Joseph Gradante (00:01.504)

Welcome ladies and gents to another episode of Orwellian Optics. I'm your host, Chief Executive Officer Joseph Granante. I'm here with our Chief Operating Officer Christopher Morgan. Chris, what's going on?

Chris (00:12.583)

Hey, Joseph, how's it going? Good to see you. Hey, everybody. We got a good one for you today. We're going to let our chief investment officer, AJ, take the floor for the most part today. We're going to be chatting about different investment styles. So specifically the systematic first principles approach that Ray Dalio uses. We'll talk about George Soros and Warren Buffett a little bit. But AJ, how you doing? Why don't you kick us off here with a little overview of those investment styles?

AJ (00:42.478)

Thanks Chris and glad to be here with you guys again for another great episode. got a good topic this week. This is right in my wheelhouse. So I'm excited to talk with you guys and all our listeners about this. The first thing we got to hit on is that all three of these guys are tremendously successful. It really speaks to the fact that there's not one dominant investment strategy that works and to the exclusion of all others. Every one of these guys has built a career through

the decades on taking an approach that works for them, varied, very different in a lot of different ways, similar in others. But I think the thing to latch onto here is there's not just one way to get this done. So at a real 30 ,000 foot overview, to start with Warren Buffett, mean, he's the pinnacle value investor. He focuses on the Ben Graham style approach of looking at companies from a bottom up perspective, trying to buy companies that have strong moats.

that have quality leadership, that are just really sound businesses at a price that gives him a margin of safety to know that, even if things don't work out exactly as my investment thesis predicts, there's still going to be some upside here for me, and frankly, some protection to the downside. Ray Dalio, bit of a different story. He started off with the assumption that you could analyze markets

through the lens of just a logical approach and finding patterns and Symmetries will lead you to better investment outcomes if you can codify those patterns and symmetries and reproduce them through a systematic approach to investing So we went out and hired a whole bunch of people really smart folks on the statistics computer science coding and technology side and really build a world -class organization known as Bridgewater that's dedicated to producing

a series of really world -class investment strategies that are designed on the assumption that the world can be explained through these logical principles and you can generate returns in alpha through executing these principles systematically over and over again and just turn that crank over and over again and continue to make money. George Soros, on the other hand, is almost the converse of that. He's the typical discretionary macro trader.

AJ (03:07.47)

He grew up in an era before computers, before systematic investing was really popular or even possible. And what he learned early on was that you don't have to be right all the time, but when you find something that you have a very high level of conviction about, you want to bet the farm and you want to lever up and you want to go big. A prime example of that was when he quote unquote broke the Bank of England, broke the pound.

And, we can go into that a little bit later in the episode, but, know, the core thesis of his investment philosophy is essentially that, you know, you're, going to take a few concentrated high conviction bets and try to make as much money as possible on those and cut your losers quick. If they turn out that your, you know, your investment thesis isn't playing out as you expect. So that's kind of the, landscape of the folks we're looking at today. And, you know, there's a whole bunch of different areas you can look at to compare and contrast these guys.

But just to kind lay it out there to start with, they are all fantastically successful. They've defined a genre. And you can certainly learn a lot by emulating various aspects of all three of their approaches.

Chris (04:18.873)

Yeah, that's awesome. That it sounds

Joseph Gradante (04:19.722)

Now there's an all weather portfolio, which my understanding of it is that basically the markets have six determinants, It's high inflation, low inflation, high growth, low growth, the credit spread and the risk premium. And that these determinants are influenced by monetary and fiscal policy. once you understand this, then you can kind of understand

how the sectors and asset classes within your portfolio or just in general are gonna behave. How does something like that contrast to a discretionary macro investor like George Soros?

AJ (05:05.252)

That's a great question, Joseph. And really it starts with portfolio construction at a real basic level. when you look at a Dalio style all weather portfolio, you mentioned the six determinants, that portfolio is constructed so that in any given regime, any combination of those six determinants, there will be assets that are going to be expected to perform well and assets that are going to be expected to perform poorly. The balance of that is that

Hopefully you get over all the different shifts in those regimes, a positive and upward sloping performance line. And obviously, you know, his track record speaks for himself. But where Soros is different is that he's not necessarily concerned with having a portfolio that's robust to all those different regimes and the shifts in those regimes. He's much more concerned about figuring out where in the cycle we are today.

and taking a short -term high conviction approach on how to capitalize on it. So whether that's a high growth scenario paired with a low inflation, paired with a decline in the discount rate or an exact converse to that, Soros is gonna be preoccupied with finding the exact asset or asset class or combination of assets that are going to provide him with the most upside convexity to capitalize on that particular opportunity.

And he's most likely going to do something, you know, in a very high conviction, large size, potentially levered way to try to generate returns. And, you know, there are going to be periods where he is wrong more often than not, just based on the law of averages. You know, if he was a hundred percent good at what he does, he would have retired by the time he was 24 and not when he actually did. But, you know, the core thesis of what he's trying to do.

is that he's trying to string together wins of large size. And obviously he has a track record of doing that, but it's by no means a, what you could ever really consider a diversified portfolio or a risk balanced portfolio, like the Dalio approach of his all weather fund, which he's made famous.

Joseph Gradante (07:21.664)

So basically you're saying he's not concerned with diversification. He's looking at it through the lens of a trader.

AJ (07:27.606)

Exactly. That's a hundred percent. Right. He's a, he's a born trader. He's looking at it in how do I make the most money and how do I lose the least money? And, obviously it's, it's much more complex than that in practice. And he's got a team of people helping him do that, or at least he did, you know, before, before his retirement. But at the end of the day, he's not looking at it, you know, like a, you know, an institutional portfolio manager would at a

you know, with an endowment or a pension where they've got a balanced portfolio and they need it to last 100 years. He's just, you know, that prototypical trader and he, you know, attacks opportunities exactly like you would expect them to.

Joseph Gradante (08:07.542)

Got it.

Chris (08:08.891)

So that's kind of the opposite of what we're doing, right? At Alio, we're doing more of a Dalio approach, building resilient, flexible, dynamic portfolios instead of, you know, encouraging this day trading behavior.

AJ (08:22.362)

Yeah, exactly. at a very fundamental level, there are exceptionally few people in the world who are capable of operating at the level that George Soros operated at for the length of time that he was able to compound those returns, in some cases upwards of 30 % annualized. So when you think about the best approach for the average person who's looking to grow and protect their wealth,

Our belief at Alio is taking a top -down, macro -first approach, looking at these six determinants of market behavior, reading through the lines and trying to interpret what elements of fiscal and monetary policy are driving markets, and building a portfolio that's resilient to the shifts in economic and political regimes is really a fundamental approach to generating and preserving wealth for the average investor.

So it's, I think a much more replicable approach than a Soros approach, precisely because, you if it was easy to be George Soros, there would be millions of him and there's not, there's one. So, you know, from that perspective, it's very clear, you know, it's not easy necessarily to replicate Ray Dalio's success either, but at least one of the interesting things about his approach is that he takes a...

you know, very philanthropic view of the things that he's learned over his long career and he's disseminated them at length. So we can learn from what he shared with us. And because it's a systematic style and because it's based in logic and reasoning, we can all individually replicate it to a certain extent, which makes it incredibly powerful.

Joseph Gradante (10:10.69)

Exactly.

Chris (10:12.293)

Yeah, that makes it strong. It's something good to look at and be inspired by on our end, for sure. The let's tie some policy into this a little bit. The thing that Soros is most known for is the Bank of England trade that that you talked about, AJ, that you mentioned there. So this is a good example of how policy and in trading and economics are tied together. But why don't you introduce that a little bit and then talk about the feedback loop a little bit and reflexivity in the details of that?

AJ (10:12.793)

Yeah.

Chris (10:41.913)

investing style a little bit more.

AJ (10:44.462)

Yeah, absolutely. the, you know, the breaking of the Bank of England is a seminal story for, you know, finance students and for students of the investing world. And, and really it starts exactly where you outline, Chris, it starts with fiscal and monetary policy. So, you know, going back to the late eighties and early nineties, the Bank of England essentially set up a regime or joined a regime where they had a

mechanism in place to mitigate currency volatility. And what that did was it put kind of quote unquote artificial constraints on where the pound was trading relative to a basket of other international currencies. Now, you know, that's okay in certain circumstances, but what George Soros identified during that period and specifically leading up to the event itself in 1992 was that because of the weakness of the

British economy and because of the high inflation they were struggling with the pound was inherently overvalued so he leaned into that with an aggressive short position and Effectively kicked off and demonstrated the principles of you know a feedback loop loop and of reflexivity and and the way that worked is his short drove down the price of the pound forcing the Bank of England to step in and defend the quote -unquote range of

what they deem to be an acceptable range of prices for the pound to trade at. And through that action, they had to basically deplete their currency reserves, buying up additional pounds. So they were blowing through FX reserves, buying pounds, trying to defend this price range and reaching out to effectively other countries saying, hey, you know, this is a stable thing, you know, come,

This is all okay. There's no issues here and nobody bought it. Soros continued to short. The market continued to feed on this mechanism of self -fulfillment where it had been made clear that this was not a tenable situation for the Bank of England and for the pound. And what turned out to be known as Black Wednesday occurred when the Bank of England was forced to abandon the peg.

AJ (13:07.514)

abandoned that range of currencies that they were trying to peg to. And the pound depreciated against the dollar by 25 % overnight, netting George Soros about $1 billion in profit to his fund. there's a lot of people who will be like, you can make a lot of ethical arguments about that, but at the end of the day, that is a shark sensing prey and going after it.

Say what you will about Warren Buffett or Ray Dalio or any of these guys, know the large You know, maybe more modern hedge fund investors are the old fundamental guys very few people can say they've taken on a national sovereign bank and one and He's one of them. So, you know the I think lesson from that is it's multiple but the core one to me is simply that there are Massive opportunities out there for people who take the time

to do the research and understand the fundamental mechanics of what's going on behind the scenes, who can capitalize in those on fairly grand scales. And for the average person, you may not be able to deploy enough capital to effectively force a sovereign bank to abandon a currency peg, but you can absolutely find fantastic opportunities if you're willing to do the research and you put your

time and attention toward that pursuit. Again, it might not net you a billion dollars, but it's called compounding wealth for a reason. You have to start somewhere. It's that incremental growth over time that's consistent and applicable and systematic that gets you to a position where you may one day be capable of making trades of that size.

Joseph Gradante (14:54.59)

So I was going to jump in and say, we can also deduce that he's not a fan of the nation state, but you know, trading, do we want to say, I mean, I feel like we lose against what we do and what our principles are if we say, hey, look for opportunities and look for trades. And I understand like we are promoting swing trading and stuff, but right now nobody knows that. doesn't, you know, we're just trying to establish our footing as a brand.

where I think, you over time, but yeah, what are your thoughts on that?

AJ (15:27.512)

Yeah, it's a good question. It's just kind of naturally where I ended up talking about breaking the Bank of England. That doesn't really fit in with any, you can't tie that back to that. So I was just kind of like going with it.

Joseph Gradante (15:37.766)

Yeah, I know. I was just going to jump in for you and tie it back. Well, he's not a fan of the nation state and so he's a global.

Chris (15:40.0)

Yeah.

AJ (15:44.664)

Yeah. All right. We can just go in that direction and then take it from there.

Chris (15:48.155)

Yeah, see where it goes. All right. do you want to start? Actually, you want to just cut in with that Joseph or eight.

Joseph Gradante (15:56.342)

Well, no, we have go back. Yeah.

AJ (15:56.42)

Well, let me just, let me just, cause Chris, you asked me the question about, you know, George Soros and the bank of England. So I'll be like, Hey, you know, the, the infamous breaking the bank of England and then, you know, Joseph, you can jump in and be like, Hey, not to cut you off. But like, you know, so, and go that way. And then I can come back to it later if we want.

Chris (16:03.898)

Yeah, yeah.

Joseph Gradante (16:16.159)

Okay.

AJ (16:17.674)

All right, I'm just gonna take it. I'm gonna just start assuming that you said that Chris, then you can mark it.

Chris (16:24.753)

whenever you're ready.

AJ (16:26.958)

Yeah, Chris, the infamous breaking the Bank of England story. mean, that's a seminal education component for folks in the financial and investment industry. it's a.

Joseph Gradante (16:37.258)

I think it also tells us, not to cut you off, sorry about that, you know, what George Soros, right, believes, it kind of underscores his, you know, his entire philosophy. He's not a fan of the nation state. And you can go back to when he broke the Bank of England to support that. Obviously, I'm partially guinea fesicius here, but, you know, but also being honest.

AJ (17:01.656)

Yeah. And it's, you know, to your point, Joseph, I think nobody who pursues a strategy like that does so, you know, without having some kind of like deep seated motivation, you know, nobody's just going to be like, Hey, you're like, let me check on the reserves of the Bank of England and see like what's going on. I mean, he was on the hunt for that. And I think, you know, it speaks to, you know, some of the potentially more nefarious reasons for, you know, existing in that world.

you know, whether it's the Bank of England, you know, whether it's a particular trader or particular macro event, I think, you know, the core philosophy of the DALIO approach that I think is applicable here is really that, you know, if you've got, specifically in this case, if you've got exposure to the US and to Britain, it's not necessarily relevant whether one wins or loses. Over time, I think both

Chris (17:32.678)

You

AJ (18:00.532)

know, advanced economies are going to trend in a generally positive direction. They may not be the most positive, you know, when you look out there and see some opportunities in places, you know, like, for example, the BRICS nations that have been doing well recently. But, you know, the approach that Dalia would take, you know, if he could go back and kind of replicate a portfolio to exist through, you know, the Black Monday shock, or sorry, the Black Wednesday shock, Black Monday works too, but.

The concept there is you want to build a portfolio that's robust to macroeconomic shocks. And you do that by building a portfolio of different exposures, different geographies, sectors, industries, asset classes, and subcomponents. that when something like that does happen, don't wake up one morning and find your portfolio down 25%. You find a small piece of your portfolio down 25%, and you might find another piece of your portfolio up 25%.

I mean, that's really the core concept there. know, Joseph, think.

Joseph Gradante (19:02.006)

Yeah, one that you tied in the importance of the D 'Aleo approach, right? Given guys like George Soros, right? Given those kind of black swan events, right? That's why you have to build a portfolio that's dynamic.

Chris (19:16.069)

Mm -hmm.

AJ (19:16.246)

Exactly. the other piece of it too is like, we know people always want to have that piece of their portfolio that's like, call it play money, call it fun, call it trading. There's an element of that that I think exists really anywhere. And even Dalio has his pure alpha fund that he's taking a little bit more of an active approach to. But I think when you consider the relative risk levels of these approaches, that's another

you know, really helpful way to think about this. you know, Warren Buffett specifically in his bottom up approach, he's another one, similar to Soros in that, although at the very other end of the spectrum in a certain way that he doesn't necessarily care about where we're at in the market cycle. He doesn't care about the macro. He doesn't care generally about industry. He's really focused on, can I buy a business?

for the right price such that I will earn my money back in all states of the world. And it's a very powerful concept, but it has its limitations as well. And when you think about how he and Soros are kind of the same, it's that they're not necessarily looking for a portfolio or building a portfolio that's robust to all market environments in the same way, but they are doing things that allow them to.

kind of exist through those cycles in ways that are individual to them, but net out to a roughly similar outcome in the end. And that just kind of highlights the point I made to start off with, which is, you know, that in reality, there's a lot of ways to do this. We think, you know, here at Alio that there's probably a more reliable and more robust way to do that, but it can absolutely be tailored to an individual specific.

Chris (21:02.386)

Thank

AJ (21:09.304)

risk tolerance and preferences and investment style. you know, there's a lot to be learned here from all three of these guys. But Joseph, I guess, you know, what initially led you down the path of like, hey, you know, this Dalio guy, like what about his approach was so appealing to you personally?

Joseph Gradante (21:30.242)

I've always been a fan of history. I went to my first political rally, like I mentioned, that nine or 10 years old, the Russboro rally. I think later on, going to work in markets, I started to understand the importance of history and the fact that things do repeat themselves. And so if you could, maybe not repeat themselves apples to apples necessarily, but...

If you can take that lens to looking at markets, could position yourself for not only success, but to be prepared for market downturns. think focusing on absolute returns is...

you know, for me, just the way to go because the name of the game is compound annual growth, right? And I'm not, I'm not a CFA, right? Like my backgrounds and, know,

I went to school for political science and public policy and economics. And so I've always had a tendency to look at things through that lens. so, right. So, you know, I just loved Dalia's approach and I think it applies to all investors. then, then like you said, from there, you know, once you get experience, you know, in markets, once you can kind of, you know, nail down, looking at things in a top down way, for example, being in the right sector or the right asset class, you know, then you

could go from ETF to stock, and then from stock to options. But I think you have to really first be able to look at markets in a macro sense, in a top -down sense, in order to be successful with some of those other modalities.

AJ (23:18.052)

Yeah, and I mean, you even told me at one point about, you your background working on an equity research desk and like, you're just kind of laughing at these guys, you you're giving all these great pitches about all these companies, but like, you none of it's working. I mean, tell us about that. I mean, that seems like a seminal moment.

Chris (23:30.383)

Thank

Joseph Gradante (23:37.419)

Yeah, you know, I was selling equity research for a short period of time. you know, when I came out of school, you know, my uncle looked at my majors and said, you know, it looks like you want to go work for the Obama administration, right? Not working capital markets is like I said, I majored in political science, public policy and economics. However, you know, working on that,

that equity desk, selling equity research for the traders. It really gave me an interesting perspective because yeah, these guys were so adamant about these research reports for these companies that they were, and oftentimes, they talk to the management teams and they'd be so bullish on it. And I noticed that I was getting it right. I was doing better than them. I was performing better than them. And I didn't understand...

even 10 % of what they were doing. But I was able to get it right because I was in the right sector. so, yeah, so was a unique learning experience for me and really kind of validated this approach that Ray Dalio takes.

AJ (24:47.194)

Yeah, I mean, to me that that really resonates because I kind of had that same experience, you know, entering the market in the portfolio management side where you had kind of all these analysts just, you know, coming with ideas and, and, you know, you walk around the office and everybody has their, you know, hot stock, whether it was, you know, Walmart or whether it was, you know, some home builder or an RV manufacturing company, everyone had the most compelling story that you've ever heard. Like,

Chris (25:16.711)

you

AJ (25:17.082)

blow your socks off, this is going to be a 10 bagger, no problem. And you could walk back around the room at the end of the year and ask people like, hey, how's that going? And every single one of them was like, not that great. And then they list off a list of macro reasons why it didn't work out. rates didn't cooperate, or that sector's down, or some new regulation caused expenses to go up on the banking sector. And it was always this story of like,

Chris (25:21.006)

Thank

AJ (25:46.308)

Here's a list of reasons that you should have thought of why this didn't work, but you just ignored and then pretended that that wasn't part of the game. When in reality, like this is the real world with real constraints and real people. And, you know, not to go too off topic, but one of the things that, you know, I think is a real teaching experience was if you go back to the early days of the COVID sell -off.

When everybody was losing money hand over fist, the market was gapping down every day and we were getting circuit breakers. And you'd go on Wall Street bets and all these forums and Yahoo Finance and whatever, and everybody would just be like, I'm throwing in the towel, I'm shortening it. The jobs report, whatever it was, the report, they're like, there's going to be 20 million people unemployed this week and the market's going to fall apart.

Okay, yeah, that may be true. And then it was, well, know, there's no liquidity, everything's going to dry up, people aren't going to get paid. And what they didn't realize was that's an unacceptable outcome. And the people in power didn't want that. So what did they do? They just printed $8 trillion and fixed it and gave money to everybody. And if that wasn't part of your investing playbook, that you really thought that the people in power would let the entire system collapse just because that was

the rules, then I got a bridge to sell you. It's just nonsense. To me, was like, I I kind of saw it coming to an extent, but going all the way back to 08, you have to understand that there is every incentive that exists as part of the global fiscal and monetary

system that we've built to support this massive, you know, build out of capitalism over the last 300 years. All of it's contingent upon the system continuing. So if your bet is that that's going to fail, you have to have a very strong thesis as to why they're just not going to print money or make new rules to change the outcome in the way that, you know, perpetuates the system, which kind of ties into, you know, everything that we're trying to say here in that

AJ (28:12.644)

You know, there are people with massive power and influence organizations, whether they are individuals or whether they're groups who have every incentive and every massive amount of resource that you can imagine to make sure that the system stays the way it is. And that's potentially to your benefit, but most likely not. And realistically, you know, what we're trying to do here is give you the tools to see things as they are.

and to effectively generate the reality and the future that you want by seeing those things for what they are and taking the logical choices to build a better outcome for yourself, whether that's through investing, whether that's through political discourse, whether that's by taking action on a personal level or in a group setting. mean, Joseph, to me, mean, this is really the core of what we're doing here. And that's why

when you look at something like COVID or 08 and these bailouts and rescue packages, you see through the noise and it's always just like, hey, we're taking giant amounts of money and handing it to corporations or handing it to people who are already rich. And what else do you want?

Joseph Gradante (29:26.358)

Yeah, I mean, when it comes to investing, you have to first be able to look at things from a top -down perspective. You have to understand how all the parts relate to each other, right? And I always love it when people ask me, what's a hot stock? What's a hot stock? In FinTech, specifically, people playing around in these apps. And I think that's part of the problem, right? Is that people, just want a quick fix.

You know, and they play around with these apps that are really gamified and they're designed, you know, I don't even want to say trading really, but to, to gamify, know.

your experience around trading. They're not set up to teach you how to be an investor is what I'm trying to say. They are set up so that you will fail. They just want you to make as many trades as possible. And the more you trade, the better likelihood that you're going to lose money. so what we're doing differently at Alio, particularly on the dynamic macro side, is the client experience is set up in a way. And by client experience, I mean the UX so that people

people are building portfolios through this top -down modality. They're picking sectors and asset classes first before they even get into stocks. And I think that's different than what's been done up until now.

Chris (30:58.681)

Yeah, definitely. I think it's important to realize that nothing happens in a vacuum. There are so many unknowns. And if you don't prepare yourself for those unknowns, you're going to get burned by them. So if you're going to try to be a day trader and be like, you know, George Soros, you're going to have to be willing to take a lot of losses and you're going to have to put up a lot of cash. And most people can't do that. So where we come in building these resilient portfolios, teaching people how to invest, like Joseph said,

instead of just pretend to trade is really important to us. And that's where someone like AJ has a huge value add because he's one of the best there is at putting these portfolios together. So AJ, why don't you talk a little bit about your style? What makes us different? What makes you kind of stand out among among those guys even?

AJ (31:49.53)

Well, yeah, to me, the thing that's powerful about what we're doing at Alio is really the fact that I wish I had a tool and a system like this when I was starting to learn because it would have saved me many valuable, expensive lessons. And I can say from experience that I found many ways to lose money and fewer ways to gain money and to make money. And I think that's one of the core...

concepts that you really have to internalize as an investor is that there are so many more ways to lose than there are to win. And in order to win, you have to avoid the losses at all cost. you know, from that perspective, doing everything that you can to insulate your portfolio from large losses is absolutely critical. And it's absolutely the first step. And it starts with building a diversified top -down macro portfolio.

In that case, you were basically taking the legs out from the probabilities that you're going to have losses of any magnitude to really destroy your wealth and to set you back in your investing journey. Once you do that, and you can start to have a degree of comfort and familiarity with how this process kind of plays out, and you can start to look for the signs, you can start to read fiscal and monetary policy, you can start to, you

effectively learn to read the keywords and search for the themes that are driving markets and asset classes and sectors, then you can start to layer in some more active things into your strategy to capitalize on these themes. But I want to emphasize this is by no means day trading. This is not, I saw that Boeing got a contract today and I'm going to try to ride that wave.

Chris (33:42.565)

you

AJ (33:45.55)

you know, absolutely not Boeing. this is, you know, first of all, you know, especially not if you're an astronaut on the space station, but, you know, the core concept there is essentially that, you the, want to do everything you can to minimize the large losses. And then you want to follow that up with doing everything you can to minimize the small losses. And you want to make sure that your portfolio is robust to shifts in the macro cycle. And, and really that's, that's the core of my approach.

is for whether I'm building portfolios for clients on an institutional basis or for high net worth folks or just for people that I know, friends and family, or for myself, it's really about building a portfolio that is essentially as robust and as Nassim Taleb puts it, as anti -fragile as possible. What that means essentially is that it's geared to make money in all.

at least in some way. There are reasons to use realistically almost every asset class that has an expected return above zero. And there are even reasons to use things like Bitcoin that you can't very easily come up with an expected return formula. In a lot of different ways, it's a really unique time to be an investor today because there are just so many more ways to build exposures than there were

you when Joseph and I and you, even you, Chris, were starting investing. mean, you know, 20 years ago, there was like five ETFs. You know, everything was active mutual funds with heavy fee loads on them. And, you know, for better or worse, now you can get ETFs in almost anything. There's, you know, an ever increasing amount and diversity and depth and breadth of ETF exposures, which really helps from a fundamental perspective with building

a robust diversified portfolio because 20 years ago, if you wanted emerging market local currency credit, good luck. Now there's probably four ETFs you can buy that will give you exposure to some combination of emerging markets, sovereign local currency credit. And, you know, from that perspective, there's no better time to be a macro investor because it just makes it infinitely easier. Even if your portfolio is a hundred, five hundred thousand dollars, whatever it is to

AJ (36:12.826)

have the diversification, to have the exposures that you want, to be able to ingest one of 10 ,000 different news sources that are out there. You can really react in real time to these shifts, these themes. You can stay on top of developments in emerging markets, developed markets, and you can build an investment strategy that will work for you and that is intuitively something that you understand.

but also can apply these principles that have been time tested by guys like Dalio and the All Weather Fund and really all the disciples that have followed from that thereafter.

Joseph Gradante (36:48.384)

Yeah, you AJ, you mentioned my experience on the equity research desk and it was ETFs, right? That allowed me to outperform those analysts. And that was what I found so interesting is that, you know, I didn't know. So there's basically two ways that you can tackle learning how to invest. You know, at least, you know, this is how my uncle taught me. There's top down and there's bottom up. And first you've got to understand top down before you can engage in bottom up. And so

Yeah, when I was on that desk, I was using ETFs just to pick sectors, Essentially. And by being in the right sectors, I outperformed them because it doesn't matter how good the fundamentals are for a particular company. If market conditions are such that that sector is so out of favor. so, it was...

AJ (37:40.922)

Yeah, no, the old adage is, and you know, I'm not sure if it's true anymore, but 92 % of your return as an investor is derived from your asset allocation. And the other 8 % is attributable to things like what stocks you buy and you know, all the individual security characteristics. So from that perspective, it's incredibly important, you know,

Chris (37:41.839)

Mm -hmm.

AJ (38:08.698)

92 % important relative to a hundred percent important to make sure that your asset allocation is consistent with your top down macro view and with your risk, your expectation of where risk is going and what you think is the asset allocation that suits you best as an individual investor. Once you figure that out, the rest of it almost doesn't matter. Like Joseph said, you could have the best stock

in a particular sector. But if that sector is getting absolutely smoked because interest rates are declining and it has a high duration or high sensitivity to changes in interest rates, then it doesn't matter. mean, that stock could be putting up 30 % annual earnings growth and it's just going to get absolutely smoked and there's nothing you can do about it. And you're going to be wrong. in finance and investing, there's really no difference between being off with your timing and being wrong. So

You could have every fundamental bottom up reason in the book why do you think that stock is going to outperform? And all of those things could be correct and you could still be wrong. And that's entirely on you because especially now, every investor has the tools and the resources to take that top down view with what we're doing here at Alio. And that's, I think, the most

critically important piece of this and potentially the most game changing. And that's why I said earlier, I mean, it would have been so helpful to have this technology when I was learning to avoid some really, really painful mistakes along the way.

Joseph Gradante (39:50.237)

man, that macro dashboard, absolutely.

Chris (39:52.423)

It's beautiful.

AJ (39:55.96)

Yeah. And I mean, that's just it, right? It's, it's, it's being able to know what to look at, to know what's important, to know how to read it, to know how to synthesize that information into an investment strategy and to build a portfolio around, you know, what that investment strategies looks and feels like. So, you know, with your personal investment thesis, with your personal views, your outlook, all the information available at your fingertips, you know, how do you build a portfolio that

is consistent with all of those things that has that elasticity, that dynamicism to kind of take all those things, ingest them, and generate a return across all regimes, across all market environments in an absolute sense.

Chris (40:43.173)

Yeah, absolutely. It's not an easy thing to do and we're lucky to have you doing it for us and for our clients that have seen a lot of success so far.

Joseph Gradante (40:52.866)

Wait, wait, hold on. Go back. Yeah.

Chris (40:55.451)

Yeah, I know we gotta take the scene you do with our clients has to come out for compliance.

Joseph Gradante (41:00.608)

yet,

AJ (41:02.148)

Well, there was a nice pause there, so we can just take it.

Chris (41:03.782)

Yeah.

Joseph Gradante (41:04.512)

Yeah, so just say that again, Chris, what you say, because we're talking about people, people, people were talking about people doing it themselves. So I would say, yeah, you have you as a general statement.

AJ (41:08.666)

just say we're lucky to have you and then like toss it over to.

Chris (41:15.665)

Yeah

AJ (41:18.948)

Yeah.

Chris (41:20.177)

Okay, let's see. Cool. Yeah, and that's exactly why we're we're lucky to have you man. So very good. So Joseph, any any last thoughts here as we wrap things up?

Joseph Gradante (41:32.28)

No, AJ, have any last thoughts here?

AJ (41:37.188)

Well, know, office hours are in session, boys. So, you know, I'll be back next week for sure. And we can, we can take it from the top. no, mean, you know, to me, I think the real summary that I just want to hammer home for, you know, maybe the third or fourth time is that there's multiple ways to do this, but they all share certain consistent themes. And those are, you know, a real laser focus on the results oriented approach of this and doing things in a logical, consistent way.

You can either take the Buffett approach, you know, can take the D 'Aleo approach, Soros approach. They all have their strengths and weaknesses. Our view obviously is that the D 'Aleo approach, think on balance, you know, the weight of evidence suggests that that's maybe a little bit better and a little bit more easy to apply for the average person. Given the fact that he's kind of shared his thought process, he's written his principles books, he shares it on LinkedIn and all across social media and the internet. He's produced YouTube videos, all these kinds of things. And really that's...

That's the model that we think is the most compelling. And that's kind of the reason that Joseph started this company, that's why we're here. That's the mission that we're on, is trying to bring better financial outcomes to people through an informed top -down macro process. And whether that's something that you want to try your hand at yourself, or whether that's something that you want us to take the wheel for you, that's really why we're here. And with that said, mean, Joseph,

I think we owe you a debt of gratitude a little bit, for kind of setting this thing in motion. And we're really excited to be here with you on the journey.

Joseph Gradante (43:15.008)

Yeah, there's a reason I have everyone at the company read the D 'Aleo book, right? Principles for Dealing with a Changing Global Order. Why Nations Succeed and Fail. think it's something that every American should read, but you know, we're starting, you know, we're starting with D 'Aleo first, right? And the people we have internally and so, and we hope others will follow suit. But with that folks, it's been another episode of Orwellian Optics. Please let me do the outro again. What is it again? Like and subscribe.

Chris (43:43.357)

Yep.

AJ (43:43.406)

Yep, like and subscribe.

Joseph Gradante (43:45.152)

No, I'm gonna get it.

Chris (43:47.729)

Cool, whenever you're ready.

Joseph Gradante (43:51.489)

Ready.

With that folks, it's been another episode of Rewelian Optics. Don't forget to click like and subscribe below. Check us out on Apple, Spotify, YouTube, or wherever you get your podcasts. Peace, love, see you next time.

Chris (44:07.431)

Thanks everybody.

AJ (44:07.95)

Thanks, folks.