If you're even remotely interested in personal finance or wealth building, you've likely heard of Todd Tresidder from Financial Mentor. If you haven't yet, well, then we've got a special treat for you today as Todd joins the Option Alpha podcast in this exclusive interview. Naturally, he's got an incredible resume having spent much of his time in the Hedge Fund space before retiring at age 35, but it's the actionable and real-world investing experience that backs up all the accolades he receives.
While Todd covers each area with such a simplistic and rationale approach, don't be fooled by the power behind the system and thought process. These principles are critical to your financial success moving forward.
About Todd R. Tressider:
- Todd graduated with a B.A. in Economics from the University of California at Davis.
- He is a serial entrepreneur since childhood, building many businesses and retired at 35 from his position as a hedge fund manager where he was responsible for $20 million in portfolio value.
- Todd’s portfolio management produced almost 100% winning years, aside from one, which was a loss of less than 5%.
- After he left the hedge fund world, Todd dove deep into real estate investing and has extensively written about how he sold all his real estate before the crash of 2008.
- Today Todd is a financial educator, author, and publisher who has developed mathematical and statistical risk management methods for the markets.
- He is considered one of the early pioneers and experts in developing computerized trading models for the markets.
- Todd has worked in all three major asset classes and tested most investment strategies that exist through computer modeling.
- Todd continues to coach clients on wealth building and is still an active investor who earns consistent investment returns in both up and down markets.
- In the interview, Todd shares his investment thought process, the reasons behind his strategies, and how he acts on them.
Focus of the Interview:
- "There are more ways than one to skin the cat” — you do not have to be a master of all of them, you just have to find one that works, has a positive expectancy, and leverage it out.
- Even though we are in different trading spaces, we both have a laser focus on mathematical expectancy and systematic approach to investing and finance.
- This ultimately will determine our growth rate and ability to generate wealth in our portfolios — two different areas, one similar approach focusing on the same fundamental aspects.
- Most portfolio asset allocations are so similar over time that the differences are essentially meaningless — measured over decades they converge and are within 1% compounded of each other.
- When it comes to the passive asset allocation formula, the key thing is just controlling your expenses. For example, through low-cost ETFs or Vanguard index funds.
- The markets are not efficient. The “bubble du jour” right now is the bond market, and there is nothing efficient about it.
- Buy and hold is 100% a completely valid strategy and has been proven through extensive research that it does have a positive expectancy if held for a long enough time period.
- One of the primary problems with buy and hold is that there is unmanaged market volatility, which introduces a sequence of returns risk.
- Buy and holders believe they are managing risk through diversification. The problem with diversification as a risk management tool is it works the 95% of the time you do not need it, and fails the 5% of the time you do need it.
- Diversification is dependent upon non-correlation to bring benefit to your portfolio. It stands on the foundation of non-correlation of the assets in your portfolio.
- The non-correlation of assets works well during normal economic times and fails during the big bear markets where most of the assets correlate to the downside. However, during big bear markets is when you need risk management desperately.
- Different average returns will get quoted depending on what assumptions you use in your strategy; time period, dividends included, adjusted for inflation.
- Managing market risk is a mathematical truth and it matters to the money you can spend in your portfolio and it must be managed.
- The essential nature of buy and hold is that you must accept market risk to receive a market-based return. In order to do that, you will endure extremely large drawdowns; 50% drawdowns to receive single-digit compound returns. This is an unacceptable risk-reward relationship.
- There are two primary phenomena in the markets, based on statistical realities that can be quantified and exist in the data: 1. Reversion of the mean and 2. Serial autocorrelation/trending behavior.
- Considering the bond bubble, you have to ask: how can you reduce the risk and where do you redeploy the assets? Just knowing to eliminate the asset class is enough to prevent major losses.
- There is no such thing as a good investment. What there is is a valid investment process, which has good investment cycle through it — focus on your investment process, not the product.
- Volatility can either be your friend or foe depending on your investment process. Your investment process either harnesses volatility or endures volatility.
- Since volatility is present for the foreseeable future, it is better to employ investment processes that harness it rather than enduring it — accept that it is going to happen and take advantage of it.