Cullen Roche on the Art of Building a Perfect Portfolio

Cullen Roche (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, I know everyone is really into, what's the hot stock these days? Nvidia, how do I play the AI boom? It's interesting, you can make a lot of money, get the right stocks. I love the general topic of just optimal portfolio construction. It seems like a fascinating puzzle to me, how to fit different types of assets together in one coherent thing.

Tracy Alloway (0:46)

It always felt to me like a study in behavioral science, almost, because I think everyone always says, just invest in an index fund or maybe 60-40, although as we saw in 2022, that has its own problems and we can talk about that. But I think this is the one area in people's lives where they actually crave complexity. It doesn't sound right to be like, just put your money in an index fund and forget about it.

Joe Weisenthal (1:11)

I know. It's like the simplest investing strategy is the hardest for people. It's really hard though when you see people making life-changing amount of money, it's like, oh, I was in Sandisk, right? Suddenly, everyone wants memory because of AI and they're up 500 percent in a year. It's like, damn, I'm really happy with my 12 percent a year that I've been making. But it's really hard.

Tracy Alloway (1:36)

I was 100 percent invested in a leveraged Doge ETF.

Joe Weisenthal (1:40)

Yeah, right. If you did that and then you retired the next day, I'd be really annoyed. I'd be really upset. But it is a fun puzzle. You mentioned 2022 and we saw what we've seen really since COVID, what we've really seen since the worst inflation in 40 years, is that some of these portfolio constructions that worked very well for a very long time, particularly anything that resembles that 60-40 thing, which just worked so beautifully in the 2010s, but even before, it hasn't worked as well. I think you're still doing fairly well. But yeah, so the question is like, well, I remember we asked Bill Gross, why even own bonds at a time?

Tracy Alloway (2:19)

He was like, well, don't.

Joe Weisenthal (2:21)

Yeah, he don't. He's like, I'm in pipelines. That's where I'm getting my, or I'm in whatever, MLPs or whatever. That's where I'm getting my yield. But yeah, I think there's some real question about like, why own treasuries? Why own whatever, et cetera?

Tracy Alloway (2:35)

Well, the other thing is timing. This is the thing that everyone has to consider. In 2022, if you were about to take out a big chunk of your portfolio to buy a house, or if you were a retiree and you needed to make some chunky payment, you were really, really unlucky in 2022 if you would take everyone's advice and invested in a 60-40 portfolio. This is the other thing, you can try to smooth out returns, but your own spending is gonna go up and down quite a bit.

Joe Weisenthal (3:06)

There's one other issue that I think a lot about with the very standard, and it sort of relates exactly to this, with the sort of standard advice. So in theory, it's like, we're not supposed to time the market. You buy the highs, you buy the lows, et cetera. 2020 was a great time to buy. March 2020 would have been a fantastic time to buy. The problem is, layoff surged, and there's this sort of phenomenon where often the best times to invest in the market are when you don't have a job and you don't have a new job. And actually, yeah, they always say, don't sell, don't panic, sell at the bottom. There's a good chance that's when you might need to sell. That's maybe when you lose your job or something. The ability to sort of mechanically actually follow the rules, setting aside behavioral stuff, just the ability to like have the income or have the ability to like hold through drawdowns, buy the dips, et cetera, may not even be possible.

Tracy Alloway (3:57)

Absolutely.

Joe Weisenthal (3:58)

Well, anyway, I'm excited to say we really do have the perfect guess. Someone we've had on the podcast before, also someone we've just known for a very long time, one of the most interesting thinkers in the realms of investing and portfolio managing and so forth. A voice of sanity, I would say, which is very rare these days. We're going to be speaking with Cullen Roche. He is the founder of Discipline Funds, and he is the author of a brand new book called Your Perfect Portfolio about exactly this topic. Cullen, thank you so much for coming back on the podcast.