JAMIE MCDONALD: Hello, I'm Jamie McDonald and welcome to Joining the Dots. Over the next half hour or so, I'll be summarizing the themes we're seeing throughout the Investor Masterclass series. The goal is to improve your understanding and retention when watching and rewatching these video and get you to focus on the most important aspects. Now, I should say right away that this episode is not to replace the detailed notes that accompany each interview. And we strongly encourage you to keep reading those notes as they explain in much more detail each conversation.

This tries to tie the interviews all together. You see, you can't teach experience, but you can sure as hell learn from it. And this series is distilling down decades of experience from some of the best investors in the world so that hopefully, you can learn from their mistakes rather than your own. Now, let's start with the bad news. There's no silver bullet here. And if you're looking for spoon-fed ideas, then this isn't for you. In fact, it's not really what Real Vision has ever been about. We won't guarantee that watching the series will make you money. But we will guarantee that it will help you avoid bad habits by getting you to come up with your own consistent approach and process.

And that's what makes money and that's what every single one of our guests has done so well and is what we so desperately want to impress on you. You'll see from the clips in this episode, each guest has developed their own framework. And that's been the secret of their success. Now, we want to help you arrive at your own framework, your own personal style of trading. Even if you've been trading for decades, this series will ask you to look back and hone it even further. So, join me, Jamie McDonald, as we listen to the vast experience of our investor masterclass experts.

So, the things we're going to hit are firstly, experience. During Real Vision Festival of Learning, Jim O'Shaughnessy said you learn more from being short one future than you do from an MBA. Now, that might seem a little hyperbolic, but there is some truth to that. It relates to not understanding something fully unless you actually go out and do it. You'll see from Chris Cole the strategy that he uses today was born out of his own personal trading accounts, much more so than what he learned in school or on the job. The point here is nothing can trump experience. You can start with $10,000 or start with $100, but whatever you do, start.

The second theme we're calling the voyage of discovery, and what's so unique about this series and why it's so important to go back and watch every interview, not just this summary, is that we talk to each guest about their background and their own path to mastery. Each guest is successful because they've leveraged their character, their background and their interests. And this is why investing is such a personal thing.

Everyone is different, not just in personality traits and risk tolerance, but in skill sets. Eric Crittenden, for example, he worked in aircraft manufacturing and it was there that he saw firsthand the huge hedging programs that they put in place, learning along the way that these were not for profit, and can become a source of alpha for those willing to underwrite that risk premium. Pierre Andurand was lucky enough to start out on the commodities desk at Goldman Sachs rather than the equities desk. Would we still be talking about him as one of the greatest oil traders of all time had he taken a different path? Perhaps not.

Our third theme is comparing fundamental versus technical traders. Chris Cole has a moment in his career where he said to himself, am I a market wizard, or am I Warren Buffett? What style you choose is again, a personal decision. And you can make money wherever you are on the spectrum. Just know, that's where you are, and that your decision and process should match with that style. Every single one of our experts agrees on that. Not everything, though, will be different between traders. And that's been such a fascinating conclusion of this series, that some investors appear so different, yet actually have real overlapping similarities.

Now, we'll focus on some more specific examples later when we look at clips. But as we examine these categories, it's important to remember that not one of these is right or wrong, because there are so many different ways to invest successfully. The essential thing we want you to learn is context. Just because someone else is doing something you think is smart, it doesn't mean it will work for you and your framework. You have to consider not only the idea, but also the context around it. And it's fit in the overall framework and lifestyle of that person. For instance, you might like what a day trader has to say but unless you can or are willing to be glued to the screens every day, mixing their ideas with your framework might lead to bad results.

For example, have a look at how Russell Clark thinks about a trade. He's very fundamental and waits for an inflection point to ride the wave of one big trade. Jerry Parker, on the other hand, he's more of a technical or systematic trader, he doesn't care if it's Tesla or Bitcoin, he has a set of trading rules that he applies to any asset that follows a trend. And to be honest, all of us fall into one category or somewhere in between.

The next thing to highlight is discretionary versus systematic trading. Are you better suited to defining a process for yourself where the takeaways after the process have a level of discretion or defining a set of strict trading rules that you never ever deviate from? Within the former, you're looking at various different forms of macro and micro analysis that suit your skillset and then making sure you run through that process each time you book a trade, whether it be buying the dip in gold or shorting Australian banks. The point is that you have a process which includes things like idea generation, valuation, market perception and catalysts.

You have certain steps you go through when deciding whether to trade a security and in what size. And for this, we'll take a look at Ali Akay, and what steps he has in place to make sure that only the best ideas make it into his portfolio. On the flip side, you may be better suited to not caring at all what the security is or what its fundamentals are. You only care that it follows a pattern and that you can profit from it. Jerry Parker and Jason Shapiro have some excellent commentary on how to approach this, so we'll be sure to watch some clips from their interviews.

Lastly, most portfolios favor long vol or short vol. Now, obviously, there are hybrid approaches, actually, with the exception of Chris Cole, who runs an explicitly long vol strategy, but most are not directly long or short vol. What this means is that most strategies take on characteristics of one or the other. Michael Vranos is buying highly illiquid, structured credit. Dislocations in the market i.e., vol spikes can cause his positions to deviate massively from the fair values, but he recognizes the risk partially from experience. And it's one of the main reasons he went about structuring his firm as its own prime broker so that in these vol spikes and liquidity crises, he's not a forced seller.

Others like Pierre Andurand, Russell Clark and Jason Shapiro are explicitly looking for these turning points and profiting when big trends reverse. Pierre and Russell doing so with more discretion and fundamental analysis, while Jason is doing so based off of technicals with very explicit risk management rules. Some like Brent Johnson are doing a bit of both. He views almost everyone as short vol, and believes it's his responsibility as portfolio manager to focus more of his energy finding the best ways to gain long vol exposure, even if most of the gains are coming from the short vol side of the path. Right, with that quick summary behind us, let's begin.

JASON SHAPIRO: Well, talking about 30 years of experience, right? Back then I was just a kid that was just swinging for the hell of it. Now, I have a process that I use, a very defined process that I use that clearly, part of that is it defines my risk on every trade, right? So, I can't blow out, but it would take me a very long time, it would be a million paper cuts in a row before I could even lose 10%. I've had three what I would consider horrible months in a row here, and I'm down like a total of 1.8% or something like that over that period, every three months, I can do that, and it would take me what? 40 months, 43-month periods like that to blow out.

So, you're talking about, it would take me 10 years to blow out in that situation. So, yeah, as you get older, and also managing other people's money now, it's not like when I was managing my own money as a kid, there's a lot more responsibility to it and I understand now, things like the volatility of the returns, things that back then I didn't even know what that meant, or care what that meant, right?

CHRIS COLE: Yeah, it was in my personal account during the time period. And although that was allowed by Merrill, it was obviously cleared by Merrill Lynch. The way I looked at VIX futures back then, all day, I would work with yield curves and looking at swap curves. And I would structure things like swaptions, caps floor, and exotics. So, I looked at VIX futures in a similar vein to a fixed payer or fixed receiver swaps. And I looked at the options on those VIX futures as similar to swaptions.

So, I believe that there are intellectual crossover between the rate markets and the VIX futures market at the time. Obviously, there are differences there but intellectually, they were cousins in my mind, so it made it very, very easy to make that transition. Naturally, as someone who structured derivatives professionally, I was naturally comfortable with measuring the range of risk in those instruments as well. But it really touched off the concept of learning about turtle traders back in the 1980s and understanding how systematic trading strategies worked.

I just began to apply that that framework with some of the new tools I had taught myself and learned, and then really just began to apply systematic trading strategies with long vol bias all the way back in 2007. And really, that resulted in, first of all, tremendous life changing opportunity. I was able to multiply my personal capital greatly insulate my family from the risk that they had experienced in the drop in markets in 2008. But it also set me out on this new trajectory of focusing on long vol solutions.

JAMIE MCDONALD: In this section of the video, we're going to try and force home the unavoidable truth that there's, unfortunately, no shortcut to experience. And this is particularly true in investing. Because this is not like learning a language or math, there isn't a textbook you need to work through. This is because learning your investment strategy has to be you. Because everyone's different. It might sound like a very trite thing to say, but it's true. Everyone has different amounts of time to allocate to trading, different risk tolerances, different areas of interest and different goals in life.

Think about it. If you find mortgage bonds extremely dull, then you're far less likely to be interested in them, and less likely to perform well trading them. So, make sure as a very first port of call that you pick assets or companies that genuinely interest you, and then the hurdle to researching them just disappears. In fact, it becomes enjoyable, and your level of engagement is naturally higher. It sounds like a very obvious thing to say but it is important. Listen to Pierre Andurand summarize it.

PIEEREANDURAND: And so, the more I read about it, the more I thought it was interesting because it touches everything. You go from-- you have to understand how the world works and the big picture, so macroeconomics, geopolitics. But you also need amounts of psychology and then a bit of math as well and stuff like that. And I thought also I would get to live in big international cities and meet interesting characters along the way. So, I thought it was a lot more exciting than becoming an engineer focused on a very, very specific problem that's very complex and not really understanding the big picture.

So that's what actually seduced me. And I thought-- I always had the confidence since I was young that if I found something that I really liked, I would put my energy in it and become good. So, I was fortunate to have that confidence. And I thought it was quite close to a competitive sport as well. So in swimming, you're measured by your time. Here you're measured by the return on investment or amount of money you make so.

RAOUL PAL: Yeah, it's amazing. Because it's a beautiful puzzle. Macro's so great because it's a beautiful puzzle that you can only solve with small moments in time and you get rewarded with money when you get it right. It's great.

PIERRE ANDURAND: Yeah, exactly. It's close to a competitive sport, it's close to a game as well and it helps you to understand how the world works.

JAMIE MCDONALD: The second thing to say and it's a constant theme amongst our guests, is that you need to use your own character and background to find your own investing style. Let's take a look at some examples.

ERIC CRITTENDEN: So, when I was in school, I had a job, I was an intern for a financial advisor, and it was one of the largest financial advisors in the state of Kansas. And my first day on the job was during the Long Term Capital Management. So, it was in August. And he was a small cap guy, small cap value. That's what he did, overweighted. So, I had a lot of learning to do quickly from him, there were panicked clients. I think he had 800 clients.

So, I was on the phone. I was learning a lot about investor psychology and cognitive psychology, emotional pitfalls, things like that. So, I did that for a while, and then I moved on and became an accountant for a major aircraft manufacturing company there in Wichita. So, I learned about hedging, cost of production, things like that. That was not very interesting, but it was very insightful. I learned a lot about how hedgers think, and what they do, and why they participate in the different, like, aluminum futures, copper futures, and so on and so forth.

After college, and I'll answer your question, after college, my first job, I became a teacher. So, I taught at an inner-city community college, and I taught intro to computer science, business math, Microsoft Excel. And that was challenging, because I'm not-- or back then, I wasn't a very extroverted person. I showed up my first day wearing a suit and tie, carrying a briefcase, and I think every kid in the class threw things at me on that day. So, I learned quick that just check your ego at the door, go in there, and make it interesting. But again, I learned a lot about how to relate to people and make complex topics that, on their own, aren't very interesting to people somehow relatable, and make them interesting.

CHRIS COLE: Well, my first love before I got into investing was actually film cinematography, special effects. I was experimenting at a very early age in that world, and obviously SC USC was one of the best film schools in the country. That was really a target of mine when I was younger. Of course, I obviously went a different direction since then, but I think the experiences of working on film sets, I think, have really been a valuable asset in terms of thinking creatively, the merger between creativity and technology, that's been something I've always in the early part of my career was a hard thing to get over because I think people held a bias. As I've grown older in my career, I really see that unique cross-section as an intellectual diversifier for me.

JASON BUCK: Was there a specialty you had at film school?

CHRIS COLE: Yeah, I focused on cinematography. I was always enjoying the cross-section, I always looked at cinematography in a very similar vein to-- I looked at it probabilistically. Because in the old days, you had a film stock, and the film stock reflected a probability distribution. When you're trying to set your lights on a film set, you're trying to, in essence, match the probability distribution of that film stock by the range of different light conditions. It was this interesting cross-section between technology and art that I really enjoyed. Of course, that's way in a past life. It's been probably over 20 years since I picked up a camera, but it's still something that I'm glad I had those experiences. I don't think I'd be the person I would be without them today.

JAMIE MCDONALD: So, here we see Chris and Eric start off in very different industries, then extract from those industries elements that fascinated them that they could use to make money investing. Eric's point is that he saw something happen that he thought was impossible in the world of investing, companies taking large positions that they typically would never take but do so to unlock other benefits. And this was his lightbulb moment. Inefficiencies do occur, and so, he pounced.

Chris on the other hand, well, his takeaways are a little more tangential. But he always loved the marriage of art and science in film production. On the face of it, that appears not to translate to trading at all. But when you think of it in the context of portfolio construction, it's everything. Remember, you are not judged on the performance of single trades, but on the performance of your entire portfolio. And that means you'll have positions on you don't necessarily agree with, but are necessary to give you protection. You can't win a soccer game with 10 strikers. You have to have defenders in the team too, and mastering that concept of framing in the context of your portfolio is paramount when it comes to overall returns.

JASON BUCK: I have a thesis that when most people have their entree into the markets, they either come from the world of Buffet, or they come from the world of Market Wizards, and it shaped the way you think about markets. You referenced the turtle traders. Was that your impetus, or is the way of thinking about markets is the unknowns of the market wizards and having systematic processes?

CHRIS COLE: When I was young, I tried both. Literally, when I was working on film sets, I would come home at night, and I would do fundamental research because I have a CFA. I was the only person in my Merrill Lynch analyst class with a CFA and an art degree. I was a really weird duck. That's a strange combo to have passed all three levels of the CFA and to have this art degree, they just didn't know what to do with me. I put on that value hat back in the early 2000s, which was a great time to be a value investor. I tried that on for size.

I tried a whole range, I read the Larry McMillan's book and tried a whole range of option trading strategies. Then I began to develop my own systematic trading strategies. Really, at that point in time, I was really open minded. I was trying a