Ep 22 - Wendy Li - The Secret Strategies of Billion-Dollar Portfolios

You're not necessarily going to know who you are as an investor or what type of risk makes sense for you until you actually start to do it.

And one of the consequences of that is you're going to make a mistake, and those mistakes are going to be the best lessons that you learn along the way.

Hello, friends.

This is Tyler Gardner, welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

So let's get started and get you one step closer to where you need to be.

When I think about the kind of guest I want to bring onto this show, someone who has truly lived inside the world of long-term investing at the highest levels, Wendy Lee, was an obvious choice.

She is not just a brilliant investor.

She's someone who deeply understands how the ultra-wealthy and ultra-long-term institutions think about money.

How they build, protect, and grow wealth over decades, not just quarters.

Wendy is the chief investment officer of Ivy Invest.

Before founding Ivy, she spent her career managing billions of dollars for some of New York's most prominent endowments and foundations.

Most recently, she served as managing director of investments at the $4 billion Mother Cabrini Health Foundation, overseeing strategy, sourcing investments across asset classes, and leading daily portfolio management.

Before that, she held senior investment roles at the UJA Federation of New York and began her career in the investment office at the Metropolitan Museum of Art.

She's a graduate of Columbia University, a CFA charter holder, and above all, someone who brings a rare combination of expertise, clarity, and humility to a world that can often seem intimidating or even opaque from the outside.

I'm thrilled to have her here to help pull back the curtain and share what she knows about building wealth with true intention.

And I am excited to share with you an insightful and thought-provoking conversation with Wendy Lee.

So I do want to start in one of our previous conversations.

You had mentioned that one of your goals at this point in your career was to help people invest like the ultra-rich.

And I loved that line.

Could you elaborate on what you mean by that?

What do the ultra-rich think about their investments that maybe the rest of us miss?

I think there's a couple facets to that.

And I'll refer specifically to the multi-billion dollar institutions where I really cut my teeth managing capital on behalf of these large endowments and foundations.

Part of it is when you have these multi-billion dollar portfolios, a lot of the consideration becomes this, it's an extension of the concept of asset allocation that individuals use for their portfolios, but it extends farther because the choices and the types of strategies, it's much broader.

One thing that institutions do very differently is that there is a much broader range of investment approaches and investment strategies that they are considering for their portfolios.

And so I kind of liken it to seeing the world go from black and white to going to Technicolor when you're investing on behalf of a large multi-billion dollar portfolio.

Because all of a sudden, the types of portfolios that you're building, the types of risks that you're able to take, and consequently the types of return that you can generate from those different risk choices, it looks and feels very different from an individual investor who is, typically speaking, investing in a combination of stocks and bonds.

One aspect of it is simply that multi-billion dollar institutions have a much broader range of investment options and opportunities.

A second piece of it is that as a consequence of that access to a broader range of investment opportunities and strategies, the way that large institutions invest looks and feels different in the sense that we're not necessarily investing just in a strategy or an asset class.

It becomes much more you are very aware of who the person or the people are behind these strategies that are being executed.

And so there's this shift in mindset almost from not only do I need to know and understand that an investment strategy is compelling, I have the capacity to then also underwrite the investment team.

And this is, I think, something that is very important to distinguish is that investing ultimately a large scale and more complex strategies goes to the importance of investing behind people and ensuring that there's an alignment behind the capital that you're investing.

When I discussed, you know, individual investors and large multi-billion dollar institutions or ultra-high net worth individuals, there are these key differences where asset allocation looks different, risk assessment looks different relative to somebody who might be thinking about their portfolio and picking a stock or picking a bond or picking a fund.

And so that's part of it.

And then finally, I think the other key piece is because it is a larger pool of capital, because so much of it comes down to this ass allocation, this due diligence, the idea of having a more institutional decision-making framework, I think, is something that is a

really applicable skill set, then really applicable concept, regardless of how much capital you are investing, whether that's, again, large multi-billion dollar institution or individual investor, there are still parallels in terms of decision-making and investment framework concepts that I think do translate.

And so regardless of how we think about large institutions and the ways that they can deploy their capital and the more choices that they may have in front of them, it still comes down to, at the end of the day, how do you make those decisions and what is the type of framework that you use to exercise those decisions.

You touched a little bit on the idea of there being a difference in risk profiles for institutions versus the individual.

And let's just for fun say that I am a highly risk-tolerant individual.

Are there any lessons that I could learn as an investor from institutional investing or from this framework that I could adopt in my own personal strategies?

I think the easiest way to distill this down and perhaps the the most basic fundamental aspect of this, is understanding the risk that is being taken and the return that is being generated for that risk.

So what I mean by institutions have a different risk tolerance or risk framework, it's that institutions and large investors are focused much more on understanding whether or not they're being compensated for the risk they're taking.

So it's not even necessary that they're more risk averse or they're more risk tolerant.

It's that there's more inputs to understanding how and whether or not the returns are compensating the institutional investor or the large wealthy investor for the risk they're taking.

And part of that is there are greater data inputs that they then have because they have ability to do due diligence in a different way.

But part of that is also going in with that mindset of saying, okay, well, how do I level set what is the appropriate compensation for the risk that I'm taking?

And so this goes back to an individual investor who might be highly risk tolerant.

It's not necessarily saying I'm really risk tolerant so I'm going to take these wild swings.

It's, okay, if you take this swing, how are you going to be compensated?

Do you feel comfortable knowing that that risk is going to be justified?

What's your confidence level in the type of potential return that you're generating?

And do you feel relative to your other investment opportunities whether that is the appropriate compensation for the risk that you're taking?

So it's much more about is what I'm generating as a consequence of this investment, does that compensate me for the risk that I'm taking?

Do you think, and I know that obviously the institutions for which you've worked probably have pretty solid, substantial investment teams in place who can, A, understand everything you just said, and B, are able to think through

risk assessment, asset allocation, and the risk return profile.

How would your average listener think through that if they didn't have access to the CFA curriculum, if they didn't have years of institutional investing under their belt?

If I'm an average member thinking through my own investing, how would I go about thinking, does the potential reward at least complement or parallel the risk that I'd be taking with this type of investment?

There's a piece to the desire to invest where there has to be a willingness to learn about what you're investing in, right?

And there's no getting around that.

Now, there's two parts to this, right?

One is the learning, but the second, and I liken this a little bit to riding a bike, you can watch all the videos about how to ride a bike, but at some point you have to do it.

You're not necessarily going to know who you are as an investor or what type of risk makes sense for you until you actually start to do it.

And one of the consequences of that is, and I've heard you talk about this in a couple of your other episodes, is you're going to make a mistake.

And those mistakes are going to be the best lessons that you learn along the way.

And the best thing to come out of those mistakes is that you learn really valuable lessons along the way.

Even the best investors continue to make mistakes because this is a business in which you're operating with uncertainty and imperfect information and you're trying to make the best decision that you can with the limited information that you have.

Investing does come with a base level of understanding what you're investing in and educating yourself.

And And then the next step is doing it and understanding what your risk tolerance is.

And the final thing I'll say on it is invest in what you know or make sure that if you are investing outside of your area of expertise, make sure you're investing with someone who is an expert in that area.

I'll liken this to what institutions and large investors often do is they are rarely making those direct investments into alternative asset classes.

They're rarely making those investments directly.

What I mean by that is a large multi-billion dollar institution will invest in, let's say, venture capital, right?

But that institution is not going out and finding startup companies to back themselves.

There's a recognition among institutional investors, like where are our core areas of expertise?

Where do we do due diligence?

And how can we find, if we find an opportunity set that's compelling, how can we find an expert?

to do it well.

And I think individuals can take that to heart too, which is investing in what you know, if it is an area of expertise for you.

And if it is not an area of expertise, then it's important to understand, do you want to be in it?

And it's okay to say no.

And if it is something that is a yes and you do want to be invested, then it makes sense to say, do I have the expertise or should I find the expertise?

And you reflect too a little bit on the importance of obviously making mistakes.

And so I think we're on the exact same page, obviously, for retail investors and the importance of saying, okay, well, I I really screwed this one up and now I won't let this emotional bias or blind spot necessarily impact me the next time I invest.

Can you reflect a little bit on how you view that at the institutional level?

As in, is it okay for people in your position to make those same mistakes?

And have you ever made, not to put you too much on the spot, but have you ever made any mistakes at the institutional level when we're talking about hundreds of millions to potentially billions of dollars of money movement that have sat with you or that have taught you a valuable lesson about moving that quantity of money.

Absolutely.

Like I said, institutions continue to make mistakes on an ongoing basis, right?

And they can be big mistakes, they can be small mistakes.

Sometimes the mistake is, okay, we identified an opportunity set that we thought was really interesting, but you backed the wrong investment approach to it.

So that could be then interesting, you know, into something like life sciences.

And then did you invest in sort of the right part of that life sciences cycle?

Did you invest into the right manager?

Did you invest into public markets or private markets?

And those are all like decisions that can ultimately impact the results there.

When I look back on, is there a mistake that sits with me that I learned really early on?

It goes back to miscalculating the alignment between the investment that we chose and us as investors.

And so, what I mean by this is early on when I was in the investment office at the Met Museum, we would rarely invest in new investment firms, meaning that this is a firm that is just starting, it is a manager that is building a track record, it's a new strategy, and the firm itself is starting to invest.

So we had chosen to back a new investment manager who had a terrific reputation and we knew them from their prior organizations.

And one of the things that we were concerned about, though, because this is a new firm, we were concerned about whether or not the investment team was really committed to executing the strategy or whether there would be a risk given their background that they might be tempted to do something else and the firm would not necessarily be their sort of long-term commitment and so this was a situation where even though we had that sense that they were committed to building their firm, they were committed to managing their fund, they told us they were all in, they gave us all the reasons why they were all in, A year later, the founders of this firm who had previously been at a large Wall Street bank, that bank wanted to acquire this hedge fund because they wanted the two senior members of the team to run the bank effectively.

And so we wouldn't have invested if we had believed the founder would want to go back into that bank and eventually take over as a CEO role.

And even though we had been concerned about that ambition and explicitly asked, we couldn't have predicted that that would be the choice that they would make.

And it would end up being a situation where, again, not a terrible

loss for the organization, for the institution, and the other investors in this hedge fund, but it was still one of those where it was a lesson learned in that if you're going to back a newer team, really understanding that alignment, really understanding that commitment, and going back to sort of what I said earlier, so much of investing

from an institutional standpoint is investing in people.

So let's build on that.

So investing in people, right?

Because I think that obviously transcends institutional investing and is probably a great business lesson for anybody listening is that whether you're a hiring manager or whether you're just looking for a partner in life is that everybody wants to believe that they're a decent judge of people and that they can find some reason to vet somebody and potentially add them to their team or not.

And as you note, right, one of the biggest components of being an institutional investor is the ability to vet and choose managers and bring them in.

Hopefully, you have a process that works to align these managers with your investment practice.

So what are some of the things that you would personally look for?

in the people.

So not the investment, but if I were to come to you and try to pitch to you as an investment, as an institutional investor, what are some of the things you'd look for in me if I were managing that fund?

I think there's a large part of it that is

very similar to what you were saying.

And so, first and foremost is integrity.

And again, we're dealing with large quantities of dollars here.

And I hate to say that there are funds where managers have been less than honest, but we've all heard about frauds.

We've all heard about, and so integrity really is like first and foremost.

They always like trust but verify, right?

So even if somebody, you know, you can validate their track record historically, you meet with them them in person and you meet other members of the team.

You really try and assess that everybody's on the same page at that firm about what the firm is trying to build and what they're trying to execute.

And then there's real solid ways to validate whether or not you are aligned.

And that comes in everything from the legal documents to the investment terms to how is that manager incentivized?

Do we win together if they win?

Do I win when they win and vice versa?

Or can they win even if I don't win?

And that's a problem.

Is every service provider who they say they are?

Is everybody that is a counterparty to this firm a valid and verified counterparty?

When we're trafficking in tens of millions, if not hundreds of millions of dollars, that piece is super, super important as well.

I always describe investing in different parts of the investment market, this sort of an infinite game where if someone has a bad reputation, it can really hinder their ability to execute their investment strategy.

One of the things that I hear that I'm sure you hear equally on a daily basis, being in the world of finance, is: well, we were never taught this in school.

We weren't given the tools to understand some of this terminology.

So,

if you were to position yourself not as a student back at Columbia, kind of trying to figure out what your next steps were, but if you were to go back as an honorary finance professor at this point in your life and you were given the opportunity to teach a personal finance 101 to a group of motivated seniors, what might the first couple days look like?

Or what types of texts and ideas would fill the syllabus for you in a class like that?

Oh, that's a really good question.

I like that question, but I don't take your time.

And if you don't like it, we'll move on.

I think it's such a good question, but I'll just, you know, I'll say really candidly, I don't don't consider myself a personal finance expert, right?

I consider myself really well versed in investments, and my expertise is in investing.

I think investing is one component of personal finance, and I can say with reasonable confidence that I'm very competent and capable of talking about that aspect of personal finance.

But I think before you can get to investing, before you can get to a place where you have the capital freed up to make investments.

There's a lot of other choices that have to come first, right?

Let's be honest, there's an aspect of, you know, having an income that exceeds your expenses such that you have capital left over to invest.

There's another framework around it, which is if you're investing and you have a lot of near-term expenses, you may not have capital for long-term investing.

You may need to keep your dollars where they're liquid and and where they're relatively safe.

Personal finance has so many different components that are important to have right and to have resolved before you can move to in some ways the luxury of investing.

And for those who do get to that point,

I think there's almost a sense of don't waste that opportunity if you have it to invest for the long term because it does generate and has the ability to generate so much excess wealth as a result.

And here you say you're not a personal finance expert, but I think that would be a very good first class, just what you just said.

So I

disagree with your statement because that actually was put, I think, about as clearly as I've heard people say it before.

And I've never actually heard it articulated in the way that you just did, which is investing is kind of a different beast in and of itself.

And it's a luxury.

I like the way you look at that as a luxury good.

So building from there, if you were instead potentially talking to a group of listeners who was at the point where now they did have the luxury to invest and they had their first $100,000,

and obviously none of this is advice, and we're not looking to tell people how to invest their money, but what are some of the things that you might encourage somebody to think about once they get to that point of luxury where they have enough disposable income to say, okay, I've got a couple years.

I've kind of understood my risk tolerance.

I don't need this money tomorrow.

What are some of the questions you might have them ask themselves to try to figure out how to allocate that capital?

Yes.

And recognizing none of his investment advice.

And I instantly heard the shift in the tone of your voice of now the expert's coming out.

It's like, there we go.

No more personal finance.

Now we're into my space.

I think investing for the long term, there is a very clear,

what I'll call equity risk component that long-term investors should really prioritize in their portfolios.

This is over the long term.

It is the highest risk, highest returning.

It allows you to capture the value of any company or any asset because equities refers to both public stocks.

It refers to private equity and equity in private companies, right?

But it is the part of the capital structure that generates sort of the highest return.

And so when I think of investing for the long term, the first question to ask yourself is how much equity risk am I comfortable taking?

Recognizing, again, this is going to be the highest risk, highest returning component part of your portfolio.

The second piece of that is thinking through, okay, well, if I'm comfortable with this amount of equity risk, what do I want it to look like in my portfolio?

Am I somebody who is going to be really excited to potentially make concentrated concentrated bets on individual companies so that it goes back to how do you want to structure that equity risk and what do you want it to look like.

Broadly speaking, there's sort of public equity and private equity are the ways that I typically think about equity risk.

And then there is everything else in the portfolio that is what I'll call it meant to be non-correlated to equities.

And so I would describe that as the other parts of your portfolio that allow for some amount of diversification because equity markets can be volatile.

And so the idea is if you can find parts of your portfolio to provide diversification to the equity part of your portfolio, when does that diversification matter the most?

Well, it matters the most if the markets are experiencing a lot of volatility, if you're experiencing a downturn in the market, much like what we maybe have been experiencing over the past couple of months.

Correlations matter not as much when markets are ripping.

They matter a lot when you're going through a period of volatility and you're going to want an asset that is less correlated to equities or non-correlated to equities in those moments when the stock market or the equity market is really struggling, right?

And so what does that mean?

That oftentimes can look like things that are a little bit more in the alternative side of the portfolio.

Historically, it has also meant investing into bonds.

It has meant potentially investing into real assets.

But the non-equity correlated part of the portfolio can include, I think, a lot of other alternative asset classes like private credit.

It can include things like infrastructure.

It can include things like special situations.

And there's lots of other ways now that you can build that portfolio if you're thinking about it in terms of equity risk and non-equity risk.

But I think really just pulling it back for a second, the easiest way to think about building out that portfolio is how much equity risk do you want to take?

What type of equity risk do you want to take if you're going to take that kind of equity risk?

And then how much of your portfolio will be in things that are less equity correlated?

Do you want that to be predominantly bonds?

Can you also take in some real asset exposure because that will provide some inflation protection?

It can also include other types of alternative asset classes that folks might have heard of, like hedge funds and things like that, right?

So that $100,000, that portfolio, a lot of different ways that you can build it, but I think it ultimately comes down to asking yourself really two questions.

How much equity risk do I want to take?

What do I want that equity risk to look like?

And what do I want the rest of my portfolio to look like that should be less correlated or non-correlated to equities?

Well, and one of the reasons that I think people don't get involved in some of the alternative investments as much as you're kind of reflecting on that maybe they could if, again, they wanted that much portfolio risk, equity risk, et cetera, is that they find it difficult to understand, right?

That it is daunting, right?

That unless you speak this language that you're speaking, it is difficult to understand what are necessarily the added benefits.

Do you find any benefits in these types of alternatives?

So, let me just try to simplify this as much as possible.

So, on one hand, we've just got somebody telling a retail investor: look, just put it all in a total stock market fund, call it a day, take 100 minus your age, take the remainder, put it in a total bond fund, call it a day.

But now, we're looking at obviously other asset classes, including real assets alternative assets etc for whom are these assets designed is this something where we would say that it is really important or really crucial for the average retail investor with a hundred thousand to a million dollars of investable assets are they supposed to be learning about these or more often than not could they accomplish the majority of their goals with just the low-cost index funds?

I think the low-cost index funds are one of the best inventions ever from an investment standpoint for individual investors.

Alternative asset classes, less liquid asset classes, the types of investment strategies and approaches and opportunities that exist outside of the passive indices, I can speak from experience in saying that they really do contribute to a portfolio.

But the big caveat there is when done well, There's a lot of drawbacks to investing into alternatives.

I think alternatives, they are more opaque markets, they have greater complexity, they of course come with less liquidity, and they come with higher fees typically.

And I think there is a very worthwhile trade-off when it is done well with the best managers who know what they're doing.

If it were somebody who was looking at a menu of alternatives who hadn't done it before, I would say no, really, no.

The first thing I would think of is why are you getting to look at it?

Is there a negative selection bias here?

Because if this is not something that you as an individual investor have a lot of experience with you have to wonder like why am i being shown any particular opportunity i'm being shown if i'm not the typical buyer of this opportunity right yeah but all of that said i do also come back to like there is real value to be found in alternative investment strategies, whether it is absolute dollars that can be generated and higher returns that can be generated in private markets, in particular going back to that construct I described, equity-oriented, right?

So private equity, growth equity, venture capital, these are equity-oriented investments in private markets that absolutely over the long term have the ability to deliver and I have seen deliver excess returns over public markets.

If the challenge in public markets is that it is the SP 500 is relatively efficient and it's very hard to generate alpha, The flip side to that is private markets are less efficient.

There is opportunity to generate real alpha and it can be significant, right?

And so I don't want to paint a picture where that doesn't exist.

There is a good reason that multi-billion dollar institutions have been investing in alternatives for three decades.

But again, it goes back to these are complex strategies to execute.

And I know how to find that investment management firm and I know how to do that diligence because I've done it for a long time.

But if you're an individual who hasn't, I think it can be really hard to distinguish: okay, well, who actually has that skill set to execute a complex strategy in a complex market?

If the choice is, do I pick this alternative investment that's being shown to me, I don't see that being better than picking something that is transparent, low cost, going back to sort of the ETF and low cost indexing approach, it is transparent, it's liquid, it's low cost, it really does the job in many different ways, but I know what the alternative, not to, no pun intended, I know what the alternative looks like.

I know it's worthwhile if done well, right?

And you had the you had the benefit too.

This is going back to something you said earlier in this conversation: was you had the half the benefit,

you still have the benefit as an institutional money manager to an investor to be able to actually connect with these managers one-on-one and do some relatively real vetting.

Whereas even when I was a portfolio manager working for an RIA,

we didn't necessarily get direct access on a daily basis to some of the fund managers.

So even when we were looking at alternative investments and different types of products and funds that were coming on the market to which people could now have access, even we struggled to think through, well, what makes a manager good in this case?

So, now let's take it beyond even you at the institutional level, me as a portfolio manager at an RIA, and again back to the listener with a million dollars who says, I definitely do have enough money that I'd like to get involved with the private equity.

And I have the time horizon.

I have the risk capacity.

I understand the opaque nature and the lack of transparency within this type of market.

I'm fine with the lack of liquidity.

All is well.

Now tell me, Wendy, how do I choose the right fund manager?

How do I look through all of this noise out there?

Because all I ever hear is, well, this fund did really well for the last three years.

So that's what I'm going to get involved in.

So are there any simplified approaches that at the very least could steer someone to just say, here's one or two potential litmus tests to judge a fund in this space?

There is a reason that the

disclaimer is always past performance is no guarantee of future results.

Really, you're investing for what is to come.

And that past record could...

there could have been any number of reasons, right?

Call me through luck and skill is the core.

Like it it is at the core of what we're doing here is is it luck or is it skill that generated those returns?

And if it's skill, then you can believe that on a go-forward basis, those returns are reliable to some extent.

You can justifiably believe, right?

And so to get to your question, it is really interesting, why does this investment manager have the right to win in this market?

It could be that this particular investment manager has depth of experience, and that could be one of the benefits of a long track record is that that manager has been executing on the strategy and investing in this way for a very long time and there are real benefits and moats to that.

So depth of experience which sometimes a longer track record can be a proxy for but related to that sort of the corollary to that is is it the same investment team that has been executing on the strategy?

And so I think even as an individual investor, paying more attention to who are the leaders on the investment team, the portfolio managers, what is their depth of experience?

Has there been a lot of team turnover at this firm?

And the second thing I'll say on this is around

the quality of risk management at the firm.

What are the risks that this manager has taken over time?

Ask yourself, if this were to go wrong, what would be the reason that it goes wrong?

And do I feel through my diligence and assessment here that this manager can reasonably manage through these risks and is not taking outsized risks?

Yeah, that's amazing.

I'm selfishly just taking notes for myself.

I'm not asking any of these questions for the listeners, by the way.

This is all just to inform my own investing habits going forward.

I'm quietly on Morningstar in the background, looking up fund managers as we speak, taking notes.

So I appreciate this inside access.

But additionally, if there were, I mean, speaking of Morningstar, though, right?

So that's obviously one of the resources that I know that some people use to potentially just look at a fund's performance or to look at consistency of managers over time.

If you were to

think through and whether whether it's one or a couple underrated skill sets for somebody looking to invest in general, again, whether that's $1,000 or working at a multi-billion dollar institution, what are some of the skills that you think someone listening who wants to kind of get into that space, again, whether it's for themselves or on behalf of a business, should develop?

What are some things that would be really helpful for people to become successful in investing?

Oh, this is a good one.

There's two that I would point to that I feel really strongly about.

One, or actually three, now I think about it.

One is humility, right?

Investing is a very humbling exercise.

You have to go into everything with a mindset that there are going to be things that you don't know.

Mistakes are entirely possible.

And so going into it with that framework of being humble and saying, I don't know necessarily everything everything about this.

And this goes to the next phase, which is intellectual curiosity.

I think you have to be really, really curious to be a good investor.

That curiosity has to lend itself to, okay, here's what I'm hearing at the surface.

If I scratch under the surface, what are the next order of questions?

There's the things that you know and the things that you know you don't know, but the risk is always in the unknown unknowns and being willing to keep sort of digging and identifying at least to the extent that you can, you know, are there certain unknown unknowns that you can maybe get closer to?

And then the last one, the third piece of is just sort of flexibility.

You can go through long periods of investment regimes where a certain thing has become known fact, right?

Like for 15 plus years, it was really advantageous to be a heavily U.S.-biased investor, and that is the regime that we operate under.

To be flexible today and say, is that the regime that we're going to be under for the next 15 years?

Or are we moving into a phase where it is going to be more advantageous to have a more geographically diversified portfolio?

And at the end of the day, there's clear evidence when you're an investor of whether or not you're going to be right or wrong.

You know, you're either making money or you're not.

And I do think that's one of the things I really appreciate about investing is we can argue, you know, off and on about what we believe in or what we think is the best way to invest.

But ultimately, the returns will reveal themselves.

And there's an adage in investing, which is you can be extremely early, but there's not really much of a difference between being early and being wrong.

So it's like you can have all of the philosophical underpinnings and theoretical underpinnings for why you should be right.

But if the market says you're not right, you're not right.

That is what it is.

It's a very quick feedback.

Yeah.

Well, and this, I know that the the audience who's listening to this is intellectually curious, right?

I know that the majority of people wouldn't be listening to a podcast about money and investing if there wasn't some inclination to learn more.

So, what are some of the sources that you either currently look to or you believe are about as objectively helpful as possible?

Because even though you say you can't argue with facts, I see people arguing with facts every day,

depending on which comment section we're looking at.

And I think it's, you know, we're in an era where the term fact is so heated and potentially political.

And not to get into the politics behind it, but just to focus on this idea of where would you advise people to go who say, look, I want good education about investment choices and where I'm learning from and from whom I'm learning.

What are some of the sources you might use or that you think others might find use in?

I think I'm going to struggle to answer this question.

maybe there are none out there.

Maybe that's the dark side of this podcast is we just stumbled.

Even as I'm asking the question, I'm going, uh-oh.

Yeah.

This information is like, I don't want to say it's like bogarted, but it's passed from investor to investor, right?

So like a lot of the information that's out there, it's like, if you wanted to understand how a convertible ARB strategy worked, how would you do it?

There is no investment resource, right?

You know how I learned?

I talked to 50 different managers about how do they run their convert ARB book.

I really like this answer.

I really do like this answer.

I mean, are there any sources out there that you could say this is at least a, I'll even say quasi-objective?

Like, can we settle on something that is at least trying to be helpful?

In terms of like the real nitty-gritty, one of the things I find fascinating is that it takes a little bit of time when you're in it to sort of understand how capital markets work all together.

And what capital markets are, to be very clear, is it's sort of everything in the investment universe, right?

So it's like there's equity capital markets, there's debt capital markets, and capital markets exist to allow the economy to function, to provide capital to everything

that we look and see and touch and that keeps the economy going.

The way that capital markets present to us as individuals are in things that we can invest into, like the stock market.

But the capital market extends so far and beyond just what's publicly available.

And that's really what this whole range and spectrum of investments are.

They're just different parts of the capital market and ways that the capital market interacts.

That's where I think there need to be more resources to help folks understand and put into context what investments they're seeing in the context of the greater capital markets.

I don't know if this is like accessible or not, but to some degree, like I almost feel silly saying this, but the CFA curriculum is a pretty solid curriculum.

Agreed.

I've got the 20 pounds of books sitting behind me.

It's dense and it's not the most accessible, but there is an element of investing that is really analytical and quantitative.

And I think if being analytical and being quantitative is uncomfortable, then that might be an area to sort of like brush up on first because there's no getting around the fact that investing is inherently quantitative.

Folks don't necessarily grasp the concept of compounding because it is not the most intuitive concept and that's what a lot of investing includes is these analytical concepts that are not always intuitive.

And then if you really want to get into it you can go and learn the CFA curriculum without taking the exams, but it is really like truly academic and the closest thing and relative to going back to business school or relative to paying for some courses so cheap so cheap relative right and could you just for those who aren't aware of it could you just describe what CFA stands for and kind of just the basic gist of what a CFA does and what the curriculum is about the CFA which stands for chartered financial analyst It is a series of curriculum that breaks down the parts of the capital markets.

It is both broad and it's also very deep.

And in order to really understand investing in complicated things, you have to understand the pricing behind these complicated things, right?

And so that's what, to your question, where can folks find objective information?

Part of that objective information is going back to the very beginning of our conversation is just learning.

is that academic education component to it, which again, I realize this is a tall order to big ask, and most folks, you know, probably don't want to do it.

And that's okay.

That's okay.

That's why there's great index funds.

It's okay.

That might be one of my favorite answers to that question of all time.

Because my next question for you, my final question was: if there was one thing you did want to leave us with, and when I say us, basically, let's even just say potentially a non-CFA-oriented audience who would like something just as simplified as possible.

If you were to offer people one practical takeaway that they could discover on their own about investing or think through on a deeper level about money, what might that be?

I think folks should really understand

basic equity investing.

I do think folks should understand a couple of key concepts, which is understanding that a company generates equity returns, understanding that you're investing in a company, but ultimately, where do those equity returns come from?

And so, just the concept behind how to understand a company's earnings and how valuation applies to the forward return potential for that company.

So, that concept of just sort of valuing an investment, right?

Like that concept behind how are equities priced?

What does it mean to be a good value in equities?

And then, sort of consequently to that, you will then understand what the SP 500 is, how it's comprised, why we say that having a low-cost index investing approach is a really good one.

And secondly, I go back to this is me being a little bit of a math nerd, is just understanding where the numbers come from.

How do you actually calculate a return?

What does it mean to say the annual performance of something is X?

How does the compounding work, right?

Like there's an actual mathematical concept behind it.

And so I think it's important for folks to just have a grasp, a solid grasp of those basic math concepts and fundamental concepts behind investing and the terminology that we use.

Awesome.

Well, Wendy, you have given me four pages of notes to think through on my own for investing.

So I trust that you have also given the audience plenty.

And I just want to say thank you so much for spending what's, I know, a beautiful afternoon both in New York and up here in Vermont.

So thank you for taking the time to chat through all of this with us.

And I really, really appreciate it.

Thank you so much for having me.

This was such a pleasure.

Be sure to visit my website at tylergardner.com for even more helpful resources and insights.

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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.