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Inside Look at Endowment Funds with Investment Director Greg Dowell, CFA

Greg Dowell, CFA is the Director of Investments of the Texas State Endowment System, and a 30-year veteran in alternative investments. In this episode, Greg talks about his experience taking an endowment he work for from 0% to 40% into alternatives during his tenure. He talks about his experience with David Swensen, the alternative investment pioneer of the Yale Endowment. He breaks down the “illiquidity premium” and what that means. And lastly, he covers how he applies these concepts to his personal investment portfolio and allocations. 

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Inside Look at Endowment Funds with Investment Director Greg Dowell, CFA

Today our guest is Greg Dowell, and we’re really excited for Greg to be joining us on this podcast. Greg is the director of investments for the Texas State Endowment System. And Greg is a CFA charter holder and has been in the institutional investment space for much his whole career working in prior family offices, as well as in the endowment system. And so, Greg, thanks so much for joining us, glad to have you on.

Oh yeah. I’m excited to be here and listen and learn and speak from my experience. And hopefully some folks will take it with a grain of salt, but hopefully you’ll pick up a thing or two.

I’m sure they will. And just as a recap for our listeners a lot of what we like to do in this podcast is look at how the ultra wealthy, the most successful institutional in the investors are investing and apply a lot of the principles and strategies to our own personal investment portfolios. And Greg, talk a little bit about kind your experience learning from David Swensen, who was a pioneer in this space, in the endowment space for the Yale endowment and how he pioneered-

Let set that up for a sec. So really this guy, Mr. Swensen, pioneered this for the Yale endowment, which became one of the most successful endowments. So just for people to know what endowment is, endowment is when alums or whatever fund this investment vehicle that is designed to produce income and profits that will fund the growth of a university system. So it’s basically an investment portfolio.

And what he did is, he completely shifted the entire thought about how institutions should invest and by really a heavy use of alternatives. And so what happened, he became so successful and so well known it pretty much shifted the entire industry into this focus on alternatives. And today generally these large institutions and ultra high net worths invest around 50% of their net worth into alternative investments. So talk about, you were one of those guys who ran an endowment and you were actually probably were aware of this. You were aware of the shift and a lot of the industry saluted him and took their marching orders from him and they didn’t tell you what to do, that’s what I mean. But really, he was leading this whole new charge. So talk about what happened that whole period, the transition and your experience?

Sure. I met David Swensen when he was promoting his book on portfolio management. Early 1990s, I started got out of Texas A&M University, went to the Air Force and then I had a finance degree out of A&M and switched over to the national guard and became an investment analyst in 1990 with a private family foundation in Dallas. And we shared the same consultant, Cambridge associate out of Dallas. So when David wrote his book, he was on this tour and there was luncheon with 10 other Dallas large foundations university endowments. And David was the beginning. And at that time, Yale and Cambridge, they were their pioneers, like you had said. And David was all about value. He wanted to buy a dollar for 60 cents on a dollar like most value investors. But he was willing to do things that was unheard of at the time and he called the illiquidity premium. And I reread this little chapter on the illiquidity premium. And what David mentioned in his book was how Microsoft, which was one of the largest… 1990s, you remember that was when Microsoft, Dell, Intel-

Yeah, they were the biggie.

Those four were the fangs of the 1990s. You had the fangs, it’s just another marketing term that wall street uses. But at the time it was the four largest. And Cisco, I think it was the other four. But Microsoft, in his book he talked about how the analyst coverage of Microsoft. And I think there was like 50 to 60 analyst covering Microsoft. And then he mentioned that another public equity had one analyst. And he kept saying smart people can look at Microsoft and you’re competing with 54 analysts, plus all the other thousands of investors that are going through the finances of Microsoft. You can compete at that level. Or you can go to the smaller, more unknown companies, and maybe you have one analyst coverage, or maybe not.

And so that’s what he said was the illiquidity premium. And I think it’s also funny is, back in the day in the nineties, the Wilshire 5000, which is a very large publicly index that people index, they think of S&P 500, but the Wilshire 5000, it used to have 5000 public companies, today it’s half of that. And it is really a lot of people, a lot of corporations have gone private because they don’t want to go through the SCC, have to beat the quarterly numbers, everything. There’s more private companies now. So there’s more ability to have illliquidity. And David Swensen or my job was to hire and fire millionaires. That’s what I said. I sat across some very successful people, I was willing to write a check, give it to them, and they go invest.

And the most successful managers we had were the ones that were doing more out of the index fund. You had the index funds, you can’t beat that, go get a cheap index fund. But David Swensen was find smart people and go after the illiquid or the uncovered equities or credits. And that’s what David did. Now it-

Makes sense.

Yeah. And it took… Our foundation, we went from in 1990, when I joined zero alternatives to fast forward to 2013, when I left, we had 40%. But it’s like moving a Titanic. People change, change is hard. And then when you throw in your own personal money, people are like, “Oh no, this is uncomfortable. I want to see it on CNBC.” We’ve all become CNBC watchers. And we like to watch the little ticker. Every second we like to see, oh, what did Microsoft do this tick, what did it do this tick.

Could you explain a little bit of what you mean by the iliquidity premium for some of our listeners may not know what that means?

And I’ll jump in there as well, because it’s well known fact that a private company selling cars is going to sell at a massive discount to a public company that is selling cars. If they’re both doing a hundred million dollars in revenue, the public company is going to have twice the valuation, the company valuation than the private company. And so there’s a discount for being private and we’ve seen the same thing in REITs. We’re well aware, everybody says, oh, real estate is the place to be in high inflation. Well, let’s go buy a REIT. And as you and I know, if you buy a REIT, generally the price to book value ratio is like five for some of these large REITs

So for every thousand dollars you’re putting into a REIT, you’re buying 200 worth the real estate. And he can call it the illiquidity or the liquidity premium, but it’s also the hype premium, it’s the amount of hype and interest creates a huge premium for this stuff. Whereas a little private company that’s just doing something. So does favor all alternatives and are going to be a lot of times private. And so they’re going to trade at a heavy discount for a value investor. For example, if you want to buy value real estate, you’re not going to buy it in a REIT. You’re going to buy bricks somewhere.

And part of the idea for that discount is, because of the lack of marketability, because in a public traded company, you can easily transact on your shares, but in a private company, you don’t know exactly.

And lack of visibility.

Yeah. Tick by tick for Microsoft, whereas if you own a private company that a cousin has to share.

There is no ticks, but sure.

A cousin has to share because the cousin wants to buy a Ford F-150 and he needs to sell a share of a privately held company. It’s going to take a while to get that thing traded because there is no open market. So the illiquidity premium is in the CFA world. You need to be compensated as an investor to go out and lock your money up into something that’s not tradeable. So that’s the theory of it.

So talked a little bit, just the evolution of the space, you’re saying 1990, when you joined.

And what was it really like a bomb went off. It seems like that, it seems like pre David Swensen, very light in alternatives in the institutional world, post David Swensen’s like best practices and what everybody is doing is paying a lot of engine alternatives. Was it like that?

It is, but you just have to realize from 1990, well, what is it? 30 something years.

Yeah.

So the light goes off, but it’s the Titanic. You have investment committees that a personal investment… My investment committees me and my wife, that’s the investment committee for an individual. For an institution, you have alumnis that sit on boards, they give money, they sit on the board and they might be a venture capitalist. Well, guess what? Everybody is going to say, “We have to go venture capital. If he’s a big check writer.” But it just evolved with the combination of the consultants out there. Cambridges and all the consultants start to say, “Hey, listen, you can go out and get…” Well, first of all, let’s distinguish what big distinguishing part between an institution and an individual is a time horizon.

An endowment is in perpetuity. A university endowment is going to stay forever. a private foundation, unless it’s got to turn specific date. There are some foundations that are term specific, but the family foundation I work for in perpetuity. So the consultants came to us and said, “You don’t really need to be able to trade your entire multimillion dollar, a billion dollar endowment tomorrow and turn into cash because you’re not giving it out. So you can take some-“

Take some private investments. Yeah, exactly. You don’t need liquidity. Yeah.

You could buy real estate. You could tie your money up into these three year, five year, 10 year lockup plans because you don’t need your fund. And that’s when everybody started saying, oh, from an institutional… Yeah. We don’t need our money.

Why pay for liquidity if you don’t need it? Yeah. Why pay for it?

Why pay for liquidity if you don’t need it? So then it just rolled out from there. And then more investment committee members became more knowledgeable and it wasn’t so scary to be. And I’ll be honest with you. When I came in 1990, our family foundation still had cash on the balance sheet from the 87 crash because the investment committee was scared, went to cash in 87, still had 20, 25%. Yeah, so the opportunity cost is huge, it’s huge. So it is an emotional thing and institutions have just as much emotional bound up in their own committees than an individual because they are made up of individuals.

Well, we’ll talk a little bit, I’d love to dive into what you’re saying. When you started in 1990 to when you left, you took the endowment from 0% alternatives to 40%. That’s pretty impressive. And also it’s a long… Yeah-

Oh, it was long, hard process, because we’d take two steps forward, one step back. You had the 1990 blow up, then you had the 2001 venture capital, the end of venture capital, as we know it, it was dead. And of course the first thing that members of our committee was, “Well, it’s all the alternatives fault.” And we’re like, “No, the public markets got marked down.” Sure the privates will get marked down too, but they would see that slice of the pie would go from 10% of alternative, all of a sudden to 20% just because our pie got smaller because of the public markets got small. So then they would start, “Oh, we can’t do anymore.” And we’re like everything else, when there’s a crash, that’s when opportunities really are there. When the subprime hit and subprime was trade, they were throwing out prime and subprime. And we were looking at some deals, we passed on some because we just couldn’t get the committees to say, “That’s a great time.”

So what were some of the alternatives that you invested in and really pioneered during that time with that typically real estate, private equity and hedge funds, is it in the mix?

There were no pioneering here, we didn’t do any pioneers. There were pioneers in our vernaculars, you got arrows in the back. And in the Air Force, the pioneers, we call it the bleeding edge. We didn’t do that. We got into venture capital, but venture capital started in 1970s out in Silicon valley. We were 30 years late, we were late, 20 years late on that. But we did venture capital, which was great, just not only computers, but biotech. We made a lot of money in biotech and we did… I have to admit, I remember sitting there in my office with the little letter and one of our technology was Siri.

And we’re like, what’s that? And it’s like the apple founder, Steve jobs. This was the only thing that he personally got involved. This was a story we’re told by our venture capitalists, sold Siri to Steve jobs. Says Steve jobs really wanted that voice because that was the best voice technology ever. And we made like 20 times our money on that. And it was just these tiny little companies, private that weren’t marked to market, but our venture capitalists seated it and nurtured it along and it got bought out by Apple. And that was some of great things, but we did private real estate, it was a big thing for us. And then the hedge funds, and the hedge funds were always sold to us as a diversifying strategy that could help mitigate some of that downside protection.

Because if you own Coke and Pepsi and the market crashes, Coke and Pepsi are going to go down. But if you’re in a long short, maybe he was short Coke and long Pepsi. So when Coke went down, you actually made some money that offset it. So we did the long short space too, but there’s a lot of arbitrage. We did a lot of arbitrage in the hedge fund space just to dampen, because it’s very difficult in an institutional world to go into a quarterly meeting and the market just crash. And the old joke was, oh, our 401k is now 201K. How’d our private foundation do? And if we couldn’t say if the markers down minus 20, we’d better be minus 10 or positive. Because it got really ugly when we would say, “Well, we also lost 30%.” You’re like, “Oh, you’re an idiot.” Well maybe we were, maybe we weren’t.

Yeah, it’s interesting. You’re mentioning hedge funds. So we do it an earlier episode, we went into hedge funds and what they are, how they work, where they advantageous. Do you remember the episode number by any chance?

It’s number four, somewhere around there.

But I encourage our listeners to go back and listen to that because I actually think that we’re going to see now where hedge funds have been pretty much underperforming by and large since 2009. And that’s because if the index is going one way, it’s hard to compete with a rocket ship that’s going one direction. And hedge funds typically can get you really close to the same returns as an index, but without nearly the amount of volatility and depending pull of course. So it’s probably a good time to start to revisit hedge funds. Some of the data that you found is really that they perform best in periods of volatility.

Right.

And so now that we’re seeing some volatility returning to the market versus just it goes straight up, hard to compete with straight up. So hedge funds might be a real good thing to look at for answers.

Yeah. Nothing compares to the public markets in a long bull market-

Exactly.

… when you can’t. You’re a 100% along in your passage strategy index, it’s going to win hands down when you’ve got… And let’s face it, America, knock on wood, thank God has been in a capitalist society, has been basically in expansion and growth mode now with the demographics and all that changes who knows what that’ll foretell in the future. But you’re absolutely right. If you think the hedge funds is going to outperform during extended market, I would say, boy, that you’re buying a wrong product. You really need to sit down and say, what does my hedge fund? And in our hedge fund, our portfolio on the institutional side, is there for one thing, make six to eight and if it’s really crashy make minus one to one. But just do not-

Six to eight returns. Yeah. And if it’s-

Six to eight, yes, single digits and you’ll be happy. I’m saying single digit during your market is up 15 or 20 and then make three or something when the market is down 10 or 15. So there are recessions and there are market corrections, that’s-

I think a lot of people aren’t aware of that fact.

No, I agree. There’s a great quote, Armageddon only happens once. At the end of the world, if it is truly the end of the world, it doesn’t matter what you hold.

Right.

But everybody that starts to… If the 5% down, okay, get ready, then it’s seven. Then it’s 10, market correction, market correction. And then if it goes to 15 or 20, sell everything, this is truly the end of the world. And if you’ve been around the markets enough or a student, you don’t have to be an investment professional. You just have to have some interest in the markets and take a look at it and say, “We’ve had a depression. We’ve had a 1918 pandemic. Everybody thinks the pandemic’s new. No, it’s really not 1918, 1919. It’s just a market reaction. And it’s the emotions of the market that people really have to get ahold of. And that’s one thing that’s different in the institutional world. The first thing I said was of the time horizon, institution is in perpetuity, but also the folks in the institution, we have an investment policy statement that real hard, tries to take the emotion out of investing, because if I’m just a Joe Guy with my own little nest egg, and I’ve worked hard for that nest egg, I’ve got 20 years of my nest egg.

I’ve got an emotional investment in that nest egg. And with that nest egg halves, I’m not the rational investor that the CFA and the theory is, I’m the irrational sale. And that’s usually is not a good strategy.

Yeah. Greg, talk a little bit about… This is where I’d love to just dive into how you’ve taken your professional experience as a investor of very big numbers for these institutions and translate that into your personal approach. What things do you bring from your professional background and what you’re seeing into your personal investment strategy and thesis?

Yeah. Well, okay. I would say probably since I’ve been investing for 20 years, I started investing in college with my $100 check from the United States Air Force. We would get a $100 to pay for an E-5. We’re in there getting ready to be commissioned. So we thought we had beer money. I was like, “Well, I’m not going to spend it on beer.” I’m going to invest this. Of course, I went down to my local broker, not knowing anything and bought a full fund. What was it? The fee was 6.5%. So you put an idiot. But this is 80, probably 83, 84. So you just start learning. And that just a great thing it’s learn early. So your mistakes aren’t with commas. You want to learn with $1, not a thousand dollars.

So when you lose the $1, it’s not a big deal, but when you start losing 1,000, 10,000, you’re like, “Oh gosh, that’s the impact.” So I started there, started trying to read everything I could. And I think what I found out is, there’s just a lot of ways to skin the cat. That people make money. My parents were very frugal and they invested their entire career through TIF KREF, which is just public index. Well it’s not timing the market whether I’m in and out, whether it is time in the market. And it was interesting, it was a very good exercise to get ready for this. I have one of my holdings, in July it’ll be held for 20 years. It’s a public sector for 20 years. And it’s still a pretty good site portfolio, but that’s not my longest holding.

My longest holding was, I was in a conference with Wellington capital management. Wellington’s a huge money manager. And we did some business with them. I was up for one of their annual meetings and come across the portfolio manager for their healthcare fund. Well, I was like, “Oh wow, this sounds interesting.” So I started looking because I’m always curious about things. Well not two weeks later, my mother-in-law says, “Greg, I’ve got a couple thousand dollars. What should I invest?” Well, I said, “Well, I met this guy that’s very smart. And I think healthcare is great.” This is probably 91, 92. And she bought that. She never sold a share. She has since passed on. And now my wife has got those shares still in that same Wellington front. And I was like, “That’s got to be 30 years.”

So what I’ve really learned is just get in the market and hold onto something. Don’t be a day trader. I don’t understand when that phenomenon was going on, I’m just like, that’s gambling, that’s not investing. Your viewers want to know investing. And the best thing I can say is, make an educated guess, get knowledgeable and then hold on through thick and thin. If you really like an investment. That intrinsic value, Warren Buffett, if you think it’s worth a buck, you analyze it and you say, this is really worth a buck. Whether it’s a piece of land, a publicly traded company or a note, a mortgage. If y’all think it’s a dollar and you can pay it for 80 cents, don’t you love it at 40 cents?

Because I can buy it at 40 cents, it’s still worth a dollar. And I think that’s what I’ve tried to learn is it is great to own something, but don’t get… Unrealized gains, it’s like water off a ducks back to me. Unrealized gain or unrealized losses don’t really matter. If I’m in a position and it’s down 20 or 30%, I’m more likely to add to that position because I’ve done my analysis, it’s still worth a dollar. But now instead of buying it 80 cents, I can buy it at 60 or 65. And then the other thing that I really try to do is, I really do try, my wife and I, we try our best. We say when the nightly news comes on and the headline is, the stock market had its worst day in a month or worst day. 1987 in the crash. I remember as a second Lieutenant, I was buying more mutual funds because I didn’t know enough and I didn’t have enough money that even if it did go to zero, I didn’t lose it.

Look how to do the opposite. Yeah.

But you have to be a contrarian value investor and there aren’t many. Most people are just driven by CNBC and watching it and getting emotional. If you could do nothing else, write it down on the piece of paper. Why did you invest in this fund? Or why did you invest in this mutual fund? Why did you invest in this stock? And then if it goes down 50%, why don’t you buy more?

The value’s still there, that proposition is still there.

But yeah.

So talk about alternatives. So how are you playing the alternatives game?

Sure. So I’ve got this portfolio that I’ve grown from Publix, being in the market for 20, 25 years. And now, unlike the university or a foundation, they don’t have to de-accumulate. They are for perpetuity, but Hey, I’m going to die. I hope not for a long time. So I’ve got to make those assets turn into an income stream. And I don’t really… I still say I have 20 years time to rise, but now it’s more of a cashflow game for me. So now it’s, what else can I do that’s not tied to the public market? And that’s where alternatives come into play.

So that’s where I’m looking for cash flowing because I like it at this stage in my life, not a 100%, I never do anything, a 100% but 10 or 15 or 20% into cash flowing. My wife and I have minerals, we have royalties that come in. Some people say, “Oh, that’s dirty, it’s oil.” It’s like, “Well, we’re from Texas. We grew up on this stuff. And you still drive cars and you still like heat in your homes until 20 years from now. Maybe we’ll have some renewables that’ll take over.” So we have oil-

Those investments are probably doing pretty good right now, right?

Oh yeah. I couldn’t give them away last year. We were looking at the checks that we were getting and we’re like, “Well, that’s not enough.” But all of a sudden, a hundred dollar oil, everybody wants to be in royalty. And again, you want to be selling that. And I actually sold a couple of our little public royalty plays, but it’s cash flow and I’ll just throw out like gold. Everybody likes gold and crypto. And like Warren Buffett said, “If I bought a bar of gold at the beginning of the year, at the end of the year, what do I have? A bar of gold?” I got no cashflow coming in and I have to pay somebody to store it. And cryptocurrency, I own one crypto coin. And at the end of the year, I own one crypto coin. What’s that worth? Well, whatever somebody’s willing to pay. Well, I’d rather have the cash flow coming from a high dividend stock or a royalty or notes, something that has cash flowing,

Because it’s earning something, it’s earning something.

Yeah. That cash flow that I could either reinvest that cash flow or I can go out and buy groceries with that cash flow. So I use alternatives now that I’m three or five years away from retirement, is to take some of that public money that I’ve stored up into my IRAs to offset that. So I’m less reliant on the public market, but I’m still… My lion’s share of my money’s going to be in the public market because people don’t understand, like Warren buffet says, our rich man poor… My kids, I bought them that book. I was raised by the poor dad. My dad told me, go to work, get a job, invest. That’s all you can do. Where the rich man go own businesses, or go own business. Or Warren Buffett says, I own businesses, but I own the greatest businesses in the United States, whether it’s Coke. He made a fortune in Coke.

So you can’t own businesses by being a poor person like me and you don’t have to be the business owner, you get more wealthy being the business owner. And I think that’s great, but you can also do quite well owning shares of businesses. If you’ll do this one thing, hold on to them for many years. Don’t get out, especially when the market’s down. That’s just the mistake you can’t make.

So talk a little bit of how you view personally the illiquidity premium. because you mentioned before, the difference between how your professional perspective and personal is time horizon. And obviously that is a big challenge. And some of these alternatives is the illliquidity. But we talked about another episode earlier on how some of the research we’ve found by Banning company and others, that most investors, individual investors overestimate their need for liquidity, and because of that maybe shy away from something that has maybe a longer lockup, like a three to five year lockup. When to your point, if you’re allocating a smaller slice of the overall pie to that, it’s actually not that big of a deal. It’s actually not going to cause heartburn down the road, if there is a cash crunch.

Yeah. So just like an institution that we have asset allocation for myself and my wife. And that’s the first thing you have to set down. And I don’t know who came up with the 4% rule. Someone did the 4%, and you take 4% of your portfolio out of your every year and your portfolio lasts for, I don’t know if that’s the right number or not, but it’s easy. I’m an Aggie so I got to keep saying simple. If you go 4% times five, that’s 20%. So if you have 20% in your cash, that’s five years, five years of cash, you have 80 percentage your portfolio that you can just go crazy. I’m not saying go 80%, but you don’t need the money. You’ve already taken care of five years. So that’s how I try to look at it personally.

But I’m a little bit more aggressive, I say four times three, three years for me. So about 10 to 12% in cash seems to me, plenty of liquidity. That’s how I say, so I would say, if you can take, let’s say it’s 20% on the liquid side. And I’m talking just straight CBDs, if you want to, or just straight money market. Then I would almost say you could barbell 20% because you don’t need it. You’ve got five years. So you could have 20% in three and five year lockups and you’d be fine because in between that 20 and that 20 there’s 60% that you can get your money if you need to. But you have to have that mindset of really sitting down with, how much do I need in liquidity?

Some people say, “Well, I got to have 50%.” Okay. If that’s your number, you can still have 10% or 5% lock up. So I try to put it in almost in the buckets and saying, “Truly, how much do you need? Do you need 5% every year?” Well, multiply 5% by… And most recessions, I think are 18 months on average or less than 12, there’s some stat out there. So recessions don’t last. And really, the reason you have this liquidity is because the bulk of your assets, which are in some kind of a public market, say equity, they can go down 50%. We’ve all lived through it, but they don’t go down 50% and stay. They do recover once the economy corrects itself and interest rates go up and cut down the demand and then interest rates start cutting, demand will keep coming back and companies will hire, earnings will go up, and all of a sudden it starts another market.

Well, your 50% down will come back and restore, all the while you’re taking money out of your liquids pot and your illiquid, you didn’t have to touch it, it’s illiquid. It keeps going for three or five years, but that’s the hardest thing on an institutional side because people get emotionally involved and, “Oh my God, I got to go access my illiquid stuff.” And you’re like, “No, no, no.” You sat at the beginning and it’s always funny, the asset allocation in a bull market, a 100% public equities, asset allocation, when you’re in the beer market, 0% equities, a 100% cash. There’s a median that you really have to sit down and say, through thick or thin, how much can you take?

And you need to have some illiquidity bucket because that’s where you can make more because people are not… Just like I said at the beginning, there’s not as many people chasing the little small private company or the little notes that people are buying are the mineral owners. They buy those things. I was talking to one of my friends in Dallas that owns a mineral fund. And he goes, when we send out bids to the land owners like me, I receive them every day, and not every day, but every week. He says, we base them off of four F-150 because the little landowner will get a letter. And he says, “Oh my God, Hey honey, we can buy a four F-150 with this.” And so they get it, not thinking that they just let a stream of years and years and years. That’s the most expensive F-150 that he’s ever saw, it’s what they do. They do an analysis and said, this piece of ill liquid rights, mineral rights is worth X. We’ll discount that, and they’ll buy the F-150 where it’s truly worth some big asset.

So last question is, where on the personal, private, alternative side, where are you most bullish on and looking opportunity wise right now? What are you most excited about in areas you’re looking at?

Sure. Well, I invested in some multifamily apartments here in, because I like to go kick the tires. So I was able to drive around them. I like that. I’m looking at the notes investing, because I do love that idea of having collateral. I don’t get the gold and the crypto, that collateral is based on whatever the market is. But a piece of real estate, real estate does have its 2008, 2009, where real estate does go underwater. But again, I’m holding things. I’ve got my liquidity bucket already taken. I’ve got five years of cash. If it goes down, that’s fine. I’m not going to sell this until five or seven years. So I’m okay with that. I like cash flowing alternative. Let’s just put it that way.

I like the cash flow, because we’ve been in a low interest rate environment forever. And if something is backed by real estate. Real estate loans, I’m looking into a couple of those or mortgage notes. I’m looking at those because it gives me cash flow. And then I can take that and reinvest them in opportunities that are out there. That’s the name of the game, is look for opportunities out there, get your liquidity right. And then time in the market, hold those things and let the market come back to you.

Yeah. I love that. I love the way you break down how you quantify the level of liquidity in the resource that we looked at on the overestimation of liquidity. That was actually helpful. In most cases, the lack of liquidity was actually helpful because it restricted people from selling at the worst times, when the emotion was kicking in and the crocodile brain takes over. Having the illiquidity is actually a benefit in those scenarios because, to your point, most of the time it recovers. And real estate came back, stock markets come back.

If you remember nothing, Armageddon again only happens once. It does come back, except when it doesn’t, and then it doesn’t matter what you owe.

It doesn’t matter.

I agree.

Well, Greg, this is really fun. Love your perspective.

Oh yeah.

And thanks for sharing some of those nuggets and you helping us all become better investors.

I hope so. Thank you.

I will say for our listeners, one of the challenges as a private investor is finding access to these deals and these illiquid deals. So we just encourage, if you’re listening, head over to our website, aspenfunds.us and get on our investor club. Because we’re finding a lot of these deals, you can take a look at them and we’re making them available to just a credit investors and simple credit investors. Find some of this great little alternatives yourself. All right.

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