EP 73 - Greg Silberman - Money Talks - Financial Learning Tips from a Chief Investment Officer Part 2

Money Talks - Financial Learning Tips from a Chief Investment Officer Part 2

In business and finances, diversification is always the key. It’s all about exploring new markets and taking new risks.

Today is a continuation of a three-part series with Greg Silberman, CIO of ACG Wealth. Greg is responsible for managing the firm's Global Investment Portfolio, as well as supervising the implementation of the company's Asset Management Strategies. Here are more takeaways on today’s podcast:

• Greg’s professional experience working with J.P. Morgan.

• His experience as a Chartered Financial Analyst.

• Why the more wealth you generate, the more diversification you should have.

So listen to today’s episode to learn more about financial diversification as a means of managing risks.

00:41 (Steve recaps the last episode.)

01:44 (Greg talks about J.P. Morgan.)

04:27 (Greg shares his experience as a Chartered Financial Analyst.)

11:50 (Steve and Greg talks about business venture.)

14:55 (Greg’s talks about ACG.)

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00:41 (Steve recaps the last episode.)

Steve: It is a fascinating story, first of all it's hard to top hot audit talk. But when you get into derivatives swaps I mean come on we're good, we're just laying it out there for these guys, pure gold baby. So now, I love nerdy stuff and I'm a kind of a longtime computer guy Linux and all that from way back. So I definitely appreciate the fact that you were the guy at a world-class firm still to this day, J.P. Morgan would be a top five, or top three firm, if not the number one firm. What a great experience, and what a great opportunity for you to be there on the ground floor. By the way, that image you painted kind of seeing that the stock floor kind of opened up that very telling. Because that exciting floor atmosphere was something I think drew a lot of young people and especially those numbers, fascinating that you saw that. Once you got to J.P. Morgan, you started in that derivative business did you find that resonated with you, did you like that more than anything? It sounds like you did.

01:44 (Greg talks about J.P. Morgan.)

Greg: I did. No question about it. I try to brush up as best as possible my visual basic skills and so I would create VBA scripts, to help. And then the whole question of valuation and linking into Bloomberg terminals and getting real-time valuation and front office to back office. It was just a wonderful experience and a great organization. But again Steve, it was just the scale which was just which just blew me away, I mean the notional value of these derivatives. Were in the hundreds and hundreds of millions of dollars. You speaking to a South African boy key, as we call him like a little South African guy, who was used to dealing with rands and Saints. It was just compelling for me and I thought it was almost like a puzzle, like I needed to figure out how this puzzle worked, and certainly most. So I had always been the case, but became even more of a market student went ahead and did my CFA and read all the market grapes, and the great traders, try to follow and understand. And I think that's when my education really did begin, because being an investor is very much again leaning back onto my psychology viewpoints. Being an investor is very much about knowing yourself. This so then maybe knowing the instruments that are out there and how the mechanics works. I'm sure we might get into that, but there was really where my education began and it was a self education, because you really need to understand your pain points. How much pain can you tolerate in the market? Or for that matter how much greed or are you predisposed towards, because you know there's a selling point for everything, there's a buying point for everything. And that's normally your own thermostat which governs there.

Steve: I think that's very well said. It is interesting how many people will buy into something at one time or another, that everyone else is selling out of, right? So that constant idea of trading somebody sees it as a good buy in, and somebody sees it is a good time to sell. That's a classic market. So the CFA that Chartered Financial Analysts, I'm guessing? That's definitely a level higher than the Chartered Accountant. What types of things did that take you into that, may have been different or unique or new at that point?

04:27 (Greg shares his experience as a Chartered Financial Analyst.)

Greg: Yes, I wouldn't say it's higher necessary. I'd say it's just a different tilt with much more focused on Investment Portfolio Management, Stock Selection, Fundamental Analysis, Technical Analysis. There was some behavioral finance as well. And then there was in accounting, and auditing ethics and compliance is a huge deal, but there's a different slant to ethics and compliance when it comes to managing money, certainly managing somebody else's money. It's a huge, it's all inspiring let's put it that way high and frightening frankly. When you're helping others with their hard-earned wealth. So there was definitely a very large section in the CFA around ethics and compliance around other people's funds, managing other people's funds.

Steve: Well that's good. That's a lesson that Bernie Madoff must have missed it here, a week at CFA camp. I'm not sure he had any credentials, but that is a common thing that entrepreneurs especially are worried about putting people into place, that may not have the ethics or may not have their best interests at heart. How do just regular laymen people out there analyze who's good and who's bad in that context. It seems like a tough thing to figure out.

Greg: It is, if I could write a book and it is super tough. At the end of the day, I believe we all have some level of got sixth instinct, if that's what it's called. And we can judge, maybe not consciously but unconsciously we can certainly judge others, or we have this funny feeling, you often hear I had a feeling about that. But I wouldn't certainly rely on that, first and foremost. So look, you've got to do your homework, you've got to understand who you dealing with, you got to understand their background. What they've done? What they haven't done? Any issues they've had. Now, the beauty about our space is that, there are a lot of regulators in the space, and there's a lot of compliance in the space. So if you've ever come across a regulator and we're found to be a little bit naughty or whatever the case may be. That's going to be on your record for example, is a record for a broker where all of this is recorded. And then certainly when you're interviewing somebody to invest money with them, they would have what's known as a DDQ, “Due Diligence Questionnaire”, which should theoretically lay out all that on it. Reference checks are also of paramount importance. So you've got to really just triangulate and try to get as much information as possible. And even then it's just not a foolproof process, I mean they are a bad actors out there, and they do their label there to show you that they're not very active.

Steve: Yes, it is amazing how some of the so-called bad actors are really really good and kind of hitting objections head-on. I've seen recently a presentation and they started out with, why the IRS thinks what I'm doing is a scam? And it's like that's a very interesting way to begin. And then of course they went on to say that this is why it's not actually a scam, but that whole argument came across very well. But at the end of the day, that sixth sense was tingling and the gut instinct is like “No, that's not going to work for me”.

Greg: It’s conditional to an element of salesmanship. And I'm not saying that's good or bad, but again, you've got to somehow peel across that layer, to know that it's not just salesmanship and it's something a little bit more nefarious.

Steve: Yes, I think for me, your advice is very good to triangulate and figure out from all that. Just like you would be in investigating any other resource, or any other long term, supply relationship. You try to find out as you said, referrals any background, any publicly available information, I think all that's important. To me, if there's a big upfront win for that firm versus a long-term aligned objective, where both parties kind of win the longer they're together? That to me is also a clue. What do you think about that? Let's pause here for a moment and take a quick sponsor break.

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Greg: Yes, that's a key feature. We always talk about a win-win situation. It's not always possible, but the opposite to that which I do find a very good yardstick is that, if you're in a negotiation, whatever you're negotiating a term sheet sale or whatever it is. The phrase, If both parties will walk away dissatisfied, you've probably come to the most equal arrangement. So no one gets everything they want, everyone gets a little bit put off, there tends to be the best win-win situation. Again, depending on the nature of the investment you certainly want everyone's interests aligned, and an alignment of interest normally takes place along a timeline if you will. So exactly as you said Steve, you don't want somebody getting everything upfront, and you getting the back end or vice-versa. You'd prefer to take less on the back end, but a little bit more upfront. So just so everyone feels like they are aligned, and that the incentives are got everyone marching in the same direction. Again, it's very easy to say that and explain it in a verbose way, it's very hard to do it in practice, as I'm sure you are aware.

Steve: I think it is just the nature of the beast. But I think as you have talked about it in a very transparent way, that's helpful and additive to those out there who find themselves looking and in the market. I know there's a lot of angst and uncertainty when it comes to investment especially when anatra or may have a liquidity event. Maybe they've taken a million dollars or two million dollars or maybe more off the table. There's kind of a sense that the entrepreneurs risks changes, the risk profile changes. Because now some of their chips are off the table, maybe all their chips from that present business. And they want to make sure that they preserve that capital. So do you find that sometimes the risk profile changes from when they operate in a business, to when they have that big old pile of gold from liquidity event?

Greg: Are you talking specifically to the entrepreneur or the business venture?

11:50 (Steve and Greg talks about business venture.)

Steve: Well yes. Let's just assume that the entrepreneur sold the business venture, so they're out of that. And they may have been kind of maverick hang it up and risky, and doing what they did in business to get there. But as soon I found anyway, I often the one they make the sale that their risk profile changes when it comes to that big old liquidity event. Do you find that as well?

Greg: Yes and no. How’s that for an answer. So what I find is that, it's blood sweat and tears to get a business off the ground, and to grow it to the point where you have a liquidity event. Well done kudos to whoever achieves that. And when they do have the liquidity event that they may want to take the foot off the pedal for a little bit and coast, and I guess gain some sanity back in their life. So absolutely, I would see the risk return profile of that person changing diametrically. Maybe there's a lot of things they wanted to take care of but couldn't, because it was all the chips were on black at that point, so that happens all the time. But then you get serial entrepreneurs who are just love the game, and they're out of one and maybe they go down to the beach for a couple of months, or travelled Europe or do whatever they want. But then, they're hungry for the game again, they're hungry for the adrenaline, or the excitement, or whatever it is, they're propelled them. And there go again, and maybe they're going into something again all on black, but this time bigger. Again, it's the propensity of their person it's their makeup, it's how they're built. But certainly the more wealth you generate, the more diversification you should have, it just makes perfect sense because you don't want to go back to Ground Zero. You certainly don't want to go back there.

Steve: Understood, I think that's very well said. There are certainly a number of serial entrepreneurs. Some of it may just be the love of the game somewhat as you said, or at least alluded to. It's in the hardwiring of who we may be.

Greg: It’s like breathing to some people.

Steve: Yes, I could tell you. That definitely it draws me back every time. I try to retire and I was miserable, so bad.

Greg: So you play like golf?

Steve: Golf was fine, but after lots of golf and lots of vacations it just got to be too much. I have to do something to keep my brain exercise. Let me ask you this Greg, the idea of maybe a common entrepreneurial problem. When somebody approaches you in ACG, what's a typical situation they may approach you with. Is there a common problem that they say “Hey, I've got this situation I need help with it”. Is that how they approach you at ACG? Or do you have a such a scenario?

14:55 (Greg’s talks about ACG.)

Greg: Well, as I said I don't wear two hats, but I have two primary roles, and one role is to speak with the clients, go through their performance and their accounts. Again, I am not the relationship guy or gal, they have someone on point that they can call all the time, that's not me. But typically on a quarterly basis, if the clients in the office or we go out for lunch, they want to hear from me, they want to hear about what is it that I'm thinking. Just to be clear, it's not an edict. I chair our Investment Committee, there are five of us on the investment committee. And those people all their voices and they all have different ideas and ways of viewing the market and again, it's my job to take that on board. But it's almost like a democratic organization where we have a vote on a change. So what I say doesn't necessarily go and thank goodness for that, because I don't better a hundred percent all the time. So that's one element is really just the spokesman, meet the client, shake the hands, and just give a brief synopsis of what we think the markets doing, and how they were accounted in performing. So that's maybe a problem or a role that I facilitate. The other one frankly, is the sifting through of investment ideas to find that one little Golden Nugget. I gotta tell you and if you think you can look at the industry Norm, you probably will have to look at 100 investments before you make the one. So, one or two out of a hundred, you got to step through and do some kind of due diligence before you find that one or two. And even if that one or two, you got a high likelihood then both of them are not going to work out. So it's actually very tough job to identify the winners from the losers. And that's certainly a problem that I've worked on my entire career and I continue to work on. And to refine myself, and to refine certainly the people that I talk to, and listen to, as far as investment ideas are concerned. So that's more art and in science, and it's not something I think I'm ever going to get perfectly right. But it's certainly a problem that I've taken on board and it's something I need to work on continuously, Steve.

Steve: Well I can see that it's endless almost treadmill of work to keep that idea flowing, happening and the betting process happening, so much to be done. When you guys had ACG and as I recall you're the CIO there, so I'm saying Chief Investment Officer, is that right?

Greg: That's right.

Steve: When you as a company look at things, are your clients going into individual deals, are they going into portfolio deals, how does it work for the client side?

Greg: Again, we favor diversification and so we run a number of strategies, will run for example a large kept growth strategy, where myself and some of my team are actually selecting the stocks. So we'll build a portfolio of 15 to 30 stocks and the clients will go into their portfolio of stocks. On the private equity side, we have some private equity funds if you will. And so client will never go into one single deal, but they may. If we find something that we really like and it's very compelling, we may show it around to some of our larger relationships and they may want to have a small bite at it. But those relationships would be very aware of the risks and rewards of one single deal. Clearly one single deal, has got much higher risk reward ratio than a 30 stock portfolio. So as I said diversification is always the key, you never know which one's going to work out, and which one isn't. And you always be surprised by the outcome.

Steve: Yes, that's a surprise. Sometimes they're good surprises, sometimes they're not so good surprises. That's just the nature of the beast. We're going to take another quick break when we come back, we're going talk a little bit about the future, maybe even whisper the word cryptocurrency. And I also get some opinions from Greg about some of the Differences of Investment Strategies, so we're going to be out right after this break, we'll be right back.

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