy. You may be taught extra about what we’re constructing, methods, join, tremendous straightforward, $100 minimal. You’ll find me on Twitter as properly. I don’t tweet typically. I wish to maintain a excessive signal-to-noise ratio. So hopefully once I do, it’s one thing moderately worthwhile. However I’m on there every day and I reply to DMs and so forth. So digital clay, @virtualclay is my deal with.
Meb: Superior.
Clay: Yeah, it’s been a pleasure.
Meb: Clay, thanks for becoming a member of us.
Clay: Thanks.
Meb: Podcast listeners, we’ll submit present notes to at the moment’s dialog at mebfaber.com/podcast. In the event you love the present, in the event you hate it, shoot us suggestions at suggestions@themebfabershow.com. We like to learn the critiques, please overview us on iTunes and subscribe to the present anyplace good podcasts are discovered. Thanks for listening, associates, and good investing.
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