Best of Real Vision: Hedge Fund Secrets - Mark Hart's Masterclass (2014)

28:35That's exactly right. That's exactly right. So what triggers this kind of event? And then secondly, I think what's good to know is how does it affect everybody else? Well, what triggers it is the, you know,$64 ,000 question. The Chinese government has not lost control at this point. We've seen periods of foreign exchange outflows. They've been able to successfully defend the currency while at the same time provide some domestic stimulus, and everything's all well. They've been aided, of course, by monetary policy in the developed world where rates are kept super low, money's created rapidly, and it forces money to go find the highest return.

29:24In a world where the 10 years yielding sub, where is it? 2.3? Yeah, 2.38 I think is where it is. There's nothing to get. You know, there's no more, well, I actually think there is more blood to squeeze out of that turnip, but that's a different story. The relative returns are much more attractive in China, particularly if there's no credit risk. And that's how it's been. What kind of returns were they getting, or are they still getting in the carry trades? You know, it depends on how far out the risk spectrum, you know, you'd like to go. What's proven in recent years is that it doesn't matter how far out the risk spectrum you go, there's a government backstop to it.

30:11But 7 % or 8 % is pretty easy to find in yuan-denominated assets. And if you can hedge out the currency by selling forwards, you're essentially locking in 600 basis points of carry in a ZRP world. that's pretty attractive. And it's attracted enormous flows. So the reversal, what does it come? Is it because of some external event outside of China that causes sort of a risk-off environment? Maybe it's the tapering of monetary policy, and maybe it's more slowing down. I don't know. I don't necessarily think that that's something you can count on. It certainly hasn't been in recent years. It could be a loss of confidence in the Chinese economy.

31:04That could happen if you start to see more defaults. China began to introduce defaults into their system in March of this year, and you've seen a few corporate defaults, a few defaults in the system. not enough, I guess, yet to spook the carry traders into leaving. I guess all of these special situations funds or special purpose funds you set up have never said, this is the catalyst, this is going to happen because of this. You've always said, this is the event, it's probably going to happen within this time horizon. That's right. And we'll wait and see which is the event that causes it. That's right.

31:43Right. And we see potential catalysts are all over the place. In subprime, we knew that you were about to get into a period in the summer of 2006 when you had a lot of adjustable rate mortgages were going to adjust higher. That screamed that there were going to be a lot more defaults in the system there. The cutoff of money into China defaults, I mean, you have such a high percentage of Chinese money essentially just going to, or bank loans essentially just going to evergreen existing loans because there's nothing there. So I guess, you know, in terms of catalyst here, you know, it's hard to know.

32:27You know, it's hard to know which snowflake is going to set off the avalanche on the side of a mountain. Right. And so in terms of for other people who don't necessarily have the skill set to put some of the trades, and we'll talk about how you construct some of the trades in a minute, but people who don't have the skill set to do that, what kind of outcome? So let's say this does happen. Let's say the big event in China happens. What happens? What goes on in the world when that happens? And what trades or opportunities are there for people? Well, I think it's very deflationary, and exactly how it reverberates, I don't know.

33:05I mean, initially I thought it would be very bad for Australia's economy, Australia being a large commodity producer or Canada's economy, and maybe it will be. Although what we've seen in recent years is the wealthy, the elites in China, have been jumping off the ship for a while. I mean, in some estimates, they've been able to get upwards of$4 trillion out of the country. And you see that in places like art auctions, New York, Hong Kong, Singapore, Vancouver, London real estate, and specifically Australian real estate. So in Australia, the mining industry has not been particularly strong in the last couple of years.

33:52However, housing prices are hitting new highs. And it's because you have a country of 23 million people that is wealthy, that has rule of law, and relatively close to China. And you have a lot of wealthy people in China trying to get out. And there are incentives in Australia to invest there and get residency. So does this cause even a more dramatically negative event for Australian miners? Almost certainly. Asset prices or raw materials prices should drop pretty dramatically. That would even be exacerbated by the fact that there are huge stockpiles of copper and iron ore that are being used to finance the carry trade that would presumably be liquidated.

34:35but obviously you would expect growth rates to slow down construction to slow down demand for these these lines but the flip side is you know do you see even even a greater rush uh out of out of china and that's contrarian because people kind of think and even i've been thinking well obviously the aussie dollar gets killed and maybe it still does but as you're saying there's a risk that australia actually its bubble which it is in a bubble gets even bigger as people rush out of China. The other thing that I was thinking about is if there's a two trillion dollar short position in the US dollar and it needs to get closed out or the debt side of it gets wiped out, then surely that's got to be good for dollars.

35:17Well, absolutely. And that's two trillion in China. I mean, the carry trade is alive and well throughout emerging markets. So I don't think that you'd have an unwind of the Chinese carry trade without an unwind of other carry trades as well. I think it's extremely dollar bullish. Of course, Janet Yellen will do everything in her power to keep the dollar down, and we'll see exactly how it goes. I think that the one thing I've been consistently right on for seven years is one thing you've been consistently right on for seven years is we've been bond bulls, and I think that this is a very bullish scenario for treasuries.

35:59And I think that's an interesting area. You have seen what happened in Japan in the Japanese bond market over the years. Here we are at relative to recent history, extremely low yields across the curve. We've been in a bull market, a bond bull market, for a long time. And yet almost anybody you speak to is a bond bear. So the wall of worry I think is still there. So I think the potential for even a longer term, you know, roaring bond market, you know, exists. I could easily be wrong. But, you know, as a trader, there's been zero reason to get out of that trade. Yeah. I think one of the things I looked at and thought about is that the most likely time for this catalyst to happen is when the world goes back into recession, as it always does at some point, because that's when bad things get exposed, because there's Otherwise, there's a cushion.

36:57If everybody else is growing at 3 % and one country has an issue, and we saw that numerous times with Japan in the 90s, it kind of got away okay. But the moment the world goes to recession, everything gets flushed out. That's right. And I think this is the way to play it, or the best way to play it. Because implied volatility, dollar-yuan, is, I think, insanely low. So the way you play it within the fund is you're buying the super cheap, suppressed volatility in the currency. That's right. That's right. That's exactly right. Because not only do I think the fundamentals and sentiment, possibly technicals, there may have already been a turn that you've seen in the currency, are lined up, but the way to play it is where volatility is mispriced.

37:44As I mentioned earlier, essentially the backstopping of all credit in the system, and just the sentiment that has been constantly reinforced that this is a one-way trade in the minds of traders has been an environment that's allowed volatility to become extreme. Give me an example of the types of trades, because some people won't understand what you mean by saying you're buying volatility in the yuan. What do you kind of mean by that? Are you buying out-of-the-money puts? What are you doing? Yeah, out of the money puts. And so you have the yuan is roughly 6.14 yuan to the US dollar. So maybe I'll structure my puts anywhere from 6.14 to 7 to where, and I'll go out anywhere from six months to a year and a half.

38:39And the way I run my fund is I'm buying those and I'm holding them to maturity. And so it's just a steady burn rate. And the goal is to either lose everything by burning all of our premium over the life of the fund. But the flip side is make a fortune in the event that we're right. And you do see the outflows and you do see the spike in volatility. So to give you a little bit of flavor, I haven't priced anything up over the last few weeks. But, for instance, you could buy a one-year seven strike. Yuan put probably for 20 basis points or less. So it would be a situation where a$100 million option would cost you$200 ,000, a seven strike, one year.

39:30If you were to have the type of devaluation that we saw in 1997, where the average devaluation versus the dollar was over 60 % peak to trough, a 60 % devaluation takes you probably in the neighborhood of 14 new one to the dollar. So the math on that would be 100 million times 1 minus 7 divided by 14, which is$50 million. So a 97 style scenario, you're risking 200 ,000 to make 50 million, assuming there's no premium left in your option when you close it out. That's an extraordinary risk-reward. I think so. I guess the big thing with China that everybody dismisses all of these things with, because I share the same views about China and have done for a long time, but the thing that people always say is, well, the Chinese government won't let it happen.

40:24What do you think about that? Well, I think it's in their best interest to let it happen. And I think that the way to look at it is, how is the Chinese government positioned? Well, the Chinese government has long several trillion dollars US dollars. They're the other side of the carry trade, the Chinese government is. They're buying all the dollars that the carry traders are selling, and then they're either issuing or at least guaranteeing all the credit instruments that they're buying. So the Chinese government is getting fleeced by the carry trade. They're losing the money. They're earning nothing on their foreign exchange reserves, and they're paying out huge, either directly or indirectly through credit guarantees, to the carry traders.

41:02So the scenario where outflows begin, it is China defend the currency or not? Well, of course they're going to defend the currency if they think they only have to do it for a little while and they will be able to attract further inflows in the future. But if they get the sense that they're not able to, they're not going to be able to get back to attracting those inflows, you know, I think it's strongly in their interests to allow for a devaluation. I mean, that's the playbook that every emerging market in history has followed. And you think by having the devaluation, they will correct a ton of their imbalances.

41:38They can have a credit crisis at home. They've got enough money to resolve it over time. And then they can rebuild themselves in a more balanced way. If you think about it, so I don't even know where China's foreign exchange reserves are, but just should know exactly, but say they're in the$3 trillion range. Well, a 50 % devaluation of their currency reduces the size of their liabilities, which are all yuan-denominated, by 50%, while maintaining all the value of their assets. That's a trillion-and-a-half-dollar windfall to the Chinese government at the expense of carry traders. Many of the carry traders are domestic Chinese themselves.

42:17And they could use that to paper up the cracks of what happens to their banking system and all the other things that will... Right. Well, the alternative, of course, is to defend the currency. And this is what virtually every Asian country tried for a little while in 97 of the Asian tigers before recognizing they were just feeding a negative feedback loop. And so we look at China's ability to defend the currency. And people like to talk about China having the largest stock of foreign exchange reserves in the history of the world. But they're really not that high when you compare them to the size of the liabilities on their balance sheet.

42:55So, you know, we look at, in terms of reserve adequacy, when I say reserve adequacy, I mean the adequacy of a country's foreign exchange reserves to defend in the event of outflows. You know, we think the most relevant number is foreign exchange reserves to M2. M2 being whatever's liquid. It's liquid within a day. and China is right there in the neighborhood of 21 % foreign exchange reserves to M2. You look back in 1997, how well reserved were those countries? Well, they were 23, 24. China's less well reserved now than the Asian Tigers were going into their crisis. Because that's the thing that people forget is basically when you look at their reserves, it's just like looking at their U.S.

43:43dollar bank account and you forget on their RMB bank account, they're massively in debt. That's right. So you're trying to make the assumption that somebody's rich because they have some money in one bank account, forgetting they're massively in debt in the other. Well, it's just ignoring the right side of the balance sheet. And I think that's not a smart thing to do. A lot of people look rich, but you don't realize how much they owe the bank. So how much longer has your fund got left to run before it closes? It's June of next year. So, you know, am I going to have time? I don't know. I mean, maybe not.

44:21I love the option. It's, I think, completely mispriced. But, you know, I don't know. I guess conceivably I could extend it, but I don't think that, you know, personally I'm really in the place where I just want to gear up and try to go raise money. But you don't think the trade is any less valid? It's just that the time horizon has run out at this particular moment for the structure that you set up. Oh, right. And you've personally moved on from much of this anyway. That's right. That's right. That's right. But you still think that the Chinese tail risk is one of the biggest tail risk events out there in the world today?

44:58I think it's the biggest. I say that I'm not scouring the world on a daily basis. I don't know if there's something better. But to me, the risk reward is unbelievable. I've never seen anything like it. So, Mark, moving on from China specifically, I know you're essentially leaving the hedge fund industry. You've done extremely well, and you've kind of had enough, I think, as many people have done. So many people are exiting. Some of the great and good are exiting the industry, and we'll come on to that a little bit later. But what I think, talking to you and knowing you well, I think one of the things we discussed is it would be a nice thing to let people know some of the things that you've learned to impart kind of some of the knowledge you've based and some of the mistakes that you've made for other people and I think it's fascinating because people don't get a chance to talk to somebody like you and certainly not the wider public don't.

45:49What I want to talk about first is how you look at this tail risk because it's a concept to many people that don't really understand but you're one of the kind of founding fathers of that business and I think it would be great. What do you mean by tail risk? How does it work and how do you go about looking for these things? I don't know if I even love the term tail risk. I guess for me, I try to have a macro framework and as new information comes in, I constantly try to adjust that framework. I'm obviously not going to have things exactly right, so it needs to be fluid and you need to be flexible.

46:32And for me, I try to understand where we are in long-term cycles and in shorter-term cycles. And so the reason I've been focused on tail risk type trades over the last seven or eight years has been because I think we're at the time in history where those types of trades should work, sort of a winter period, if you think about 80-year type cycles. So when you're talking about winter period, you're talking about Kondratiev winters. Exactly. Kind of Austrian cycle, business cycle theory. Exactly, exactly. And so, you know, I felt like in 06, we entered the winter period. And the winter period is going to be the time when you should be able to find more kind of blow-up type trades.

47:19So that's why my focus has been on those. And the blow-up types of trades, because of the huge imbalances that have grown from the long-term credit cycle and the long-term demographic cycle? Long-term, yeah, an inflationary cycle. I mean, it's, you know, basically inflation has lifted all boats for a long time post-World War II. And I think we're more at the deflationary phase right now. And so the tail type trades where people are short money and long assets, those sorts of traits kind of come in a wound. So that's kind of the broader framework and then it's narrowing it down. I mean my research process has always been, one, to talk to a lot of smart people and try to find out what people are thinking and engage a little bit of sentiment.

48:09But really I just read an enormous amount. It can be the New York Times, it could be listening to music and figuring out kind of what people are doing. I mean, noticing demographic trends are really important. You know, I think that we have passed the point of peak conspicuous consumption. I don't think that the millennial generation, sub-35, is focused on that. I think millennials are going to be living at home longer and living in smaller places and being a little bit more community. So you're accumulating all your information from not just the standard places. I think that's a key thing. It's by broadening your mind to everything that's going on and then trying to look what's the knock-on effect of that, what's the knock-on effect of that.

48:59Right. If you look at everything through the lens of what does it mean for the economy or the macro environment, at least for me, all kinds of interesting ideas start to germinate. So it's a big part of the process is just reading a lot, writing down my thoughts, and then sort of molding the macro framework. So then you've identified, let's say you've identified a theme. The next thing I think you mentioned before, you then will start to use technical analysis and other analysis, flow analysis, to try and understand where you are in that particular theme, whether it's the time to put the trade on.

49:39How does that process work? Well, I'll take a step back because a lot of times technical analysis is the way to first identify a theme. I mean, if you see something happening in markets that you wouldn't expect to see, for instance, you know, this massive bond market rally while, you know, equities are soaring, I mean, that tells you that maybe, you know, things aren't behaving the way they normally do. So then that, you know, fuels more questions or creates more questions. So really what I'm looking for in technical analysis are indications that things aren't quite going the same way. I'm looking for divergences, basically.

50:18And so for me, part of the process is looking at a lot of charts. I mean, I want to look at every currency in the world. I want to look at every commodity in the world. I want to see how they're doing relative to each other, and I want to understand at least what the market thinks is going on there. Look at a lot of equities. Look at different sectors. And try to just put in a lot of inputs. I think that's one of the interesting things that I know from the world of macro, having been in that business for a long time, is people don't realize how much technical analysis is used. I mean, I use it as the first thing.

50:47I use a chart first. Yeah. Use a chart first. I know that, you know, half of the macro great and good in this world use a chart first and then say, what does that mean? Can I make some money out of that? When you think about what a chart tells you, it takes you two seconds to look at it and there's just an enormous amount of information that's encapsulated in it. So I think it's a really efficient way to do research. If there's a chart and it looks great and at the same time, from a sentiment perspective, everybody hates the idea, well I've got a pretty good chance of making money there. You know, the, you think about technical analysis, say for instance, this is how I try to kind of explain it to investors in my fund.

51:37Say you have an individual stock and it trades for an entire year between$9 and$10, right? And what we know is that everybody who's bought it in the last year has a basis between$9 and$10. So, let's say the stock goes above$10, right? At that point, what we know is that everybody in the trade has made money. And so all of those people are going to have a good memory of having bought it between 9 and 10. So they may be more likely to rebuy it if it comes back to 9 and 10. You have other investors who saw it trading between 9 and 10 and didn't do anything. And then they're kicking themselves that they didn't buy it and it goes up.

52:18So they're thinking, well, if I get that opportunity again, I'm not going to miss it. So that means that that 9 to 10 range is psychological support. You have people that might naturally be buying the stock between 9 and 10. So I might buy it going up through 10 knowing I have a lot of support between 9 and 10. If the stock then turns around and falls and drops down below 9, then I know something is likely going on. Maybe I don't even know what it is, but something's going on that has caused this stock to drop below the psychological support level. So I don't have to know what it is. I just know I'm wrong.

52:53So I sell. So I have a built-in stop. My downside is 10%. So if we look back over some of the times that you've used this, where did this lead you into any of these big themes you looked at? Give us an example of how technical analysis has kind of helped. Subprime. In the first six months of 2006, the average amount of time that a home sat on the market doubled from like three to six months in the United States. I mean, that was telling you that this sector is hitting the skids really rapidly. It was before there There was really pricing that was happening. Or for instance in the European trade, we started to see credit spreads blow out and by blow out just huge moves though maybe at absolute levels not big for all the accession countries and then you started to see it happen with Greece, with Italy, with Spain.

53:48So it was the, you know, the trade, the idea, the theme was there. I felt like I have a great idea, this is going to be great. Now I'm just waiting for the market to tell me I'm right. So I was watching credit spreads. because credit spreads were going to tell me that my thesis was beginning to play out. And when it did, I rapidly raised a fund and made the bet in size. You know, the same sort of situation, how do I find a specific theme? You know, I may love a theme fundamentally that it's a great story, but if the market's not, if the technicals of the idea aren't set up, then, you know, I'm missing something.

54:24I haven't been there for a long time, focusing, studying, researching it. I'm almost always going to have less information or less experience researching a particular sector than the specialists who are in it. So I have to look for different tools. But I guess one thing I'd also like to suggest is just from a, maybe it's not technical analysis, but from a macro perspective, I think that, I think it was maybe William O 'Neill who said this, but 90 % of the effort and research effort is gone to the micro. It's the bottoms up work. But really 90 % of any stocks move, and if you're talking about stocks, it's going to be a function of how well its industry is doing and how well the overall market as a whole is doing.

55:14So if I focus on what only 10 % of the world is focusing on, but it translates into 90 % of a stock's move, I don't have to be as smart and I don't have to work as hard as those bottoms up guys to get an edge. So I think that's an important component. So let's talk a little bit about the other part of your portfolio. I'm going to come back to position sizing and stuff later, but let's say, okay, we found an event that looks like it's mispriced. It looks like the technicals are turning it looks like there's a big move to come so then when you then start thinking of trying to put risk reward in your favor how do you do that I mean there's part of it's trade construction in terms of using options or whatever and others is maybe stop losses how do you think about that well I never I did some at times use stop loss I probably you should have used more often at times.

56:17What I think about constructing, well, I know that the big money is gonna be made by acting on incomplete information. If you have complete information, the market has complete information, and there's not gonna be an opportunity. So what I'm looking for are pot odds. Maybe I have a 40 % chance of being right, but the payoff is 5X. Well, I'm gonna take that bet all day. I know that the likelihood is that I'm gonna lose the bet. but if I make that same bet 100 times, I'm going to beat the world. And you find options is one of the best ways to do that, to define your risk-reward or not necessarily?

56:53At times, certainly. I mean, I guess it just depends on the specific trade or the specific theme. Yeah, I know because one of the trades we were talking about that's not an option trade we were talking about recently was Bitcoin where I see the downside as being, okay, we can say it's zero, but the upside could be a million dollars. So therefore, the risk-reward is insanely skewed. It is. It is. And you're really, in Bitcoin, for instance, you're playing the trend. I mean, the trend is your friend. And the trend is that Bitcoin is going to be important. It's going to play a major role. So, you know, I like that.

57:34I own Bitcoin. I'm going to own more. But I think that's a really good example. So another thing that people struggle with, and when I was running a macro fund, I struggled with, I think as everybody does, is how to size a trade.

57:51So I've always been a fan of, I never wanted to manage the volatility. I mean, I take that back. I've never been afraid of volatility. I never wanted to be the guy that just churned out nice, steady returns over a long period of time. It's not what I love doing. But to me also, you find a great opportunity. They're not going to come along that often. I mean, I spent years and years and years looking, and I can think of maybe seven or eight really great themes that I found. And so to me, if you find a theme that's great, I mean, you've got to go after it aggressively. So I'd have no problem putting 30%, 40 % of my portfolio concentrated into one specific theme.

58:46I just wasn't worried about big drawdowns. So you're much more of a fan of the old-school macro approach of a small number of concentrated risks as opposed to a broad, diversified portfolio of risk. That's right. And I say that within a specific theme, I may have 10 or 12. I mean, it could depend. I got really bullish on uranium, I think in 2003 or 2004, at the right time. I had 30-plus percent of my fund in junior Canadian uranium miners. I knew I had the theme. I knew nobody was focused on it. That was the time to make the big bet. So what do you think about the fact that, I mean, I noticed this from the macro school of old to nowadays, is nobody seems to want to take risk anymore.

59:34I mean, what do you think about macro funds that make 1.5 % returns at best, or maybe even 1%, maybe even 0.5 % a month, and think that's what macro is all about now? Well, the managers get really rich. And, you know, that's a goal, I guess, for some managers. And, you know, I don't think it's good for the industry, but, you know, I don't think I'm not suggesting that there's any sort of false advertising out there either. You know, institutional money likes that. And, you know, to me, there's no passion in that. And there's, you know, you're not doing anything interesting. And I want to be doing something interesting with my life and with my work.

1:00:26Yeah, I'm a believer in that as well. It's the passion in running a macro portfolio and the whole really investing in it and not to do it as a bland process of turning numbers. You can make a lot of money, as you've proven, from having high volatility. And some of the greats of the industry, people don't even know, people like Nick Radita used to run a lot of Soros' money, had enormous volatility. He could stomach so much volatility, but his returns were extraordinary as well. Because an investor is never going to make the kind of returns that you put up in any other way. You don't get a five vol fund that gives you 200 % return in a year.

1:01:04That's right. That's right. But that style, I mean, my style is certainly not for everybody. I think a lot of it's, you know, the way you're wired. I mean, if you can't go to sleep at night with your positions, then you're not managing your fund the right way. So I guess it's just maybe I say it's not sad, it's just maybe less interesting to me, you know, pursuing the low ball steady returns. Horses for courses, I guess. Yeah. So, okay, so moving on a bit from that, I just want to know where do you think the world's going right now? So what do you see as the next few years? Well, I think that we're generally in this period of, you know, deflation.

1:01:42I think that, you know, this is a really broad question. And I don't know exactly where markets are going. You know, I mean, a lot of it has to do with how much money is out there because markets are priced in money. But I think that we're at a really interesting time, a time that a lot of change is occurring. I think that, you know, the millennial generation, you know, really see, you know, become sort of the vanguard of culture. you know, you'll see what, I mean, I guess they've come up at a different time than others. They've been, you know, in their childhood, they probably saw their parents go from being very comfortable to struggling.

1:02:30And that makes, that has a lasting effect, impact on somebody. They're not going to be the type of person that's going to go out there and run up a lot of debt and consume. I'm not going to say you're not going to run up a lot of student debt, but our government is trying to force that to happen. So do you think that, because I know how you think about things, the balance of probabilities lie in everything being fine, everything being more risky than people assume. Where do you, you know, talk in broad terms, because. I think, yes, I mean, I think that people are going to be disappointed in where markets go.

1:03:15I think that doesn't mean immediately. I don't know. It's hard for me to call. I mean, I've only shorted one stock in the last two years. But, yes, generally I think that we're in for tougher times. and that doesn't mean it's going to be hide out at Galt's Gulch with your guns and gold necessarily, but it could be. So you've got a bit of guns and gold as your strategy. I do. I do. I have guns and gold and remote real estate,

1:03:54but it's not because I'm preparing for that. And your long equities as well. What you've got is you've covered the tail risk. Covered the tail risk. I mean, for me, having some guns and some gold, at first they're kind of interesting. You need to have, need to shoot. And we are in Texas. And we are in Texas. You know, I kind of have my Texas ID card. You've kind of got to show that you've got a little bit of that in you. Right. I want to move on now just to, because I know your life's moved on because you kind of decided to leave the industry, as I said, as many people have. And so let us know what you're doing now and kind of where your thought process is and where you see the opportunities in your life.

1:04:39Yeah, so I've focused on a few things. I focused, but really I guess what I've tried to do is find teachers. I want to be a lifelong learner, and I try to associate myself with people that I think can teach me. I have a great friend who's, I think, a brilliant art dealer, and my wife and I have had a wonderful experience learning a lot about art, acquiring a lot of art. We've been very successful in it, but I think probably the reason we've been successful is because we haven't been trying to be. We haven't thought about it in terms of money. We've thought about it in terms of supporting artists and becoming part of the conversation.

1:05:27I spend 12 hours a week training Brazilian Jiu-Jitsu. I found a world-class teacher. His name is Marco Santos. He introduced the sport to the East Coast of the United States in Manhattan and a Jiu-Jitsu studio right next to my office, and I train twice a day. And I started doing that actually to try to help clear my mind. And it was a very stressful time for me, particularly 2009 through 2012. So it was good to, you know, get in a position where I can't breathe and can't move and I'm forced to get deep inside of myself. Otherwise, I panic. And so I've tried to pursue that and pursue, you know, other kind of athletic endeavors.

1:06:15I guess maybe it's chasing flow is what I call it. And, you know, I've made some great friends. One of my closest friends is a guy named Josh Waitzkin. Josh was the subject of the movie Searching for Bobby Fischer. He was this chess phenom as a child. The movie comes out. He becomes a celebrity. He loses the love of chess. He takes up martial arts, becomes a world champion martial artist in pushhands. So he wrote a book about his learning process. I sought him out. And he and another guy named Tim Ferriss, who's an author and sort of a self-help guru, have helped me redesign my daily process and my life.

1:07:05And these guys have a lot to teach, and so I'm interested in learning. So if somebody's still back in the industry or back investing or doing whatever else they do, You think the process that you've gone through and started this, you know, self-improvement sounds the wrong way. The learning, learning about the broader things, whether it's health, fitness, about yourself, about the art world, about anything. I mean, you're a sponge for information. Do you think that's going to help everybody else in their investments and things like that or in life in general? I think that particularly for a fund manager or somebody who's in that environment of enormous amounts of hours, There was enormous stress, probably sitting at a desk for a long time.

1:07:45I mean, it's not good for your brain, and it's not good for your soul. I think that balance is absolutely key, taking risks, pushing the envelope, living in the moment. And that's what I try to do. And I think that you're—and I didn't always do that. My focus for a long time was purely work. and I found there was a day in 2012, I remember sitting at the dinner table with my kids and my wife and I've got more work to do that night and dinner's almost over and I realized that I hadn't heard a word that anybody had said. That was an important moment. And you can get caught up and it's easy, particularly as a hedge fund manager, where if it's not your life, then what is somebody else's and they're going to beat you.

1:08:34So striking that balance can give you longevity. And I think that, I guess for me, I sort of realized that I needed to more aggressively pursue some of the things outside of running money while I'm still young and while my kids are still young. But that's not to say you haven't also left the investment industry. I mean, like many people, again, you've kind of left much of the listed marketplace and the usual kind of fight and have done private investments, as I understand. That's right. That's right. I have a couple of companies that I control here in Texas. I mean, one of my themes has long been that Texas will outperform the rest of the country.

1:09:16Great weather. I guess there's already a pretty significant base of economic activity and intellectual activity. But really, it was a tax arbitrage bet. We don't have taxes here, and other states do. So inevitably wealthy people from California or from Illinois or from New York are going to move here. They have. I've actually focused most of my investments in the Austin area because I, first of all, think Austin is one of the coolest cities in the world. But second of all, I think that's where people are going to go. So I actually have a wood pellet manufacturing company in Austin. And I'm just outside of Austin.

1:09:59And I have a trash hauling business outside of Austin. And these are businesses that generate a lot of cash that I can control. I don't have to worry about the stock that I own not really being owned, but sitting somewhere having been lent out to somebody else. I don't know that I have it. So operating businesses, I think, those can provide me sort of the long-term security. Because, again, what's interesting is your macro mind has essentially done the same thing again, which is identify macro opportunity, which is the population growth in Texas and the growth of the economy is going to be larger than people expect.

1:10:40Therefore, you can buy businesses that just operate them trash hauling and pallets and nothing fancy businesses, but they do very well in that environment. That's right. It's a very pure macro play. That's right. And I've thought about it. I mean, when I was really active, I mean, I've been pitching Texas for a long time, not because I'm a Texan and I live here, but because it seems to me at a minimum to be the tallest midget if not a genuine growth story. And it has been a genuine growth story. So yeah, it's definitely a macro theme. I think macro is in your blood. Mark, thank you very much. I think you've given people a lot of fascinating things to think about and we wish you all the luck.

1:11:18Ralph, thank you so much for having me here. I enjoyed this very much. Perfect.

1:11:26It's a brilliant, brilliant event and you'll come away with lots of new ideas and a better understanding of this incredible exponential world.

1:11:39You get to speak to the smartest people, people like you trying to figure this out, but also the people on stage. They're the experts.

1:11:51So we get all of that all in one place in Singapore. What more can you ask?

1:12:01See you at token 2049.

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