An interview with Matthew Tuttle, Chief Investment Officer (“CIO”) of Tuttle Capital Management LLC (“TCM”). Article by Pat Neville, VP of Sales, and Logan Galletta, Summer Intern, on June 4, 2024.
Matthew Tuttle created the Trader Short Innovation Daily ETF (Ticker: SARK)[1], one of the top ETFs in 2022. He created NVDX (T-Rex 2X Long Nvidia Daily Target ETF) another top ETF in 2024. Now he wants to be your OCIO. What gives?
So Matt, why should an advisor with 50 million under management turn over their assets to you? Yeah, you know, you’re a smart guy, and yeah, you created these super-hot ETFs, but why should other advisors afford you the opportunity to manage their client assets?
All right, so, and good question, let me qualify a little bit. So, remember, we’re not necessarily asking an advisor, hey, turn over all your assets to us. If you want to, we can kick ass with what you’re doing, but you know, everyone’s gonna be different. Some people are just gonna be like, hey, I really, I don’t have time, I wanna outsource, and the options out there suck. Other people are just gonna need help in certain areas.
Other people are just gonna wanna say, hey, let me know about product ideas. But there are a few things that make me unique. Number one, I was an advisor for retail clients. So, you know, I would think most of the people in the ETF industry have never been on that side of the table. You know, I built a fairly successful retail advisory business, I ended up getting rid of it when we had about 100 million in assets under management. So, you know, I understand the marketing challenges, I understand, you know, balancing investments with client service and client acquisition. I think the other thing that makes me unique is I am a trader. I trade my own money very actively, I know how markets work.
You know, I think that the traditional approaches, buy and hold 60-40 asset allocation are at best mediocre. And that if you are going to be a successful financial advisor that is drawing and keeping clients, I think you’ve gotta be better than mediocre. And again, the ETF people who are out there are marketing guys, they’re not guys who understand how markets work, you know, how to manage money. And, you know, so remember the timing of SARK, where it came out six days after the Fed pivoted on inflation, and it was one of the top ETFs in 2022.
That was not a coincidence. Another one of the top ETFs in 2022 was Short De-SPAX Daily ETF (Ticker: SOGU), which was also a TCM-developed ETF, and is no longer in existence, which pisses me off, but whatever. SOGU was an inverse D-SPAC ETF. So, what we noticed is companies that were coming public through SPAC mergers were shit, toxic waste. So, we set up an ETF to short 25 names, and when we shut the portfolio down, I think, you know, and these all came public at 10, I mean, 20 of our names were probably trading under three. So, you know, we saw that trend, you know, having TREX 2X NVIDIA and, you know, making the decision that was the stock we wanted to focus on was not a coincidence.
All that stuff comes from understanding how markets work, understanding how money works. And again, we can come at this from an entirely different angle than anybody else that’s out there, because one of the reasons why the 60-40 and all the traditional approaches are mediocre is that’s what Wall Street is all about. There is very little to gain and a lot to risk from being an outlier, which is why, you know, if you see a stock with 10 analysts covering it and they all have strong buys on it, analyst number 11 is unlikely to come in with a sell, because if analyst number 11 is wrong, he’s a moron. The 10 other guys said strong buy, you said sell, you’re an idiot. If he’s the only one who’s right, yeah, maybe he gets a pat on the back, but the risk is just too large. It’s much better to be able to say, hey, everybody else got it wrong, I got it wrong too.
And that permeates throughout everything. So, if you look at the companies that you could outsource portfolio management to, nobody is gonna stick their neck out there because if they do, they risk underperforming and losing substantial amounts of assets. So, everybody is gonna congregate around the mean, and going back to what I was saying about marketing, good luck marketing like that.
You know, because if you’re a financial advisor, your next client is somebody else’s client. So good luck saying, you know, hey, Pat, you know, I know you’re working with Logan over there, I’d like you to come work with me and what we’re gonna do for you is basically the same thing. Like, yeah, why would I do that? Why would I leave Logan for you if you’re gonna give me the same thing? But if I can come in and say, look, what Logan is doing for you is totally mediocre, what we’re doing is really, really cool, then yeah, you’ve got a chance.
So, let’s say someone comes to you and says, Matt, I wanna be 60-40, right? I mean, what would you say? This is the dumbest idea ever?
So, I would say it’s not the dumbest idea ever. I would say it’s mediocre. So, you know, I think all of this buy and hold stuff, if you are the end client and you’re sitting there and you’re working 60 hours a week and you don’t have the expertise, do 60-40. Because if you don’t, you’re gonna blow yourself up doing something stupid, following Roaring Kitty into GameStop at the high, I mean, you’re gonna do something dumb.
If you come to me as an advisor and say, hey, I bought into 60-40. It’s like, look, I think it’s mediocre, here’s why. You’re doing 60-40, now the 40% of your portfolio that’s in bonds over time is going to underperform stocks that, you know, by definition, it’s just going to.
The reason you’re doing it is to reduce risk. You’re not reducing risk by that much because if you look at the times, you know, if stocks are down 30%, your bonds are up one, yeah, it’s better than being 100% stocks, but you’re still, your portfolio, instead of being down 30, is gonna be down 20. And, you know, that’s better. Hey, Mr. Client, we’re down 20%. That’s better than, hey, Mr. Client, we’re down 30%. It’s still not great. If you want that, yeah, we’ll help you figure out a better way to do it. You got it.
All right, so I’m gonna shift course here a little bit, you’ve told me several times that when you were an advisor that you outsourced your book to somebody and it blew up in your face, right? Can you expound on that just a hair?
I mean, it’s kind of in regards to what we said. Back in 2006-ish, you know, I was building up my advisory firm. I’d been out there for three years and, you know, struggling with marketing, client acquisition, investment management, because each one of those things theoretically is a full-time job. So, you know, a large institutional firm that I had heard of came in and basically said, you know, hey, look, you know, we know it’s a struggle. You know, we only focus on the investment side. We do, what got me is they do multi-manager.
So, like, I would never say, you know, hey, here, BlackRock, here’s my portfolio, you guys run it. What this firm did is they created their own mutual funds. Each mutual fund had multiple managers in it, you know, from all over the place. So, they were doing some real serious due diligence and putting these managers together, putting the funds together. So, you know, I bought it and brought my clients into it, and the performance was extremely mediocre. I ended up losing a couple of clients from that, and I ended up pulling it out.
That’s when I wrote my book, “How Harvard and Yale Beat the Market,” and, you know, said, I’ve got to figure out a way to do this myself.
So, I mean, this strikes me as out of character, the Matt I know, is fiercely independent. So, what was it that just made you bite on that hook? What was so bad that made you do it?
I was spending a lot of time on marketing and managing clients. It’s tough. And it wasn’t an easy decision, but your lifeblood is new clients and keeping existing clients. And, you know, I knew that, or I felt that someone who was working on the investment management full-time, you know, could do better on it than me, who maybe could only spend 10% of my time on it.
I was wrong. You make mistakes. I think the important thing, and, you know, back when I was teaching advisors, which I used to back in the network days, we’d teach them, don’t have a sunk cost mentality. So, just because you spent a bunch of time and money on one approach, if you find that approach isn’t working, you’ve got to pivot. And that’s what I did pretty quickly when I realized this is stupid. And yeah, these guys are doing a ton of due diligence, but it’s useless due diligence.
So, we were talking earlier this week about a dividend fund, right? And, you know, there was a dividend fund, I don’t know, XYZ dividend fund we discussed, and it was paying a 1% dividend. And I said to you, “How is this really a dividend fund? It’s paying a 1% dividend?”
I don’t think that’s gonna, you know, pay your rent when you’re a sixty-year-old woman looking for dividend yield, right? So, then you said, “You know, don’t give people too much credit for being smart…” Just expound on that a little bit.
Yeah, and there’s a lot there in dividends. So, first off, I think having a dividend fund that the investment metric or stocks I’m going to buy is related to dividends, I think is stupid. Same way, you know, so really, anytime you’re picking stocks not related to the investment merit of that stock, to me is stupid.
ESG is the same thing. Hey, I’m buying a stock because they’ve agreed to cap their carbon emissions. All right, that’s a stupid reason to buy a stock. You wanna buy a stock that, you know, that you think is gonna grow earnings in the future or you think is undervalued based on some metric, or you use technical analysis, which is how I buy stocks.
You know, just that a company grows its dividend or pays a dividend or has a high dividend is stupid. You know, also realize that the name of a fund is based on marketing and regulations.
And if a fund pays a dividend, or if a fund buys stocks that pay dividends, and the rule typically is 80%. So, if I start a fund where 80% of the companies in my fund pay a dividend, I can call myself a dividend fund if I want to. And I probably will because even though I think it’s stupid, people love dividends.
And I’ll give you an example of the stupidity. So, there is something in the industry called a closed-end fund, which can trade at a discount and borrow money. And closed-end funds typically have very high yields. So, years ago, I was giving a talk to a retired men’s group on investing. Guy comes up to me afterwards and said, I loved your talk, you know, great advice. I don’t need any of that advice myself though, because I’m doing great on my investments. I said, cool. You know, what are you doing? He’s like, so I buy these levered closed-end funds that have a 15% yield. He said, “I’m down 50% on my principal. But yeah, but I’m getting a 15% yield.” And I’m like, “What?” He’s like, “Yeah, I mean, yeah, I’ve lost half my money, but it’s a 15% yield. It’s great.” That’s totally, but that’s how people think.
They just look at the yield. So you’ve got now the most popular ETFs out there right now are the covered call ETFs, which show massive yields. The problem is when you’re writing a call over a stock, if that stock goes up, it gets called away, you lose the gains. So last year, the Tesla covered call ETF, Tesla was up 100%. The Tesla covered call ETF, including the yield, was up 50%. But people were still buying it hand over fist because they don’t get it.
There’s another fund out there, Handle, Strategy Shares Nasdaq 7 Handle (Ticker: HNDL) which is advised by another RIA. They pay a very high yield. What people don’t realize is most of that yield is a return of your own principal.
But people buy it hand over fist. Couple years ago, I was having dinner with an ETF trader. Told me, ‘hey, yeah, most of my money is HNDL because of the 6% guaranteed yield.’ Like, Mark, you do realize most of that’s return of principal. He’s like, ‘I didn’t know that.’ Like, dude, you’re an ETF trader.
People are stupid. Got it. So what I like about Tengler is those companies pay a dividend, but that’s not why she’s buying. That’s a by the way. She’s buying companies that have investment merit. She can go for themes. So again, I told you the theme she’s into right now, which I love, is old economy companies are gonna benefit from AI. Because I do think chances are the Nvidia thing has played out to an extent. And certainly, from a risk standpoint, not everyone should be putting all their money in Nvidia and some of this other stuff. So, her companies pay a dividend, but that dividend is a ‘by the way.’ It’s not why she buys them. I was gonna talk about Tengler, but just so you brought it up.
The standard pushback that I get is that Nancy Tengler is great, but this [Laffer Tengler Equity ETF] fund has only been up and running for six months, eight months, whatever it is.[2]
It’s going to be tough. What I try to teach people about, and I’ve got a white paper somewhere on my site about it is what’s called forward-looking due diligence, which is another thing that I think sets what we do apart.
So everyone knows when you read a prospectus, past performance doesn’t predict future results. From a compliance standpoint, we have to put that on everything in big, bold letters. And then everyone goes and uses past performance to try to predict future results. And what forward-looking due diligence is about, because, you know, I only care about past performance if I got, if I’m looking at a fund today to buy, I don’t care that it was up 50% last year because I wasn’t in it last year. I didn’t get that. What I care about is what’s it going to be up this year. So forward-looking due diligence is trying to look at the past and extrapolate into the future, not predict. But if I have a fund, all right, it was up 50% last year, why? What factors led to it being up 50% last year? Once I know why it was up 50%, then I can ask the question, why could those factors persist? Or why would those factors not persist? And then what could go horribly wrong?
So, Cathie Wood is a great example. Why did we launch Inverse ARKK? So, Cathie Wood from, you know, the COVID bottom in 2020 to like February of 2021, I think that was the top of the market, was up over 100%. People were putting money into that hand over fist, CNBC and everyone was calling her the next Warren Buffett.
What was wrong? First off, you’ve got to understand there’s one thing in markets that is always true and that’s reversion to the mean. So typically, just about everything over time is going to average out around 8% to 12% a year, which means in the riskier, so like an arc is gonna be higher in that spectrum than Tengler is going to be because you get paid on Wall Street for taking risk.
So, if something has a year where it’s up over 100%, that cannot persist. I mean, it can go on for a little bit, but you’re not gonna get 100% every single year. That is impossible unless you’re Nancy Pelosi trading on inside information. You know, Cathie Wood is not gonna generate those results, which means those returns have to come down a lot to revert to the mean. So, you know, that’s extremely important. You know, the other aspect which would give you pause is, oh, she’s the next Warren Buffett.
There can never be another Warren Buffett, Peter Lynch, anything like that. Remember when those guys were generating the bulk of their returns, we didn’t have the internet. We didn’t have Bloomberg. We didn’t have access to information. Now, you know, name your portfolio manager. I mean, Logan has access to as much information as that guy does about stocks. So, you know, back when Peter Lynch was killing it, if you were smarter and worked harder, you could generate substantial outperformance because you could find stuff that I couldn’t find. Now you can’t. So all of those factors would lead me to believe, you know, hey, Cathie’s not gonna keep these results going, whereas the sheep were piling in.
I’ll give you another example. There used to be a fund called LJM Preservation and Growth, something with a conservative title, I forget. Morningstar, five-star rated fund, delivered like 9% returns every single year. You know, everyone was buying. It got to over a billion dollars in assets. And I had an investment, I had two investment advisors come to me in 2018 and present me this fund, one who wanted me to actually buy it and another who wanted me to, you know, hey, this fund’s a big part of what we do. What do you think? So, I mean, great past performance, which was why people were buying. I started reading through the investment strategy and what they were doing was they were selling uncovered calls on the market indexes every month. And what you know about selling uncovered calls is your losses could be unlimited if something goes wrong. So, one of the things I always ask myself is what could go horribly wrong? And what could go horribly wrong is that fund could go to zero. So, I told these guys, you know, hey, look, I see you’ve got it as 20% of your portfolio. Yeah, you know, it’s got preservation in the title. It’s generated 9% every year like clockwork, but something goes wrong, this fund could go horribly bad. They didn’t listen to me. A couple of weeks later, we had Volmageddon in the market where the VIX spiked a ridiculous amount in 15 minutes. That fund ended up going to zero in the space of 15 minutes because all the uncovered calls they wrote spiked and wiped out their entire asset base.
So, that’s some of the analysis people are not doing, and that’s what forward-looking due diligence is all about. So, yeah, I get it from a compliance standpoint. One could say you are safer buying the fund that’s been around since 1922, but I could make an argument that Nancy Tengler, based on her process, is going to do a lot better than that fund going forward.
You’ve mentioned to me several times about your kids at school, their safety, and the fact that we’re in the process of coming out with funds geared toward keeping people safe. Any one to two-minute explanation on that?
Yeah, and again, we don’t have GUNZ (Tuttle Capital Self Defense Index ETF) out yet, but the idea is regardless of the statistics, the powers that be try to tell you that, oh, crime is better. I mean, open your eyes. I mean, go to New York, go to Chicago, go to San Francisco. Couple that with ‘defund the police’, couple that with if I’m a cop, I’ve got to be scared shitless about going to jail for the rest of my life if something goes wrong. I mean, there was just something on Twitter. I didn’t spend time with it. I don’t know what it was about, but it looked like some guy was trying to shoplift, and cops tackled him and kicked him. They let the shoplifter out without any bail, and the cop might end up going to jail for kicking this guy. You know, if I’m a cop, what does that make me think? So, people more and more are going to have to take safety into their own hands, which means home alarms, guns, tasers, mace, all of that stuff, theoretically those companies should go up in value. And that’s the investment thesis.
And again, it’s a point of differentiation. You know, when we do stuff, it’s not gimmicky. So like if you look at the stuff in the conservative space, it’s gimmicky stuff. It’s not stuff that’s got an investment thesis. So, you know, the MAGA ETF, it’s a sales gimmick designed to appeal to guys who like Trump. There’s no investment thesis there.
You know, the American family values in YALL (God Bless America ETF). It’s, you know, so that conservative guys can feel good about what they own. But again, just like ESG, there’s no investment thesis there. What we have for GUNZ is an investment thesis where this is going to become, in my opinion, an industry that people want to invest in because of the supply demand metrics that are being caused by an uptick in crime.
All right, so you’ve also said to me on more than one occasion, that you did not create the first bond or treasury ETF, right?
Well, no, no, so the single bond. Yeah, the single bond. I mean, you know, there’s a lot of stuff that people launch and you’re like, holy shit, I should have thought of that. Yeah, we created the first the first single stock ETFs in the US. Pissed me off that I didn’t think of doing single bond. Yeah, I know those guys really well. I like them. We talk about maybe doing some stuff together with swaps on the bonds. But yeah, pisses me off that I didn’t come up with that idea. Yeah, they’ve got billions in it now. The flip side is they can’t charge a lot for it, so they’re not making a lot of money. But still, it’s an idea I should have thought of.
All right. So, another thing, and again, I don’t know where you want to go with this, but I’m just gonna throw it out. You’ve used the term “being censored by the SEC.” You’ve used the term, “there’s some reputational risk with Goldman Sachs”, I’m against all this shit, by the way, just so you know, I hate this. And, you know, this is one of the reasons I’m so committed to our company. Any thoughts on that?
You know, anyone who puts out a tweet, you know, like, you know, and I’m not in the political realm, but I put out some tweets that, you know, are basically anti this whole Trump verdict in New York. And, you know, and you have people pushing back, you know, and I, you know, no one’s been like over the top to me, but I’m sure they are to other people who are known, you know, kind of in that space. So, you stick your head out, you get a lot of crap, which is why I think you have this perception in society that’s not real, that, you know, you’ve got, this dangerous far left or this dangerous far right that are bigger than they are. Because those are the guys who are vocal, everybody else in the middle is like, I’m afraid to say anything, because I’m going to get torn to shreds. And, you know, and on Wall Street, you know, that permeates. So, I don’t want to be tied to this, because there’s no upside in it for me. And, you know, there could be downside. I could get crap like, who’s the custodian for this? Who are the APs? Who’s the lead market maker? Let’s go after those guys too. And, you know, I’m biased, but I think, you know, that’s more on the left.
You know, and I think it’s interesting that with the Trump verdict, you saw no violence, whereas, you know, if Trump had been, you know, someone on the far left, you may have seen cities burning. So, you know, there are people very motivated on the far left side to just go after it. And, you know, if you’re a big financial firm, you don’t you don’t want that reputational risk.
You’ve also got some places that are just there. They’re invested in ESG. So I had a conversation with the Royal Bank of Canada about being lead market maker. They’re like, we’re a Canadian bank. We’re massive into ESG. There’s no way we could be lead market maker on these ETFs.
So, we were talking about one of our funds, and I noted that the main guy at the fund was ringing the bell at the CBOE like every week, right? Very ceremonial. Why do you go ring the bell? And what’s in it for you? And why do you think people should be? Why do you ring the bell? I mean, to me, it just seems a little old school.
Is it fun, cool? It’s, I mean, it’s fun to do. But really, it’s, it’s a reason for a party, basically. You know, it’s a reason. Yeah, I mean, it’s a reason to get your service providers, your employees, your partners, and your clients together, and have a party.
So you guys putting them back when you’re on the floor and all that? Or do you save that for later?
No, no, after. So, like, you know,
Oh, come on, you don’t sneak a little flask in there or anything?
No, no.
So, let’s talk about expenses a little bit. Right. So why is it so important to people? I get math. But to me this should be more like a money machine, right? You put in a dime, you get out a quarter, who cares if they take 14 cents, you still make that penny. It’s like, why not just give the money to your barber then if you don’t want to pay expenses, you know what I mean? And then, you know, so then you talk about hedge funds paying 2 and 20.
And so, I mean, if the smartest people in the world are willing to pay these hedge funds, why are people so confused about paying someone and additional 20 basis points. I’ll talk to people, and they say, well, you’re at 0.95 and we’re at 0.75. And I’m like, well, dude, you lost 40 grand last year or whatever. Can you talk on that just a little bit?
Yeah. And, you know, and a lot of that goes back to what I said about dividends, but so give you a brief history lesson. When I started out in the brokerage industry, that’s just when it was converting from stock pickers to asset allocators. And so, what they did is they came up with something that called managed money, which is, hey, Mr. Klein, instead of me picking stocks for you, we’re going to sit down, we’re going to go through a risk tolerance questionnaire. I’m going to come up with a portfolio and I’m going to hire money managers to manage the portfolio.
I’m going to monitor those managers and we’re going to charge you 3%. And so that was the hottest thing on Wall Street, and they were charging 3%. Once competition comes in, how do you compete? I’m going to compete by charging 2%. All right. I’m going to compete by charging 1%. I’m going to compete by charging a half and on and on and on and on.
What we also had back then were mutual funds. ETFs were fairly non-existent and mutual funds were by and large charging one and a half percent. Now ETFs are coming out. How are they going to compete? I’m going to charge less. So you get this spiral of less, less, less, people being hammered, lower fees are better. And in a vacuum, all things being equal, if I’ve got two funds, they’re both going to return 1% or 10%. One charges 1%, one charges nine basis points. I want the fund that charges nine basis points. It’s better.
But people get kind of sucked into that vacuum and except on the hedge fund side where they do get it. I mean, they pay two and 20 all day to get insane performance. They just get sucked into this and just look at it. It’s all about the fees. And in a sea of mediocre products, which is what we have, they’re correct. You know, if you’ve got two mediocre products, all right, I’m going to take the one that charges less because they’re both going to suck. But if I’ve got a product that from a forward looking due diligence standpoint could do a whole lot better, including the fee to me, the fee doesn’t matter at all. Again, like the dividend one, it’s going to be tough to overcome. But smarter people are going to get it, that it’s about my total return.
If I get a 12% return and paid a 1% fee, that’s better than an 8% return and a nine basis point fee.
We’ve had another conversation where we were talking about, you know, solving problems for advisors…
But hold on, let’s back up for the ones that want that. So again, if, you know, if you want to buy 10,000 shares of BWTG (Brendan Wood TopGun ETF, TCM sponsored ETF,) great, go for it. If you want us to help you with, you know, on an outsourced advisory basis, we’ll do that as well.
So, you know, and then I said, you said, like, well, what are the problems? Like, why would this ruin somebody’s day, week, month, year or whatever by not having you come in and take over?
I mean, you want to get to 40, 60, 80 million. And again, the way you get to 40, 60, 80 is you convince people who are working with other advisors to come work with you. And if you’re doing the same crap that they’re doing, how are you going to do that? You’ve got to do something different. You’ve got to do something better. And, you know, and it’s got to be something where you can describe it to someone. And it is clearly a better approach.
You know, it also goes back to, again, you know, how much time do you have in the day for marketing, client service, investment management? And, you know, in the landscape of what’s out there in kind of these model portfolios, you know, again, these guys are not incentivized to try to be better. You know, because, you know, if the market’s up, you know, 10% and everybody’s up eight, yeah, all right. You know, I’m only up eight, but everybody was up eight.
But if the market’s up 10%, everybody’s up eight, and I’m only up four, because, you know, I’m out there trying to do some different things, I got a problem. And so, there’s no incentive structure for anyone to do anything truly unique, you know, truly good. You know, so everyone is looking the same, you know, and it permeates everything.
It’s why most active funds are index huggers, because you don’t want to risk, you know, not having the same performance of an index, which is, again, what I love about Brendan Wood Top Gun, it doesn’t look like an index at all. It’s 25 names.
Okay, this is kind of a catch-22. You’re saying advisors don’t want to, you know, break out of the mean, right?
I’m saying that the people providing services to advisors don’t. Advisors probably don’t either. But that creates an issue of how you’re going to attract new clients, if you’re doing the exact same thing everybody else is doing. Goes back to substantial differentiation.
Why would someone be incentivized to leave their comfy, you know, S&P hugging model and say, “I want to go with Matt to try to do better?” What’s the incentive to do that?
The incentive is, do you want to grow your practice? You know, if you’re sitting there, hey, I’m managing 20 million, I make enough to get by, you know, my investments chug along, my clients are happy. Do you want me taking over your portfolio management? No, you don’t. Because I’m going to go in there and I’m going to shake stuff up.
Do you want to buy TGLR? Yeah, you might want to buy Tengler, but you don’t want me going in there and in shaking up your portfolio management. Now, on the other hand, you’re managing 20 million, you want to be at 100 million. You’re trying to aggressively grow your practice. You’re going out there talking to prospects, giving them the same pitch that they’re already doing. Is there any reason for them to move? Because remember, if I’m working with an advisor, chances are I like that person. They might send me birthday cards. You know, they may have taken me to a Yankees game. Do I want to pick up the phone? Hey, Pat, you know, we’ve been working together for 10 years. I’m sorry.
I’m moving my account over to this Logan guy who I just met. Yeah, so there’s got to be a reason. It’s got to be like, hey, Pat, you know what you’ve been doing for me? It’s okay. I just ran into this Logan guy and what they’re doing is really cool. Yeah, I’m sorry, but you know, money’s money. Okay, so let me back up. All right.
So, let’s say I’m the advisor. And I’m like, ‘god, I suck at this.’ I need to find a CIO or whatever.
I got Matt over here. I got this dude over there. I got that dude over there. Why would I pick you over Logan over so and so?
Because I am not going to revert to the mean. Again, I’m not going to put together the same mediocre portfolio everyone else is going to do. And remember, I’m the guy who called the top of the market with SARK, the guy who understands how markets work.
Yeah, and we’re going to use a forward-looking due diligence approach versus backward looking.
Let’s talk about SKRE, it feels like the bad news is already priced in?
Yeah. So, a couple of things. And last night, I don’t know if you saw an article. What’s that?
I read it and saw it. I think that’s old news, really.
But maybe. But an article came out that 63 banks were on the verge of failure.
The stocks are probably up today. That was my point,
Though. It might very well be. What you need is a couple of things. So first off, understand the regional bank model is somewhat flawed. I mean, it’s cool from the standpoint of if you really need something, you’re going to go to a regional bank. So, like I bank at Wells Fargo. But if I need something customized, something out of the ordinary, I’m going to go to First County Bank because Wells Fargo is not going to bend over backwards. But the problem you run into is that Wells Fargo is systematically too big to fail. They will never go under. Wells Fargo is allowed to go under. We’ve got really, really big problems. First County Bank is not systematically too big to fail. And I can move my money. If I had money at First County, I could move it to Wells Fargo in five seconds.
So that once rumors start about First County Bank and it was like the Bear Stearns, when Bear Stearns went under, that was like, you know, it was brewing, brewing, brewing. But then overnight, kaboom. Once you’ve lost that confidence and money goes, these things are toast. So, you could theoretically start to see regional banks going under, and there most likely will not be an appetite for, you know, for the government to bail them out. There would be more of an appetite to basically give them the JP Morgan and, you know, make Jamie Dimon happen. The other thing is interest rates. So regional banks also are typically not nearly as good managing their portfolios. And everyone is always fighting the last war. What people realized in 2008 was that credit risk mattered.
If I had a whole bunch of bonds that were crappy from a credit risk standpoint, I could lose a bunch of money really, really quickly, and that’s what happened. So, everyone then got laser focused on credit risk. So now you’ve got these regional banks that own treasures, no credit risk, because again, if the government goes under, we’re all screwed anyway. What they didn’t take into account was duration risk, meaning when the longer the term bond you have, the more risk you have from rising interest rates. And so, what you had last year was a bunch of banks go under or close to go under because the Fed’s raising interest rates. They’re losing money on their bond portfolio, and they’re not being able to match it, you know, on the other stuff, on the mortgages or on other things.
We came into this year expecting six interest rate cuts. Now there’s the potential we get none. But for SKRE to really take off, either A, interest rates need to go up, B, you need some regional banks to start actually going under.
Okay, so to me, this is a great hedge, right? I think that the primary risk that we have is one of them, if not the one, right? So, but having said that, why would you be long SKRE now? And why wouldn’t you wait till the banks gap down one morning 20% and then jump on the train? I mean, yeah, you’re 20% late…
Everyone is going to look at this differently. Some people are going to buy and hold it for a hedge. Other people are going to trade it. There’s all sorts of different strategies people can be running. So that depends. You know, I could certainly argue that, you know, once banks start going under, it may be too late. But, I mean, it may not be. So, I mean, maybe your strategy is to wait. I mean, my strategy is I trade. You know, I personally, I’m a mean reversion trader. So, you know, I’ll buy SKRE when, you know, when I think it’s hit a bottom. And then when it goes up, I’ll buy SKRE. And, you know, and I play that game, but that’s what I do. Other guys are trend followers. They may wait for a break. Other guys might just say, hey, I’m going to put it in as a portfolio hedge, because if this market crumbles, the regional banks are going to get hit more than anything.
I think the ETF is kind of like somewhat half options, half stock. Maybe you would expound on that and say, yeah, that’s a bad idea, Pat, or it is the right idea. But, like, I feel like the asset class of the leveraged ETF is misunderstood. I mean, the argument people say is, yeah, this is a wasting asset, right? But if you buy an option that expires in three days, I mean, it’s wasting too.
So, you know. And people misunderstand the volatility drag. It’s not a wasting asset.
Theoretically, so 2x Tesla, 2x Nvidia over time could do better than 2x. It could also do worse. It depends on the path. So, there was a point where, and I don’t remember the exact numbers, but there was a point where ARK was down 40% and SARK was up 60. And the reason for that was because of the way ARK was down 40. It was pretty much in a straight line down. So, there’s no rhyme or reason when you hold on to a levered ETF for more than a day what your actual returns will be. It just depends on the path. Where I see the power of levered ETFs is a couple of different things.
So, if I were to buy Nvidia, Nvidia is now $1,000 a share. So, if I’m BlackRock, I don’t give a shit that Nvidia is $1,000 a share because I have trillions. If I’m the average guy, one share of Nvidia might end up being way more of my portfolio than I want it to be. And if I try to go out and buy the options on Nvidia… Yeah, I mean, the premium is just whack. Right. And at the money, yeah, one contract at the money that expires on Friday will cost me $2,500. So, again, that’s a lot for a retail investor. But let’s say I’m bullish on Nvidia. I could buy NVDX. That’s $150, not $1,000. So, I could buy 10 shares of NVDX and have the same monetary exposure to buying one of Nvidia. And if I wanted to buy one at the money call, it would cost me $1,000.
So, that’s one of the spots I see the power of Levered and Inverse is it allows me different ways to get exposure to the underlying, especially when the underlying is maybe more expensive than I want. So, again, I’m an options trader. I buy options on Tesla and NVDX because I don’t want one option contract to cost me $2,550. Typically, when I buy, and I’ve got maybe 100 different companies, I don’t like having more than $1,000 in any one option. Got it. So, I’m not going to buy an at the money Nvidia call for $2,500. For me to get it to $1,000, I’m going to have to do a spread strategy, which is going to lower my profit. I’d rather buy an NVDX call. So, that’s one of the things.
The other things where it can become an options alternative is you can’t trade options after hours. You can trade Levered ETFs after hours. Right.
That’s a good one. All right. Okay. So, I think we talked about this a little bit, but I’m just going to ask you again. So, let’s say I came to you with 100 grand today. Do whatever you want with it. What would you do with it? And why not the S&P 500? Second question.
So, remember, I’m not an investment advisor. I used to be. If you are an investment advisor, unless you’re doing all sorts of other stuff for a client, you can’t just put them in the S&P 500. So, I can’t say, hey, Pat, work with me. I’m going to charge you a 1% fee, and we’re going to buy spot. Now, that may be the right way to go, but how do I justify my 1% fee? You’re going to be like, wait a second. I’m paying you 1% to buy an ETF that I could buy on my own. Now, if I’m handling a whole bunch of stuff for you financially, maybe that 1% is worth it.
But if I’m the typical investment advisor out there, it’s not. So, they’re not going to put you just in the SPY, which again, maybe that’s the right answer. But it can’t happen, or you will lose your entire client base. Right. If you’re an investment advisor, remember, your clients are somebody else’s prospects. They’re going to be being hit up all the time by people. If you’re not justifying your fee, you’re going to lose clients at some point.
So, we’ve been talking about ESG, right? And let’s say ESG is working for whatever reason in the market, the ESG strategies, right? And the politically neutral strategies are not. I mean, you go with the flow. So, would you bail on the politically neutral strategies and say, God, I’m going long ESG? Or you’re like, this is just so off my principles or whatever, or this is never going to happen. But in essence, what if these ESG funds start doing really well? What happens then?
So, again, every investment decision, in my mind, should be based on investment merit.
So, the fact that a company has transgender bathrooms does nothing on further earnings. But what if it does? Hold on. All right. So, ESG is going up. Again, I’m a forward-looking due diligence guy. Why? If it is going up because ESG has come back into favor, and now you have significant pressure on money managers to buy ESG companies, and that’s why it’s going up. And I believe that pressure will continue, then yeah, I would be buying ESG companies from that standpoint. If they just happen to be going up, and I can’t find a reason for it, then to me, it’s random. And I’m not going to invest based on random.
Random things happen in markets. It doesn’t make it an investment case. I saw, and I don’t know whether this is still true, but every year that ended in a five, the market has been up. Does that mean that there’s a reason? No, it’s random. Most of the time, the market’s up anyway, and it just so happens every year that ends in a five, it’s been up. That’s not an investment case.
That doesn’t mean that January 1, 2025, I’m buying a levered ETF and holding it all year. So, why is ESG going up? So, what I like about, and sorry about the vacuum in the background, but what I like about politically neutral is the investment thesis is companies that only focus on making money should do better at making money than companies that have other focuses. And also, those companies are likely not to do something like get caught having some dude shaving in the woman’s bathroom that causes their stock price to go down 10%.
But again, I’m an investment guy. I’m a trader. If the world says ESG companies traded a premium because we want ESG, I’ll buy them.
All right. Last question. So, first of all, I want to say that I believe the whole Jim Cramer meme, anti-Jim Cramer thing is hilarious. And I think 100 years from now, people will still be using the word Cramer.
But you shut down the inverse Cramer ETF (Ticker: SJIM). Was that like a setback? And if it was, I guess it was, it had to be a little bit.
What did you learn from that? And how do you move forward from what you’ve learned?
So, again, everything we do comes down to an investment case. I fully believed and continue to believe there is an investment case for inverse Cramer because the consensus is usually wrong. And Cramer is the consensus on steroids. The other thing with ETFs, though, when you launch an ETF and it’s successful, 99% of it comes down to timing.
And the timing on the inverse Cramer ETF didn’t work from the standpoint of shortly before Nvidia’s earnings in May of last year, he came out and started pounding the table for that Magnificent Seven. And he was right. You know, Nvidia had their earnings, Magnificent Seven ramp. And, you know, in our first year, the market was up like 20 and we were down like 15. Now, I would say, given that we were short the Magnificent Seven all year, and the Magnificent Seven stocks all double, the fact we’re only down 15% goes to show how awful his other things were. But, you know, how do you market that? You just don’t.
So, I didn’t see a pathway to getting that fund to profitability. And, you know, and I was bleeding money for months, which at some point gets painful. And when you don’t see a runway, I think looking back on it, I would have structured it differently.
And basically try to extract the alpha. And, you know, again, we still would have had trouble because the short magnificent seven would have done worse than long SPY would have done. But we would have done a lot better from a performance standpoint, and maybe could have kept alive. I don’t know. But I think that would have been a better way to structure the fund.
All right. Well, gents. So, I appreciate it. Thank you. I think this is very informative.
This article is furnished on behalf of Tuttle Capital Management (“TCM”) to provide investors with additional information about its advisory strategies. This communication is for informational purposes and not intended to be a solicitation of any investment or product. Views and opinions expressed by Matthew Tuttle, CIO of TCM, are current to the date of this published article and subject to change without notice. Information provided herein is based on sources deemed reliable, but no guarantee of accuracy is claimed. Forecasts and other commentary pertaining to future events may not realized and investors should consult a financial professional prior to making any securities investment. Past performance is not indicative of future results.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please visit our website at www.tuttlecap.com. Read the prospectus or summary prospectus carefully before investing
© 2024 Tuttle Capital Management LLC, a registered investment adviser. All rights reserved.
[1] SARK is now under management of AXS Investments, which is not affiliated with Tuttle Capital Management.
[2] Laffer Tengler Equity Income ETF was launched August 7, 2023, and is advised by TCM and subadviser by Laffer Tengler Investments. Inc.