Matthew Tuttle on his short $ARKK ETF $SARK, inverse Cramer, $UAD, $SPCI, $UFOD, $MSTU | S08 E15

- I like how I can tell you. - We are live. This is value after hours. I'm Tobias Carlow joined as always by my co-host Jake Taylor, especially guests today, Matt Tuttle Capital. You know him from short arc. Maybe the inverse Kramer. How are you, Matt? - Lots of bangers. - I am doing great. Thank you very much for having me. - Yeah, my pleasure. So I think that probably like a lot of people became aware of your existence with the short arc ETF. Can we talk a little bit about that? What gave you the inspiration? Did you get the timing right? I think you did. - Yeah, we got the timing perfectly. So what I find is a lot of people in my industry don't really want to rock the boat. And that's never really bothered me much. And one of the things that I'm able to do with my platform is when I see something that bothers me, I can say something about it. So if you remember kind of coming out of COVID, you know, all of the sudden, you know, arc had an amazing parabolic return. I think there were up like 120% in a year. And you know, then all this, yeah, everyone is dragging Kathy would out, who I have great respect for as a marketer and what she's built, but they're all dragging her out saying, she's the next Warren Buffett. And I would argue because of the way this market is now, there can never be another Warren Buffett. And you know, there's one immutable rule of markets is that any parabolic move eventually gets retraced. So I'm watching this and I'm like, this is gonna hurt people. And so I decided, you know, and it was really, it was a tweet which I've never been able to find. I'd love to find that tweet. So at the time, we were doing an inverse fund on despacks, companies that had come public through SPAC mergers, all that stuff was toxic waste. We're killing it on that. And someone tweets about it. And then someone said, you should do an inverse on ARP. No one had ever done anything like that before. So we're like, huh, that's an interesting idea. Call up the lawyers, like, can we do this? Like, I don't see why not. Call up the swap providers. Can you get a swap on ARP? I don't see why not. So we did it and we launched it right at the top of the market in 2021. In 2022, it was the number two top performing non-leverd ETF in the country. Number one was our inverse despack ETF. Unfortunately, I no longer have either one of them. I sold Sark because I don't like that trade nearly as much as I did back then. And I had some partners who shut down the despack. But, you know, that's what did it. You know, I wanted to call out the issue. But I was also looking at the market at that point. If you remember, that was around the Fed saying inflation is transitory. Like, yeah, I don't think so. And, you know, what's the one thing that would cause all those ARP returns to move back to the negative inflation? All of those no revenue growth companies will get killed. So, you know, I just said, you know what? Perfect timing. Boom, we did it. And, you know, we called out the issue. And I heard from a lot of retail investors thanking me, you know, because a lot of them lost a lot of money. Because they listened to CNBC and they're buying it up 120%. And yeah, I think we're able to help some of them, at least make some of it back. So, you know, felt good about that project. - What did the SEC say about that one? - The SEC, their real only issue was they were worried we may move markets. And, you know, so they were worried, well, you know, you're shorting an ETF. Like ETFs have an arbitrage mechanism, doesn't matter. Well, they own a lot of Tesla. Are you gonna influence Tesla? Like, we're a fan of people's butt when it compares to the ones that have millions of shares per day. - We're not gonna influence Tesla. So, you know, they're just trying to wrap their head around it because it was novel. They were fine. The art guys weren't. - Yeah, did you hear that? - They were a little bit pissed off. And if Kathy Wood is watching, again, nothing against you, great respect, you know, it was really more of, I was mad at the media for portraying it is something that was like, you're getting in early on the next Warren Buffett because I knew you weren't. And I knew if you're listening to that, you're gonna get your butt kicked. - God only knows what drives Tesla. It's certainly not fundamentals. It's like the moon or something like that. I don't know. - Yeah, I mean, Tesla is one of those where, you know, and I mean, it's not a good example, but it's the best I can come up with. I remember I was a broker in the 90s and I couldn't understand why Amazon was worth more than borders and Barnes and Noble combined because I was looking at Amazon as a book selling company. And if you look at Amazon as a book selling company, they weren't worth more than borders and Barnes and Noble combined. Obviously, Amazon is not a book selling company. And that's a lesson I've taken with me now, Tesla's not Amazon, but you could look at Tesla as a technology company, as a robotics company, as a lot of different things. And then, you know, then there's also the cult of personality. You know, Elon Musk is worth something to the stock price and it just is what it is. - I just wanna pick up something that you said before, there'll never be another Warren Buffett or these markets make it impossible. Why do you think that? - So I started investing in 1981 in middle school. And I grew up in the same town as Peter Lynch. So I learned kind of at the feet of fidelity, a lot of fidelity guys in my town, you know, rigorous fundamental analysis. And that was pre-internet, pre-Bloomberg, pre-anything. So if I was smarter than you and willing to work harder than you, I could probably uncover tons of undervalued companies, hidden gems on and on and on. Fast forward to today, we've got the internet. We've got Bloomberg, we've got AI. I have access to the same information you've got access to. Now, you could still look at it better than I can, but are you gonna consistently find undervalued companies that Wall Street has missed? I would argue you're not, at least not like Warren Buffett, where you can put up the returns Warren Buffett put up and I'm talking about his early years. In his later years, he just became, you know, a self-fulfilling prophecy. He's getting deals that we're not getting, you know, just him buying a stock makes it go up. So that, I mean, that's a whole different story, but I do not believe you can generate those types of returns today when the playing field has been level and I have access to all the information you've got access to. - We discussed early partnership days. He was at like 40% over the market or something like that consistently. - Yeah, I just, I don't think you can do that consistently. So I see a Kathy Wood doing it and I know what's gonna happen. You're gonna come back to Earth and that's all across the board. I mean, I've got a hedge fund guy that calls me every once in a while and it'll call me like, oh man, we're up so big this past couple of weeks. This is great. Be like, hedge. Like what do you mean? Hedge, you're gonna give back a good chunk of those returns, sell hedge, whatever. Then it'll call me, oh my God, you know, we're having a rough spot. Bye. We can't, don't buy. Because that's just how it works. I tell, when the market gives you more than you think it should give you, you're gonna give some of that back. You just are. That's the rule of the market. - One of the things we saw with Ark was there, there's been the second reflation or whatever you wanna call it since sort of the AI craze kicked off at the beginning of 24 and Ark didn't capture that. As well, all of them, I've had much better, I've had a few much better years than they had previously. Did you foresee that sort of reflation coming and did you have any, what do you think about that? - Yeah, I mean, you know, after 2022, yeah, I just, it wasn't bearish on the market and really didn't think it was such a great trade anymore. You know, would I still maybe go long queues, short arc? You know, maybe I haven't even looked at it in that long. I mean, what I do with Ark now is every once in a while when I have time, which I don't all the time. When I have time and I think the market's overvalued, I'll, you know, either buy puts on Ark or I'll sell a, you know, call credit spread. That's kind of my preferred hedge, 'cause if the market's gonna come down, our it's probably gonna come down more. But I think we're in such a target rich environment too in kind of the innovative space, that it's almost hard to really do poorly when you've got memory, botanics, space, semiconductors, all that stuff ramping. So I don't see it as as cool of a trade as I saw it back, you know, in 2021, especially with the run arc was on. - So are you excited to maybe short some of these new IPOs that are coming out? Do you have any thoughts on getting ready for that? - Yeah, I mean, that's a possibility. You know, the problem is, so we've got, you know, we do a lot of 2X-Levreden inverse. And the problem you have from an ETF provider, standpoint on the inverse, is they trade a lot, but they're rentals. People trade them in and out very quickly. So we've got a 2X short micro strategy that you think, oh my God, 2X short micro strategy, you should have, you should have billions in it. We have 100 million in it. And it never gets above 200 million in assets. And, you know, micro strategy will be getting killed and people are gonna be selling. Micro strategy goes up, they buy in. But we just, we never really raise a lot of assets under management on the short side. So it's tough from a business perspective to say, hey, yeah, let's short space X, let's short, you know, whatever figure AI and yet any of these names, Andrew, so we certainly wanna participate on the long side, whether we do on the short side or not. Yeah, I don't know. - What makes for a good ETF launch? What are the themes that you sort of look for? - Toby's asking for a friend. - Yeah, help me out. (laughing) - So, you know, the key is the marketing and the timing. So for example, we just launched SAPCI. You know, we look, and that's our space ETF that pays a weekly dividend. And, you know, it's the only really pure place space out there. It's 11 names. But we look kinda look at, all right, where are the bottlenecks? And, you know, where are, you know, where are the bottlenecks that people haven't realized yet? And to me, space is huge because where are you gonna put these data centers? So, you know, Bernie Sanders, I saw on the news came out once to put in a bill, no new data centers. I don't want one in my backyard. You don't want one in your backyard. Where are they gonna go? They're gonna go into space. And a lot of stuff's gonna go into space. So, you know, we got into a hot theme. We got into it early. You know, it was up 50% in a month. So, you know, timing, hot theme, stuff people aren't thinking about. We were talking before about EUA did. Right after the election, we realized, you know, what is the only true Trump trade? Trump's gonna come after NATO. And, you know, the European countries are scared Russian tanks are gonna roll in. What does that mean? That means I wanna own European aerospace and defense companies. There are no, not mean there are now, but back then there were no pure play European aerospace and defense companies. We launched it. That theme hit. We got 1.4 billion in it. So, you've got, I mean, what just happened with DRAM? You know, the only memory. - Crazy. - Yeah. - So, you've got to kind of anticipate, it's not, you know, it's like the hockey analogy. You wanna hit the puck to where the guy's going to be, not where it is now. So, you know, what's gonna be the hot area, you know, three months from now, that's what you want your ETF to be. - So, deep value, probably. - Oh yeah, definitely deep value. - Got it. - Let's get to that puck. - I assume that's not so, isn't it? (laughing) - Yeah, I mean, you look at Twitter, everyone is like, oh my God, if we only had a deep value ETF. (laughing) - Yeah, it's a little love about that. - Yeah, now with that stuff, I mean, those are financial advisor products. And, you know, so it's not as much about the buzz and the hot area, but, you know, it's an educational process. You know, first off, why do I need value when all value does is underperform? - You need a short value ETF. - Yeah, I mean, maybe, you've got an educational process there. And, you know, and you've got to get shelf space. Financial advisors, you know, control a lot of assets. So, everybody is talking to them, you know, how do you get their ear? And how do you show them the need for your ETF? Now, if you can do it, it can be very lucrative. Like, you look at something like Pacer's cash cows. I think that's got a couple billion in it. I don't think it's even done that well, but they were able to convince financial advisors why cash cows had to be in your portfolio. You know, and I was talking to a guy who runs a competing fund. He's got like 250 million. He's like, no, I'm killing them performance wise. But, you know, I can't get the ear of the financial advisor. These guys already did. So, it's, you know, how do you capture the ear of the financial advisor and, you know, get them to understand, hey, this is what we do. And, you know, this is why this needs to be in your portfolio. - Yeah, you have to give them the story that they need to tell their clients, right? - Right, I mean, you've got to educate them and you've got to show them why, hey, you put this in your portfolio, your clients are going to love you. - I'm told it's a little bit about the story of the 2X MicroStrategy ETF, because MicroStrategy's got a lot of its own sort of products out there. You feel like you get lost in the mix a little bit with their alphabet superstar. - Their security offering factory. - Yeah, a little bit. And, you know, we do a lot on microstrategy. So, we, you know, we launched 2X MicroStrategy at some point back in 2023. And, you know, we hit it right off the bat. You know, again, you know, knowing kind of where the puck is going to be, you know, there are a lot of kind of these crypto companies, what's going to be the big one? It was MicroStrategy. We hit it perfectly. We got to about three or four billion in it. You know, now that MicroStrategy is, you know, falling on some hard times, and we still have about 600 million in it, you know, 100 million on the short side. You know, so it's still a great product for us. You know, and what we see is a lot of people who are not able to own crypto by it is a crypto substitute. Because, you know, there are, you know, there are funds in countries and places you can't buy crypto. The Koreans love it. You know, they like MicroStrategy. They've always like MicroStrategy. So, you know, they're buying it hand over fist. We also, and this will be out in June, we formed a partnership with the guys that strive. So we're going to take MicroStrategy's preferred stretch, STRC, takes stripes preferred SATA, lever it up a bit, and try to generate 14 and a half percent yield. So yeah, MicroStrategy is the gift that keeps on giving for ETF guys. Going back to the space, and you said it was, it sounded like it was an income fund. Like it was dividend creating. I assume that all these guys are not producing dividends. So how do you like create cash for the investor? What we're doing is on our 11 names, you know, we own the underlying, and then we're selling credit spreads to generate the income. You know, so nobody, you know, there's just preponderance of option income ETFs out there. First off, they're doing them as covered calls, which I think is stupid. Now, what I do covered calls, maybe on some of your names? Sure, because they're not going to go up 20X in a month. What I do covered calls on MicroStrategy, NVIDIA, Tesla, you know, some of these other names, no, you're giving up your upside. So that's why we're doing the puts. And, you know, nobody has launched a thematic income strategy, which I think is a mistake. You've got all these guys doing like single names, you know, so by covered call on MicroStrategy, covered call on Palantir, covered call on Tesla. And, you know, I don't think that's the way you want to generate income. Again, you're, you've got single name risk and you're giving up your upside on stocks that can move parabolically. So what we want to say is we want to give you access to the theme and we want to give you, you know, it's a 30% yield right now. We could make it 80, we could make it 500 if we want to, but we don't, we make it a sustainable number. And all we're trying to do, we teach people this in our wealth management firm is from a portfolio standpoint. If you go to a wealth manager, say I got a million dollars, how much can I do? generate retirement, they're going to tell you four to five percent. I want to bend that curve and give you seven to eight, which I think I can do when I add in some put spreads. Do you model out if you have like a systemic drawdown, does that impact your, and that hits all of your levered positions? Do you model out what it sort of looks like in that scenario? Have you got enough sort of short stuff out there like the. No, we don't. I, you know, so our AUM in our levered and inverse went down a lot when Bitcoin went from 120 to like 60. And, you know, we're crawling it back, but a lot of the names we have, unfortunately, are correlated to Bitcoin. You know, our biggest names are 2x micro strategy. We've got 2x BM and R, which is. The bitminer, Tom Lee's. Yeah. And, you know, we've got Hood, which isn't crypto, but it's correlated with crypto. We've got 2x Long Bitcoin. We've got 2x Long Ether. So all that stuff, when it's 2x, it takes such a hit. You know, so from a business standpoint, we are trying to come up with 2x products and other industries and to come up with buy and hold, like EUAD has 1.4 billion in it. You know, that can go up and go down, but it's probably not going to go from 1.4 billion to 100 million in a month. Whereas 2x Long Micro strategy could easily do that. What are your more fun ETFs? Was the inverse Kramer? So we did the inverse Kramer. You know, as great as our timing was on arc, it was awful on Kramer. So we launched in, I think, January 23. And we're doing all right. Things are going great. Kramer's pounding the table for the Mag 7. He may have even coined that term. I don't know. So we're short the Mag 7. NVIDIA has their earnings in May. No one really cared about NVIDIA. And all of a sudden, NVIDIA is like, we're making so much money. It's insane. And all of the Mag 7 is just ramping. Kramer's telling you, bye, bye, bye, bye, bye. We're short, short, short. Now, the interesting thing is we should have been down like 80%. We were down 15 because all of his other picks were so bad. But I'm sitting there at the end of 2023. And I'm like, I can't justify telling you to buy this when we're short Mag 7. And we shut it down. But that was another thing like when you see something say something. So what pissed me off. And again, Jim, I'm sorry. I have nothing against you. He does hate my guts. And I am banned from CNBC. Even though dumb chew, if you're watching this, please try to get me back on. I'll be a good guy. But what pissed me off was they would bring him on every day and present him as a guru and have zero accountability. And the one thing that I was proud of is that at some point during that process, he came on one morning and apologized for a bad call. And then everyone's hit me up like, "Talo, look away you did. Look away." And he said, "Awesome. You know, have some accountability so at least people don't think that you're right 100% of the time. And that if Jim comes on and gives you five stocks, those are guaranteed to make money. At least let people know, look, you know what? He's just like everybody else. You know, I think I'm a great investor and trader. I'm wrong a lot. You know, cramers wrong a lot. Let people know that it's not a road to riches and make sure they know, you know, mad money. I mean, it's entertainment. You know, yeah, maybe you're going to pick up a tidbit here and there. Maybe he's got a good thing. Maybe those are good gas. But it's not the road to riches. And that's what I wanted to call out. And again, I knew I was going to get banned from CNBC and I was willing to do it because, you know, again, if I see something, I'm going to say something. He's a shorter term trader than we would be. And I think he's also got a little bit of an advantage where the day that he often the day that he announces it or the day after there's a lot of trading in those names that are often up or down, depending on how he feels like it maybe needs to be like a one day guy. The investor's cremation was hilarious. I mean, it's great. You know, and again, I just I wanted to call out the issue and I think I did. And again, I think I might have gotten him to apologize. I think it was meta that he had it got wrong. And, you know, I did what I wanted to do. I wish I'd launched it beginning at 2022. We'd have billions in it. But you can't I mean, I've had so much good timing with stuff. You know, I'm not going to win them all either. And I didn't win that one. Is there any one that jumps to mind that you either couldn't get through the SEC or, yeah, I don't know whatever it got killed before you decided you could get it out there that was like, what's the most fun one? Well, it wasn't that fun. My most fun one we got through. That's my UFO disclosure, ETA. But this one was my government grip. Yeah. Okay. And, you know, the idea was, you know, multiple things. People close to the president have an unfair advantage. And, you know, what we also saw with Trump. And, you know, whether you like Trump or not doesn't matter. He's the most investible president we have ever had because he is picking winners and he's picking losers. But then people are close to him. So Elon Musk is Trump's buddy, stocks going up, you know, Oracle, hey, we're buddies, you know, his kids in all these business ventures. So I wanted to do some of that. But also, we figured out a way to try to really isolate what congressional trades were inside information. So not just, hey, I want to do everything Nancy Pelosi does. I want to find Nancy Pelosi's weird trades. Like, why would Nancy Pelosi buy this? You know, that's got to be some sort of inside information. And we called it the government grifty T.F. It went through the SEC fine. You know, we had we had more comments than normal. Every exchange turned it down. Really? But interestingly, not at the beginning, every exchange said yes. And then it got to some lawyer and corporate. Kill it. So we were never able to launch that interestingly like last week, Boomburg wrote a piece, kind of surmising what the stocks would have been showing that my returns would have been insane. And we're like, you know what, Tuddle was right. But yeah, I was, you know, Congress people are training on inside information. Trump is picking winners and losers. You know, when Trump tweets out, I love good clean coal by coal. When Trump tweets out, I love rare earth by rare earth. I mean, it's not hard. He's giving you, I had one guy tweet to me, no, not tweet to me. He texted me. You know, I love Trump. He's giving out free money. And you know, he is when he talks about the market. I mean, when he told you to buy after liberation day, Marco is up 10%. And I wanted to launch an ETF to capture some of that. And they wouldn't let me do it. It's so strange. And it was the exchanges that one lawyer, the exchanges he didn't like it. I think nobody wants to talk about corruption. You know, I think maybe like, you know, I don't know if you know the Sean Ryan podcast. But I think on one of Sean Ryan's podcasts, he called out a senator, unnamed. It was Dan Crenshaw, but unnamed that theoretically was not a rich guy had a birthday party that cost a ton of money. And just wondered how he could afford it. Dan Crenshaw then threatened to sue him, even though he hadn't been named. And he didn't say, hey, Dan Crenshaw is trading on inside information. He just said, wonder, wonder how we afford that. So I get the sense that that's kind of a third rail that nobody wants to touch. You know, we all know that people in Congress trade on inside information. We know that, you know, 30 minutes before Trump announces a ceasefire, people are buying oil or people are shorting oil. Or, you know, people are going massively long the S&P. You know, we know this stuff is leaking. We know there are people who are, you know, accessing information. They're trading on it that they're not supposed to. But we don't want to talk about it. And again, my nature is I want to talk about it. I want to call it out. I know we're not going to change it because what senator is going to vote to not get free money. But, you know, at least, let me let let's call it out. So it's not like, huh, so you came into Congress. Your net worth was 100,000. You're making like what, 150 a year, and you leave Congress 20 years later and you're net worth is 200 million. How'd you do that? - It's like a financial court jester of old, like who would call out, you know, the things that people couldn't say to the king. - Right, you know, the guy who are right, I'm in a briefing, you know, with the Secretary of Defense, I leave immediately by Lockheed Martin's stop. But no, I didn't know anything that you didn't know. Like, oh, really? Okay, yeah, I believe that. I'm an idiot. - It's not illegal for them to do that. - I know it's not illegal. - They carved out, which is crazy. - Why? And the answer is simple. All of my employees have to submit their stock trades to me before they do them. Then I look and see, are what trades are we making today? Are we trading in those names? No, we're not trading in those names today. Approved. Or, you know what, dude? I'm actually trading that name today. You cannot buy that stock today. You've got to wait until tomorrow. They should have a chief compliance officer in the Congress. I should have to submit. Here's what I want to do. And that chief compliance officer should say, wait, you're on the Defense Appropriation Subcommittee and you're telling me, you wanna go 300% long in Lockheed, Martin. I'm gonna say no to that one. - But if you're an operator, you're not allowed to bet on yourself on polymarket. I'll say that track down that guy. He made 400,000 in the capture of the jury. - The poor, you know, I mean, he probably did something wrong, but the poor soldier who, you know, bet on his country. - Bet on himself. - Right. I bet on myself, we kicked ass. I mean, I get it. It's not right. But if you're gonna go after that guy, go after the people in Congress. Figure out who is it that, you know, training oil or training the S&P half an hour before Trump sends out a tweet. Go after those guys. - We're at the top of the house. JT's got some veggies for us. Folks market on you. Two minutes past the top of the hour. JT. All right, so there's this term in linguistics that I recently learned. And it's called, "Hapaks legememnon." And it refers to a word that appears exactly one time in a body of text. One occurrence, no repetition, no later examples to anchor what it really means. And translators of ancient texts run into these very, pretty often. A word will show up one time and you have to decide what does it mean with no other usage to kind of triangulate against. You can't look it up in a dictionary. You have to use context grammar, surrounding themes to try to infer. And, you know, two equally smart people can land on completely different interpretations and both could be defensible. And I think this is kind of an interesting idea to consider with respect to investing. Almost everything that we know how to do in markets depends on repetition. You know, baserates, mean reversion, momentum, factor exposure, cycle analysis. All of it assumes that the future is in some probabilistic sense and extension of what the past look like. And most of the time that works just fine. Like markets do exhibit recurring structures, but every so often something happens that doesn't quite fit. And the thing, when it doesn't fit, isn't in a tail of the distributions. That's what we're talking about. It's completely outside of the distribution. It's a financial, a PACS, Legumemnon. So Buffett has a line about this, of course. He said the kind, when he was looking for investment managers when he was hiring Ted and Todd. He said he was looking for managers who would think about risks that have never happened before. And of course Howard Marx has another thing he said equipped that things that have never happened before happen all the time. And there is, you can't model with any kind of historical frequency. So Toby, I know you've spent an in a more amount of time figuring out the drivers of what works in investing when the past is prologue. I mean, that's, I think, mostly what you've done. And what can history actually tell you? So how do you kind of tell in real time the difference between a situation where, you know, you think the base rate applies in a situation where you might be looking at a PACS potentially. Yeah, I can't. I'll wait until 12 months off to the fact and then determine it then. Then it tells you whether you were in that situation or not. That's fair. I mean, I think the human instinct is to force a comparison. Pattern recognition is one of our survival mechanisms. We evolved in a very fairly narrow band of inputs and outputs. And they tended to be very linear, actually. So we're wired to provide a narrative to these one-off events to make them feel less random. So when you hear people say, this is like 2008, or this rhymes with the dot com bubble, or this is the new Nifty 50. Sometimes those analogies are completely useful. And often they might be away instead of avoiding maybe some harder work of admitting that we're maybe looking at something completely new. So let's try to think of a few examples here. I think indexing is kind of an interesting one. Most of the market history was active. Price discovery happened because investors were making individual judgments about the value of companies trading back and forth. We had price discovery. Now, trillions of dollars are moving around based on rules. Not analysis, not judgment. If a dollar comes in, you buy more. If the stock is big, you buy more of that one. And this is a structural shift in how the marginal price is being set. And I don't think there's really any real historical parallel for this. Every other large pool of capital in market history, whether it was mutual funds, pensions, insurance companies, sovereign wealth, they were making subjudgment about price. And indexing really doesn't. And that's new, I think. So I don't know if we have a lot of data about what is this volatility chain? How does volatility change? Capital allocation, mispricings. And maybe most importantly, what happens when we have the next real serious drawdown that's extended? And when the marginal seller, all of a sudden, is like, just get me the hell out of here. What happens? I don't know. Do you guys have any guesses as to how good or bad that might look? Are we just worrying about nothing? The next day. Yeah, I don't think you're worried about nothing. I don't look at the past because I think the only thing that is static in markets-- and that's until AI takes over-- is fear and greed. So fear is going to cause things to go down more than they should. Greed is going to cause them to go up more than they should. Beyond that, things change so often structurally in markets. You see right now where at all time highs oil is-- looks like it might be over 100. I can't see anymore. Rates are higher. Who would think that? But all of the Iran war losses right back. It doesn't make a whole heck of a lot of sense, but it is. If you're around long enough, too, you see things that you shouldn't see-- negative oil, negative interest rates, flash crashes, all sorts of things. So what I always tell people-- and I think you said this or something like this-- is whatever you think can't happen will, and you've always got to protect from your downside. I will never forget, in 2028, I had two separate people show me a fund. And the fund was selling naked index options. And it was making 9%, every single year, like clockwork. And both of them I went to, and I said, I get it. But if you have a volatility spike event, these guys haven't covered their downside. Like, oh, yeah, statistically that wouldn't happen. Then we had bomb again. That fund that was up 7% to 9% every single year, five stars from morning star went to zero in a day. And so you've got to look at it from the standpoint of-- yeah, don't tell me it can't happen. It will happen at some point. And I was talking to one group. That it is like a 20% holding in portfolios. And it's like, guys, you should make it one or two. They didn't listen. They kept it at 20. They probably had some lawsuits. That's a tough day to lose 20% of your portfolio in one day. So I do live by that rule. If I think it can't happen, it can. Buffett made a comment that he has seen Berkshire down 50% three times in his entire career. And I thought it was funny that I've seen Berkshire down twice in my career, which is much, much shorter than Buffett. So maybe it's happening more frequently. So example number two that I might put forth for us to consider for a potential hapax that we're living with is AI capax. Hyperscalers are committing anywhere from $300 billion to a trillion dollars a year for AI infrastructure and the near next projections. Mostly it's coming from a handful of companies. the useful lives of this CapEx, like nobody really knows what of the ROI is going to look like. Again, who knows? Every comparison I hear to previous historical examples kind of breaks in some important way. So, you know, Telecom build out of 99, you know, 2001 timeframe. OK, roughly 500 billion total spent there, mostly financed with high yield debt and against assets with 25 year useful lives. All right, that's kind of broken. AI CapEx is 300 billion a year financed out of operating cash flow mostly against assets people are depreciating over five to six years. OK, that doesn't really work. All right, how about railroads? We hear that one a lot. Capital intensity per dollar of eventual revenue was an order of magnitude higher for railroads. So, the build out took 50 years. And, you know, this is happening now over three to five years. OK, that kind of breaks a little bit. How about electrification? Here, the spenders were very diffused. It's not like five big companies. You had utilities, municipalities, industrial firms across the entire economy were electrifying. AI CapEx is concentrated in a small number of companies. So, it's not that these comparisons are useless. It's just that they're being used to do something that they can't do which is tell you really whether this CapEx is going to earn its cost of capital or not. And I think the honest answer is that we don't know. So, I think we just have to be careful with some of these when we try to make analogies from the past when we might be coming across a HiPax. And so, what do you-- Yeah, I mean, on that, I mean, you can't. I mean, people say it's like dot com bubble. Maybe, maybe not. But even in the dot com bubble, I mean, if you bought Amazon or, you know, Microsoft, you know, at the beginning of, you know, 2000, you're still pretty happy with how things have turned out. So, I've tried to simplify it down. I have no idea what's going to happen. So, what I want is I want the bottlenecks. Where are the areas that are keeping AI from expanding? So, you know, things like the power, memory, you know, photonics, space. But then I want to buy them on dips. So, I'm not chasing the memory names right now. Because I know they've gone up parabolic. They're going to come back to me. And I'll buy them when they come back. So, like, you know, yesterday, at the end of the day, we bought Poet. That's a photonics name that violated an NDA lost the deal with Marvell. I mean, high risk, but it's down 47%. And I've been looking for a way to get back into photonics. So, we bought Poet because it had retraced the entire up move that it made in this whole photonics thing. Yeah. So, that's how I look at it. Where are the bottlenecks? And then buy the bottlenecks on dips. Don't be exit liquidity for all the people who bought the dip and are now selling the rip. Be the guy who buys the dip and sells it on the rip. I'll give a few more potential that are maybe zoomed out a little bit further on things that you might be able to do. And you guys can feel free to tear these apart. But so, maybe one, you know, your confidence intervals should be widened, not narrowed. I think the instinct is often to do the opposite. You know, we humans like to resolve ambiguity quickly because it feels uncomfortable. Two, position sizing should reflect your actual understanding and not your modeled understanding of the world. I think that's where people run into problems a lot. So, you know, the math checks out can get you into a lot of trouble. And if you can't model the downside because there is no historical analog, you shouldn't pretend that you can. Three, perhaps pay up for optionality in the environment where you're not sure whether you're looking something new or not. There's a lot more value in being able to change your mind more so than usual. And that means keeping liquidity shorter duration, willing to look ignorant for a while, but then maybe scramble out of your mistakes and kind of position and prepare rather than trying to predict. So I think that the dangerous moment isn't when you're staring at something you know that's unprecedented. Like that's an easy case. You can see it. Like you know, you can be appropriately humble. The dangerous moment is when something feels similar and familiar, but when that frame snaps into place, you think you've seen this movie before, but you actually haven't. And that's where you really get yourself into trouble. You know, 2008 maybe felt like a manageable housing correction until it didn't. Long-term capital management felt like a bond convergence trade with a bit of leverage and a failing rubble until it didn't. And the risk isn't missing the new. It's mistaking it for the old and then using that playbook. So most of the time and you really only know whether you miss the turn in retrospect. So just to be, it should be humbling for everybody, I think is the main takeaway. You know less than you think you do to most of the time. Yeah. I mean, you know, to us, you hedge your downside and you prepare for the worst and hope for the best. You know, I mean, is private credit going to be like 2008? Maybe? Maybe not. You know, I, a lot of people have opinions. I don't. You know, my opinion is maybe. So let's prepare in case it is. You know, are we going to have stagflation like the 70s? Maybe. Better be prepared just in case. You know, on and on and on. So yeah, I mean, I'm not trying to make parallels. You know, I'll look at things from the standpoint of 2008 was long and drawn out where, you know, some of the downturn since then have been quick. And some my senses, the next bear market will look like more like the COVID sell off than 2008, but I'm not married to that opinion. We could have another 2008. So really to me, it's just, you know, like I said, prepare for the worst hope for the best. The market is smarter than you are. You know, if you're doing something and it's going against you, you're wrong. The market's not. And, you know, you've got to kind of make a decision accordingly based on that. You know, you might eventually be right, but how much bleeding are you going to go through until you're proven right? Let me just give a quick shout out. And then let's talk, take us through your heat, philosophy, Matt. Breckenridge, Toronto, Deadcat, Gully, New South Wales, Madeira, Ireland, Portugal, London, Snahomish, Boise, Petit, Tickfah, Israel, Tomble, Texas, Gothenburg, Sweden, all London, Cincinnati, Posnand, Poland, Serberton, Jupiter, Florida, Luzanne, Switzerland, Philly, Las Vegas, Havetown, Pennsylvania, Tallahassee, Snahomish again. There's two of you guys there. Naneimo, Monterey, Chicago. What's up, fellas? We appreciate you being here. Matt, take us through heat, H-E-A-T. What's the, what is it? What's it doing? Yeah, so that is my investment philosophy. As much as possible, we try to launch ETFs around that. We write about that in our daily newsletter. That's how we manage portfolios at Tuddle Wealth Partners or Wealth Management firm. So it stands for H's for hedges. And our philosophy, as I said, is you always need to be hedged. And bonds are not a hedge. For something to count is a hedge. It's got to work every time. And you know, Wall Street's traditionally pitched bonds is the hedge. But if you look at this, a Ron War sell-off, Liberation Day, 2022, not only did bonds not protect you, they hurt you. E is for edges. Whenever possible, be the casino, not the gambler. And you know, there are edges that are out there that are exploitable, that don't get arbitraged away. You want to take advantage of those. A is for asymmetry. Limit your downside, not your upside. You know, what we talk about, there is no right answer when it comes to investing. You interview a lot of top money managers I do as well. Everyone's got a different way of doing it. But the key thing everyone has in common is when they're right, they make a lot of money. And when they're wrong, they don't lose a lot. That's the key. And then T is for themes. You want to always be invested in today and more importantly, tomorrow's top themes. We teach people to look at kind of a thematic investment hierarchy. Identify the theme. Who are the obvious winners? Who are the suppliers to the winners? And then what are the asymmetrical plays? You know, the names that could 20X, 30X that are going to be more risky. And you want to have a mix of all of that. And again, one of the ways we identify that is when we want to look at where the bottlenecks are. But you also want to cut through, you know, the noise, like, you know, the EWAD example. You know, you know, again, what is the obvious Trump trade? You know, he hates NATO. And you know, think about things from a thematic standpoint. And that's the heat formula. And beyond that, there are multiple ways you can use it. You know, we've got a portfolio approach to it, which, you know, takes from the old permanent portfolio and modernizes it. But you know, if all you do is take away the H for hedges, you know, I've made your life a little bit better. Or if all you do is think about asymmetry, I've made your life a little bit better. You know, thematic investing, you know, great. So it's not like a 60/40 portfolio or boom, here's exactly what you invest in. but it is concepts in a perfect world you're using all four, but if you're just used one or two, you're better off. - Take a short break. - If someone wanted to push back and say, like, where does valuation fit into this? - Valuation can fit into it on the thematic side. And I'm not as concerned about valuation because you have some of these moves that don't make any sense. Now, again, when I want to buy into these themes, I want to buy into them when they're dead. So I'm not chasing a lot of this crazy stuff, but then I do want to add in, and I don't think of it like value. So one of the themes that I love is called halo, heavy asset low-optial assets. So one of the issues I have with value investing in a time of AI is a company undervalued 'cause people just don't appreciate it, or is it undervalued 'cause AI is gonna eat their lunch? So what I want to find is the companies that AI cannot put out of business. So AI is not gonna put a railroad out of business. AI might make a railroad operate more efficiently. AI isn't gonna put a compromise out of business, but they may help them run more efficiently. And then AI not only isn't gonna put like a utility out of business, it's gonna need that utility to pump power in. So what that ends up doing is it ends up getting me quote unquote value stocks in my portfolio by comparison. And then I would argue diversifies me against like if I go into the memory and the photonics, which if you look at it from a value perspective, you're like no effin way, I'm gonna buy those companies. They're trading at a gazillion PE. Whatever value metric you put on Sandisk, I mean, it's not gonna work. But we mix it with like a free port Mac Moran or an Alcoa in a railroad, then there you go. There's your stock portfolio. Matt, do you have any views on the market changes in the market structure? Like this one of the, I think you sort of alluded to it a little bit early before, but there's obviously this sustained passive bid that Michael Green has talked about a little bit as meaning that we're always gonna favor the bigger companies are always gonna succeed over the smaller companies. Do you have any views on that idea? - So I've got two views. There is that, there's something that I think is just as powerful and maybe more. But yeah, I think, whenever anyone says all Mag Seven, Mag Seven, it's like dude, there is so much money going into the Mag Seven every single month. People going into the S&P, people going into the Q's, dollar cost averaging 401Ks, institutions that it will be very hard for the Mag Seven to die unless the whole market is going down. So I think that is certainly something out there that big will keep getting bigger. What's maybe more interesting to me is the rise of the retail investor. So what we had coming out of COVID is, you know, a generation of retail guys who were sitting at home, bosses that looking over their shoulder and they start trading. Now we've got technology where they get connected. They get connected over social media, they get connected over Discord. They start getting on the same companies. They start realizing when they take a hedge fund down that they've got power. And then they start getting smart. They move on from the game stops in the AMCs and they start identifying these themes. And they don't have the constraints that a fund manager has. A fund manager is going to close at index. A retail investor is going to go all in on sand disk or all in on momentum. You know, they're not measured against an index and they're going to move the market and then what you have happen is the institutions start realizing it and start doing the same thing. So for example, my hedge fund manager I mentioned, you know, told me he's like, you know, we were killing it and then a couple of years ago, we stopped killing it. And one day our boss came in and said, you know what? Screw this. We're just going to buy the stocks people like and short the stocks they don't. And they've been killing it ever since. So I think that's why this market has become so thematic. 'Cause the retail guys are in on the themes. The institutions jump in and it's why you have these stocks go parabolic that just don't, you know, going back to like looking at how things happen in the past, it just doesn't work that way. Now again, it may eventually don't chase these names, but you know, it is a different market and I think it's because of the retail investor and what they've caused. - Do you feel like it's streaky than it was before? Like some of these things stuff? - It is way streaky than it was before. And you know, in the dips, you know, people retail guys buy the dips. You know, the institutional guys, they get margin called and they're worried about their job and all this stuff, you know, the retail guys, they're buying the dips. And I think that's one of the things we saw with the Iran war. It's like, you know, why aren't we down? I think a lot of it is the retail guys, you know, they saw the stocks they like get hurt and they're just buying the dips and overfests. - Without kind of giving away any trade secrets, so not any sort of neurotime themes, but they're any like longer term themes that you think are interesting that you're kind of watching that maybe folks aren't talking about. - So I love my UFO disclosure theme, which is not as much about disclosure. I don't really, I mean, I care from a personal standpoint, but I'm more interested. You know, I think, you know, the fence contractors are sitting on technology way advanced than what they've shown. And we've seen that with the discombobulator in Venezuela, which was a directed energy weapon. And we saw it with that quantum heartbeat thing in Iran. And I think a lot of what we're seeing in Congress, a lot of what Trump is doing is gonna force the release of that technology for commercial use. You know, space is another, I mean, that's picking up. You know, one of the bottlenecks, I'm kind of playing around with in AI is glass, you know, glass substrates. You know, so I'm kicking around some ideas there. There are not a lot of stocks in that, but that's interesting. Another theme that we may very well launch in ETF on is European digital sovereignty. So kind of going back to my European aerospace and defense idea, what we're seeing is the European countries when they can, and they can't always in every situation, kicking out US tech companies and replacing them with local companies. And, you know, they don't have the Mag 7 there. They don't have anything close, but I'm seeing a trend. And, you know, and I think it's an investible trend. And I think that's something that, you know, I may want to add to client portfolios, which means I need some of these European locals, which means I got to launch an ETF for it. So that's one of the themes that's kind of interesting to me as well. - Talk to us a little bit about your UAD ETF. What does that hold? What's in there? - UAD is just, you know, the European defense names, Rhino, mental, you know, Airbus, you know, companies like that, that, you know, we just, I mean, we just knew, you know, Trump is saying, hey, we're not a big fan of NATO, we're not paying for your defense. European countries are gonna have to pay. Are they gonna go to Lockheed Northrop or are they gonna go to their own companies? They're gonna go to their own home companies. So we wanted to own them. We still do. I mean, it was upper ridiculous amount last year. So, you know, it's bound to give some of it back. But, you know, I still think that is a great theme as well. Yeah, I was wondering if you had enough names to fill out an ETF when you said European defense contract. - Well, cool. - We get around the ETF diversification rules using swaps. So, I mean, I could launch an ETF, obviously, I have with single names. - Oh, just in terms of, I just wasn't, it wasn't even sure if there were enough names there. Yeah, just to fill the basket. - Yeah, no, there are enough. - Matt, we're coming up on time. If folks wanna follow along with what you're doing or get in touch with you, what's the best way to do that? - So our website is tuddlecap.com. And I'm on Twitter @tuddlecapital. Our website, there'll be a pop up for our free daily newsletter. It's a lot. You know, I usually every day I'll do a deep dive on some theme I'm looking at. Oh, you know, I'll call out a stock I'm looking at. I'll talk about the markets. [BLANK_AUDIO] I mean, it's pretty beefy. Feel free to subscribe, it's free. Unsubscribe if it's too much. But we do that. We do a lot of webinars. We do our own podcast. We talk to you on our podcast. That'll be up as soon as our editors have done. So we do a lot of educational stuff. It's all free. Take advantage of it. You know, hopefully you'll get something out of it. - Well, thanks so much for talking to us. It's so great learning about the market structure and themes and things like that. We appreciate Matthew Tuttle of Tuttle Capital. Thank you very much, folks. We'll be back next week. Same bad times, same bad channel, JT. Sorry. - I'll get thanks Matt. - Thanks Matt. Check out journalitic, folks.