Trey Lockerbie (03:19):
Were you feeling left out? Meaning, you saw yourself pitching products to these clients of yours, say at Goldman Sachs, and knowing very well that you yourself didn’t have access to those products?

Joe Percoco (03:31):
I was an M&A banker at Goldman Sachs, so we helped companies buy each other and go public. I was there doing M&A and IPOs. But being in the world of finance, I was privy to how people were managing their capital. And they were doing all these different sorts of things.

Joe Percoco (03:49):
Some people had a person that would coach them on a quarterly basis with what to do. Other people were getting access to these exclusive sorts of funds and deals. And here I was with very meager savings and student debt, having all of my money in a Bank of America checking account. And it was unbelievably difficult to literally try to figure out how to just become invested for the first time, let alone try to do it the way you thought that cool kids and the sophisticated kids were doing it.

Joe Percoco (04:19):
Because once I did get over that curve, it almost felt like someone was handing me the McDonald’s menu. And I’m like, wait, but what about over there? I’ve heard of all these things, why are you just telling me diversified ETF? Hold on. I didn’t hear that word spoken at Goldman. I didn’t hear that word spoken amongst the most sophisticated Wharton investors I know. Why am I being told that? And so I just asked a series of a ton of questions and I did not like the answers I got. And so ultimately, that pushed me to go do Titan.

Trey Lockerbie (04:52):
Very cool. With Titan, the sense I get is that you’re appealing to a younger audience. You mentioned Fidelity. This is sort of the, I would say, almost archaic comes to mind, but it’s been around forever. It’s managing $4 trillion. It’s an institution, but mutual funds certainly have fallen out of fashion, so to speak. So what in your mind is the appeal that you’re bringing differently with Titan to, say, younger audience?

Joe Percoco (05:19):
There’s only three use cases in the history of humankind with respect to investing. One is make it go away, that someone called Jack Bogle invented a button in the ’60s, push button, whole supermarket is in your cart. Great. We have that.

Joe Percoco (05:38):
The next thing is get out of my way. I’ll only do whatever the hell I want. Let’s say, I’m Trey. Just let me do whatever the heck I want. Bing bang boom. That’s been around since let’s say the Amsterdam Stock Exchange. You could trade a share at the [Duchies Syndico 00:05:51]. Goldman, E-Trade, said, stop your yelling and screaming, Trey, on the town square. Guess what I’m going to put on the internet? Robinhood basically said, look, mom and dad, look what happens if I put in a mobile app.

Joe Percoco (06:01):
The third use case is the oldest and the largest, which is I, Trey, want to give my money to someone or something to do this for me. And when you take a look at what has been the platforms and the operating systems to solve for that, originally, it was just pen and paper. Let’s say like the error of the Phoenicians ship Voyager going out to sea saying, hey, of all the goods I’ve been bringing back into port, I’m going to keep 20% of it on the ship. The rest can go into the market.

Joe Percoco (06:27):
Now you have Two and Twenty hedge funds. You have mutual funds, you have ETFs. And so we basically looked at that and we said the factory that produces a vehicle for a manager in the front to drive someone in the back and their capital to a destination, those technologies are pretty old and they’re pretty bad.

Joe Percoco (06:46):
One is called mutual fund. Another is called ETF. Another is called hedge fund. Another called venture fund. All these jargon terms spoken in elementary English are just literally a piece of technology to connect two sorts of two types of people on earth. One who have money and another who claims they can do something with it. And we say, rebuild the factory. We can ship what we think our Teslas compared to the old school diesel trucks. And so that’s what we mean when we simply summarize this as we’re building the next Fidelity. What I mean by that is we’re building the next platform to solve for that third use case that I described.

Trey Lockerbie (07:24):
Speaking of mutual funds, it’s interesting to just reflect on what those are, because they’re obviously still around and doing great. But I’m reminded of the Tony Robbins book, where he calls out mutual funds saying that they’re basically the enemy of investors, and it speaks to the fees involved. Have the fees come down? I mean, obviously to stay competitive with the index funds that have become so popular, the passive ETFs. Has that changed or is that still around?

Joe Percoco (07:49):
Mutual fund fees are definitely coming down and then you have others. So going back to that, we can almost do a quick tour of, all right, these vehicles being shipped from the factory, what’s winning, what’s losing, why? All right, so let’s call it vehicle type number one or let’s call it diesel truck A, mutual fund. Black box product, layers and layers of fees, not even just the front load fee that Trey faces, but let’s call it the sales commission, the redemption fee, layers and layers of fees.

Joe Percoco (08:19):
Oftentimes, they cannot drive to the places clients may want them to go i.e., forget it if you’re going to try to invest in a crypto or NFT mutual fund. And the managers who actually are driving a car oftentimes don’t identify with the actual core clients. So it’s a mutual fund product need some updating.

Joe Percoco (08:41):
Let’s say you have then another sort of vehicle. You can call the hedge fund or venture vehicle. Those have, if you look at a decade basis, of actually doing not too bad. Some people may say there are too many venture funds. Some may say there are too many hedge funds, but fees have largely remained in the hedge fund world. They’re obviously compressing a bit just south of Two and Twenty venture. It can be bipolar. Death venture funds can maybe go up to like three and 30. The worst, you have to take worse fees.

Joe Percoco (09:10):
But the human behavior of, there’s opportunity in the world for me to deploy my capital i.e., maybe there’s stuff going on in China, can someone go figure it out for me? Or can someone figure out which of these crypto protocols should actually be invested in? Or should I go invest in Apple, Microsoft, Facebook, or Google? So that’s more of a, let’s say, blue chip sort of vehicle.

Joe Percoco (09:33):
That human problem has been around for a long period of time. And so something I think through is what sort of will be those next vehicles going forward. How do we take a full inventory of all the bad stuff about the current vehicles and the good stuff, and then leave the bad behind and take the good and then go innovated on it.

Trey Lockerbie (09:54):
Very cool. The reason I was kind of bringing it up is because it takes a lot of courage and audacity almost to take on such an establishment like Fidelity as you are. I mean, this is a big undertaking. And so the thought is always what’s the competitive moat you’re bringing to the table, what’s different, what’s something they can’t replicate just by lowering their fees to match your product, so to speak. So what do you think is the secret sauce?

Joe Percoco (10:17):
I would say, so right now, we’re approaching about a billion of assets. We’ve got 50,000 clients. I think it took Fidelity 30 years from the first launch of their product to get to cross their first billion of assets. We’re going to do it in sub-four years.

Joe Percoco (10:31):
Reason being is when you’re building a factory that ships Teslas, you can provide an order of magnitude better customer experience. The Tesla can actually drive to different places. And more so, the factory itself, almost if you use the analogy, creator tools, if you think YouTube creator tools. One’s a creator, you log into, let’s say, admin.youtube.com. And you’re like, okay, I’m a creator. I want to create a video, and then I’m going to analyze it. It’s doing well. And I can create these different types.

Joe Percoco (10:59):
Imagine if you took that same two word phrase, creator tools, and you applied it to the lens of the financial world. What are the creator tools for people who think and they’re qualified to create financial products? It’s five or six different fragmented companies piecing together a bunch of different service offerings that eventually say, okay, hit the go button, your vehicle’s off to the races.

Joe Percoco (11:22):
And so, to your question on moat, we think there’s a whole new platform to be built here. And when there’s new platforms that can hit possibly super scale, you basically have in a moat, you have network effects. There’s first mover effects. And then ultimately, all things boil down to very simply, can innovation get distribution? So can new companies get scale before older companies actually innovate. So that’s the grand question. So that’s why you see a lot of companies like us looking to scale as fast as we possibly can so that we can reap the network effects from a platform-based business.

Trey Lockerbie (12:03):
Now, when you say platform, talk to us a little bit about the strategy to empower even other advisors who don’t work for your company but might be able to use or access the tools that you’re building to then serve their own clients.

Joe Percoco (12:17):
So the whole master plan is we’re going to build this new factory. We’re going to ship Teslas. We’re going to put our own drivers in these Teslas. Let’s call our investment managers in house. And then once we’re good, we’re going to open it up, and we’re going to let up their people drive this technology out of our operating system.

Joe Percoco (12:36):
And so the goal is that we can power the whole sedan. So if someone wants and, in particular, offer people things that never came out of the factory before. So if you’re Joe Percoco from Hillsborough, New Jersey who went to Penn and Goldman and couldn’t figure anything out, and in particular, couldn’t get into venture, you can then go to a platform like Titan and finally get access, for instance, to a venture-like product.

Joe Percoco (12:59):
So for me, the thing I think about is like, all right, 10 years forward, 20 years forward, what do we absolutely know is true about the customer and then work backwards. So the Treys and the Joes of the world, they will want better user experiences, not worse. They will want access to a full menu, not less. They will want things at the lowest fee possible, not higher. And the creators creating these products will want access to the best creator tools, not worse.

Joe Percoco (13:25):
And so each dimension of our platform, we’re looking to hit one of those four things. So knock on wood, I think there’s not one, but several iconic household companies to be built here, if it’s anything like history. So like Fidelity, BlackRock [to your price 00:13:41], Vanguard and so forth. And usually these things, once they’re at scale, can last for many decades and they usually have dozens of products on their platform.

Joe Percoco (13:51):
So it’s less. They usually start out, here’s our flagship three products. We create our brand and then they’re like, a lot of people want access and to launch their products on us so we’re going through the same journey.

Trey Lockerbie (14:03):
When you were speaking earlier about the approach of, get out of your own way. I can very much relate to that, because my experience was making a little bit of money, not knowing anything about investing, talking with a investment advisor of some sort that a friend of a friend of my dad’s knew or something, and they were like, okay, great. Here’s what we’re going to do. We’re going to sit down and talk about how much money you’re willing to lose.

Trey Lockerbie (14:30):
I was like, get out of here. I got to retire off that. I can’t lose any money. And so I was like, this guy doesn’t know what he’s talking about, I’m going to go figure this out for myself. So it’s an interesting place to start. And I think maybe a lot of other people my age relate to that, but it’s driven to the rise of things like Robinhood as you highlighted, what would you say is “wrong” with retail today? And what’s so bad about yolo-ing into a meme stock on Robinhood?

Joe Percoco (14:58):
I love the thought. I definitely would be more forgiving with language because I was there, so I’m deeply empathetic. I don’t think there’s anything wrong with retail. What I’m really hopeful for is that we can get folks to a better place of education. It blows my mind that the way the world works, this whole video game called Earth.

Joe Percoco (15:19):
You wake up, you’re born. And there’s like, okay, you got 20 years to just learn stuff. And then you’re off to the races. Good luck. If you want to go by that thing, you need these amount of points in your little account called your bank. You want to go and get that thing, need those amount of points. And the currency to get that points is money and the predominant way you get more points in your little piggy bank is you either go get more salary or you invest your capital and it grows.

Joe Percoco (15:44):
And it’s wild that no one ever has that conversation with folks. Even before you get into those three use cases I was describing, do you even care? If you don’t care at all, this is probably a really great option. If you care a lot, let’s give you some more education, because you’re going to be a little bit more off on your own and we want to make sure you’re okay i.e., here’s the driver’s manual if you want drive yourself. And if you don’t want to drive yourself, here are plenty of drivers who can do it for you.

Joe Percoco (16:11):
And yeah, so I don’t mind that there’s a ton of innovation because I do think we need a direct capital in the world to go fund this innovation. The big question is what percent of all of our wallets should we be spending, for instance, in NFTs or on crypto? So you would say the question isn’t people were asking the wrong question before about crypto. Should I invest in crypto?

Joe Percoco (16:39):
That’s a pretty unsophisticated question. The right question to ask is what percent of my sacred piggy bank points that I’m using to do this video game called Earth. Should I be investing in this new exciting high risk technology ahead of adoption? So yeah, my hope and my wish is that we could start having some pretty hard educative conversations. So that way, everybody can end up for the better.

Trey Lockerbie (17:05):
Now I know you’ve given this some thought, so what would that look like exactly, because you yourself studied finance in college, went on to work in finance and still struggled with even just how to put your money to work and understanding that. I know I have a lot of friends who are similar as well in that regard. What would education earlier in school look like? If Joe were running the country, what would he do?

Joe Percoco (17:28):
So I think one of the biggest beefs I had in the investing category is this thing called accredited investor. And the way right now the world works is, let’s say there are elite investments. If you, Trey, wanted a angel invest, or if you wanted to go put your money in hedge fund or a venture fund, the world basically says, you cannot do that until you’ve reached a certain amount of wealth.

Joe Percoco (17:54):
And one would say time out. If these are some of the best things in the world and they can make your wealth grow, it’s almost like a chicken and the egg. How will I ever accrue enough wealth to go get into these things? So the very obvious statement in the room to solve this is it should be education based. Do I or do I not have enough knowledge to be whatever you call as an accredited investor, whatever jargon term have you?

Joe Percoco (18:18):
So perhaps there is almost an exam that is online with video-based courses, let’s say like YouTuber MasterClass to say, okay, if you want to do some savvier sorts of investing, to do so, you need to go get an 80% on this course and do these 10 hours. Because on behalf of the world, we think it’s in your best interest. Your future self will thank us for making you take this course.

Joe Percoco (18:43):
And the reason that drives me the wrong way, the current status is because, and I say this humbly, I performed exceptionally well at Wharton. I was summa cum laude in finance. I could have built the best DCF you’ve ever seen, like 200 rows. But yet, the world was telling me, Joe, you cannot determine what you can do with your own money. You’re blocked out. Sorry. It is what it is.

Joe Percoco (19:04):
So what am I like, one of my longer term goals with Titan is to perhaps lobby some of the US government and say, hey, there’s a certain part of finance. It’s not scaling, and it’s locking out a lot of people. We’d love to create that test ourselves. We’ll put $5 million and invest on it. We will make it free. Let us just do that for the world. If someone beats me to it, amazing. I would love that. To your audience, anybody who wants to get after it, go get after it. I will help you. Ping me, joe@titan.com.

Trey Lockerbie (19:41):
I’m with you. I’m actually very passionate about this as well. And that test you mentioned, I mean, that exists. I imagine you took that same test when you were applying for Goldman, right? These institutions do the exact same thing. And there’s some irony there as well, especially in the VC world where a lot of these maybe MBA students are running the firm’s money or the fund’s money when they themselves are not accredited investors.

Trey Lockerbie (20:06):
So there’s a lot of interesting gaps, I feel like almost in logic there that could be easily solved for. So I’m with you on that. Talk to us about the fact that millennials are four times poorer than baby boomers right now, and a little bit about why we’ve arrived in this environment that we’re in. And then do you see a transfer of wealth inevitably happening? And what will that look like for the next generation?

Joe Percoco (20:32):
I was just home for the holidays, and there was a lot with my parents. They were making generational comments. Okay, the golden or what’s it’s called? What was the World War I or World War II generation?

Trey Lockerbie (20:44):
The Greatest Generation.

Joe Percoco (20:45):
The Greatest Generation. It’s like, okay. They were like, you guys aren’t the greatest generation, and here’s why. And then it’s like in the baby boomer generation, blah, blah, blah. You millennials, X, Y, and Z, and then the fact that economically all the data is like, and you’re also the poorest generation. It’s like, okay, all right, we get it. I’m a millennial. So I’m like, I hear you, and one of the things like, why are we economically so worse off than others? It’s a shame. I hope we can catch up by having a predisposition to invest in all these new technologies.

Joe Percoco (21:21):
And if these new technologies work, it’s like, okay, we’ve gotten our one time booster. It may require a bit of luck, but the reason why we got here, it’s almost like, right, you have a great recession ’07, ’08, right? Like, as we’re about to enter the workforce, so already a step behind, then it means we can’t keep up with student debt. And it means we need to push off possibly buying a home, so accruing wealth, instead of just spending it on rent.

Joe Percoco (21:49):
We also are marginally less likely to buy homes because of lifestyle and psychological choices. And so it’s sort of like thing one, thing two, thing three, thing four stacked on each other leads, okay, this is like the least wealthy generation we’ve had. There’s a lot of stuff going on obviously. That’s been my very simplistic viewpoint.

Joe Percoco (22:11):
But yeah, I approached the problem with empathy. I’m a millennial. All my peers growing up were millennials. And yeah, I know in many ways, in particular with COVID and so I was like, is that easy? So maybe, here’s the positive tie and you can throw a yellow flag on this if you disagree, maybe there’s a play for us giving the greatest generation a run for their money? Probably not, but that’s, yeah, hopefully things sort themselves out.

Trey Lockerbie (22:42):
Now looking at the demographics just using Titan today, are you seeing a number of them are even a generation below? Like in the gen Z world, are they one step ahead of where we were as millennials given the current environment? Or is it getting progressively worse?

Joe Percoco (22:58):
No, what I love is investing adoption is obviously much earlier, thanks to Robinhood and others. You’ve gone down the curve. So that whole problem of Joe or Trey, a college student not really know how to invest, you push it off to your mid-twenties. If anything, now it’s like people buying and trading stocks. So amazing problem that’s been solved is, all right, awakening you to the fact that you need to be investor. So then, the more advanced problem comes into play.

Joe Percoco (23:28):
Oh shoot, we need a go keep up and then go educate you. So it’s sort of like, we’re now at that point where it’s great, people are getting invested early, so we need to go, all right, the parametric is not just getting invested, but getting invested well. So right now, we’re succeeding on true north, but the parametric to confirm we’re not cheating is like, okay, the education component needs to go higher. So I almost think about it as an operator.

Trey Lockerbie (23:55):
Speaking of an operator, I’d like to hear a little bit about how you have approached being an operator with Titan. Given your experience, say with McKinsey and others, where I’m sure you picked up a lot of tips and tricks along the way, studying some of the best businesses in the world, what’s the framework look like for how you operate at Titan? And where did that kind of develop?

Joe Percoco (24:17):
I’d probably maybe extend your question to values, because I can’t be in every meeting at Titan. In particular, we’re scaling fast. We’re going from 60 people this year to 250 by year-end. And so I like to operate by a set of principles or values or DNA, whatever term makes most sense. And these are the things, if we can’t be in the room as leaders, what are the four words that we want you to keep top of mind? And that form of abstraction will lead to the highest odds of success in that meeting from camp here.

Joe Percoco (24:51):
So one is, do we have A-plus people in the room to be in [lift 00:24:57]? So a huge part of any journey is do you have really smart people with time to go make magic happen? If you do, I would go bet on those people. So that’s one. There’s a major difference, and it’s nonlinear between someone who’d score an 8 out of 10 and someone who’d score 10 out of 10, like a 10 out of 10 can just drive insane outcomes. So that’s point one, people first.

Joe Percoco (25:21):
Two would be velocity or speed. Whatever you think is good, go do it quickly. And the reason why that’s important is because it has a sense of humility. You can either maximize the ability to be right or minimize the cost of being wrong. The way to minimize the cost of being wrong is by moving fast.

Joe Percoco (25:42):
If you have six shots on goal in a month, who cares? All right, five things fail doesn’t matter, because you found the one thing that did work. And then lastly would be just a relentless focus on what matters and in our business, it’s our customer. So if those three things occur in any meeting or any situation at Titan, we have A-plus people, we’re moving quickly with a pretty relentless focus on what matters.

Joe Percoco (26:09):
I don’t have to say that I’d check on anything else. Great, you had A- plus humans, you moved really fast and you focused on our customer. Perfect. Great. I don’t even know what you talked about. I don’t even know what the outcome is. I don’t care. You did those things. We’ll get it right.

Trey Lockerbie (26:25):
Now, the reason I mentioned the latest valuation I read around the $0.5 billion mark for Titan was from a previous fundraising round you had done where you had folks like on the cap table to date. I don’t know the chronological order, but Andreesen sits on there. There’s a few other blue chips.

Trey Lockerbie (26:44):
So it brings to my mind maybe mentors you may have met along the way and maybe things you’ve picked up from them. So I’m wondering if anyone comes to mind, either from investing in Titan or being an advisor or someone you’ve worked for, are there people who made an impression on you? And are there principles that you found from them that you’d like to operate from?

Joe Percoco (27:05):
Yeah, I’ll start with the last point first, which is just principles. I think I was awakened to the idea of coaching and mentorship just growing up playing sports and having different sets of coaches. Soccer and baseball were my top two. And just going from, okay, you’re on the U14 soccer team and then you can get into an advanced team if you’re performing well.

Joe Percoco (27:29):
And there’s that coach. And it’s like, whoa, the controllable variables of what happens in the locker room, do you run? Now I’m using other sports analogies. Do you run the west coast offense? Or do you do something different? These are real drivers of outperformance. So I’ve become almost obsessive at studying systems that can relentlessly outperform. So example really like the Bulls in the ’90s or Pixar, the animation studio. How do they just systematically create success?

Joe Percoco (28:00):
And so I’ve really thought hard about, okay, what caught conversations am I having with these practitioners of best in class? Let’s call these people the Phil Jacksons or the Pep Guardiolas or the Bill Belichicks of their domain. How do I get access to these people? And I just need to listen, ask questions and take notes.

Joe Percoco (28:21):
So I can give two specific examples of folks that have been very helpful. So Anu and Ali at Y Combinator, so Anu Hariharan and Ali Rowghani at Y Combinator, they basically sat Clay and I down back in September and they said, hey, you guys have lightning in a bottle with your product. The thing you don’t realize now is that your next chapters is going to be the next most important product you need build is tighten the company.

Joe Percoco (28:49):
You won’t be good at company building until you start to learn these five things about it. Let’s call it hiring an exec team, scaling the org, setting a high performance culture, stuff like that. And so they were like here based upon us seeing the journeys of all these other Y Combinator companies that are public worth tens of billions of dollars and us seeing them iterate, here are the playbooks. And it was possibly some of the best training that I ever had, and it was literally just in past fall. I haven’t had that training in school. There was no podcast conversation. I listened to no article. It was just two best in class practitioners sitting me down and saying, we are going to up level you as a CEO.

Joe Percoco (29:30):
And then let’s give another example, [Kevin Wile 00:29:34] ran product at Instagram and Twitter, and he’s on our cap table. He just took a company public. He’s off to bigger and better things. He has developed such exceptional consumer judgment on how to think about product. And in a way, we’re looking to also build another iconic household consumer Internet company like Instagram and Twitter.

Joe Percoco (29:55):
I’ll sometimes just ask him, I’m like, hey, how do you think about solving this user journey? So an example with our product, how do we take someone off the street who’s scared about investing and transforming them via software to someone who loves investing, is really excited about Titan.

Joe Percoco (30:12):
And so we talked through some of the principles that Instagram and Twitter used to be able to solve those goals for those use cases. And so to your question, which is amazing one, it’s almost like I’d reframe it in a way as how do you continue to compound as a person and as a company. And it’s, you need to ensure you’re always have a plug into this web of what best in class is and whatever industry you’re in, because it’s offline, it’s never in a book. It’s usually there are just sort of domain knowledge folks who, if you plug into them, they can be insanely helpful.

Joe Percoco (30:49):
And so huge shout out to Anu, Ali, Kevin, and a bunch of other folks. You’ve mentioned folks on our board, Anish and Adam. We have so many mentors throughout the years. We definitely couldn’t have gotten this far without them.

Trey Lockerbie (31:03):
I love that and can relate. I’m curious, going back to one of the biggest points you mentioned about the team was just the people involved. And recently interviewed Jim Collins, who first principle, meaning it’s more important to have the right people on the team than to even know where the team is going, so to speak. I’m curious if you have sort of a Rorschach test for what makes a great person. Is it their foresight into the future, big level thinking? Have you found any ways to weed out say mediocre employees from great employees? And what does that look like?

Joe Percoco (31:39):
This is a question I haven’t figured out the answer to, and it’s one I’m iterating on life. It’s really hard. If you can master it, [you’re gold 00:31:50]. I forget who wrote this blog post. There’s this blog post called, who is this human here? And it’s just about saying how whatever industry you’re in, hiring is probably your hardest problem because you’re tasked in a few hours to get to know a whole human being and trying to figure out if they will do a good job.

Joe Percoco (32:08):
Ironically, I just ran a final round interview for a pretty senior candidate just before this. And a couple of things I look for, for whatever we’re hiring you for, do you just have a plus raw horsepower at that thing? So that is almost like a non-starter in a sense.

Joe Percoco (32:28):
Second, are you able to grow yourself in your impact? So the way I can summarize what I’ve just said, those two things, slope was the second point. Do you grow? And y-intercept, are you already at a really high starting point for whatever your craft is? So in an ideal world, you can get both and that’s the holy grail.

Joe Percoco (32:51):
And then the third piece we just have to do with values. And in particular, one thing I’m hyper focused on is do you have wartime DNA? Do tough times bring out an evolved super saiyan version of yourself? Or do you break? Because I know, Titan is an all-weather company. I know externally, it’s like, look at Titan, blah, blah, blah, look at all these articles.

Joe Percoco (33:15):
In reality, there’s been several points in our history where we’ve really had to buckle up. And so slope, y-intercept with a wartime person who just evolved into a killer when a tough times come. If you can hit those three things, you’re probably scoring high on a final round interview at Titan.

Trey Lockerbie (33:36):
You mentioned all weather and Ray Dalio comes to mind in a number of ways through this discussion, talking about principles and other things. Just read his latest book, and it is a little unnerving, meaning he looks at the rise of China as being almost inevitable, just based on historic events. And I noticed that Titan has an offshore portfolio as one of its offerings, and I want to kind of touch on that. What do you think is the importance of being or having that exposure outside of the US now and for the next 10 years? What does that look like in your mind?

Joe Percoco (34:11):
So what’s really important and something I think about all the time is where capital should go. So let’s say all of us retail investors, cumulatively, we have north of $10 trillion, and there’s many places in the world that are going to say, pick me, pick me, pick me. I deserve your capital. I’m a good investment. Here’s why.

Joe Percoco (34:31):
That could range from Jassy at Amazon. Hey, I’m the new Amazon CEO. I deserve your capital. Look at my roadmap. It could be something as, I’m this new crypto protocol, hey, I deserve your money. Here’s why. And then Asia and China, same thing, hey, I know you are all doing this domestic United States thing, but guess what? Our population is growing at a way faster rate. Here’s what’s going on with technology. Here’s how we run our society.

Joe Percoco (34:58):
So in terms of should folks have the international exposure, absolutely. There are many things going on in the world that people need to be a part of and not just in China, but emerging markets like Latin America. Africa has a lot of really exciting technology companies, the Middle East. And so we think about all the time and sort of I’ve just hinted at what our roadmap is at Titan. How do we make sure that we have the ability for folks to go put their capital and help connect the world between things that need capital and people who have it?

Joe Percoco (35:29):
And you could even push that way further, almost in a way, like for instance, Facebook, I think there was that natural disaster in Nepal and Facebook, I think in a month, built a feature for users to donate to the Nepal natural disaster. So that is basically connecting eyeballs to a situation that requires eyeballs.

Joe Percoco (35:49):
Facebook is the platform for eyeballs. So you almost think that if, let’s say, there’s a wildfire in California or the sort, we could set a push notification overnight to the entire capital base of retail investors, let’s say someday, we have a trillion dollars, hey, we need to go send $50 million to the wildfire relief fund over there. Totally up to you, optional, hit one button. And so your question on international exposure, hence, spurs a lot of thoughts in me. It’s absolutely Asia deserves some semblance of someone’s capital. And what’s exciting is just thinking about that application everywhere in the world.

Trey Lockerbie (36:26):
Very interesting. Speaking of the offshore product and the others, something I saw underlying all of them is the fact that they’re pretty concentrated. They have 15 to 25 positions that looks like in each one. And given that you guys are focused on more or less folks starting out, trying to grow capital quickly, I’m wondering if you agree with this principle that concentration grows wealth, whereas diversification maintains wealth. And is that a principle underlying the fact that these are pretty concentrated positions?

Joe Percoco (36:55):
It’s an interesting tagline. I’d probably agree. If I had to summarize several decades of investing philosophy into just a single, like a few single PV statements, like how does Buffett invest in the world or Seth Klarman and so forth.

Joe Percoco (37:13):
What’s pretty unanimous is you need to find and identify a set of really good horse and jockeys core businesses and only pick the ones to a degree that you think have a chance to really succeed, i.e., you could make an argument, just buy the whole racetrack, whatever.

Joe Percoco (37:34):
Some horses lose, some horses will win. I know I will do fine-ish because let’s say three of my horses at all times will win. But in the investing war, the whole art is let’s say there’s 500 racers at the racetrack i.e., the S&P 500, can I identify the top 20 that I think have the best chance? And that probably summarizes investing thinking.

Joe Percoco (38:00):
And so for us, no one teaches that at school. No one says like, hey Trey, when you graduate to build your wealth, find a set of concentrated, amazing businesses, hold on, reassess annually, but it really is important. And it’s fine if, let’s say, you’re not necessarily looking for any outsized growth. You could just chug along with the economy and just say like, eh, I’m just going to buy the whole racetrack. It’s fine. I’ll get GDP growth with a little bit of a premium. But yeah, I probably would agree it’s an interesting thought.

Trey Lockerbie (38:33):
I noticed with the flagship strategy, even though it’s 15 to 25 positions, the sharp ratio compared to the S&P 500 was almost the exact same, meaning the returns based on the risk involved. You would think there would be a lot more risk, going a lot more concentrated than the S&P 500. Can you speak a little bit about that? And the underlying positions, is that also something you’re trying to align yourself with as far as the risk involved?

Joe Percoco (38:59):
Risk is an amazing thought, and it’s one of the most highly misunderstood thoughts in all of investing. The way I would boil it down is most people confuse turbulence with the idea of the plane itself going down. And what is the most amazing outcome is if you can go find those 20 jockeys with the same degree of long term risk, as if you bought the whole racetrack, that is obviously like you win. Game over if you can do that.

Joe Percoco (39:30):
And so what we attempt to do is to identify those 15 to 20 jockeys per strategy, but then also think about how can we do it in a way where you get the same risk as if you bought them all. One way to think about doing that is buying really high quality businesses. To simplify it, when you buy a stock, you can almost think about it like buying a pizza shop at the local corner.

Joe Percoco (39:53):
I’ve literally given money to a business that is going to use it for something. And eventually, they’re going to hopefully produce money that comes out of the cashier and part of it goes to me. That is like very helpful in thinking about stocks.

Joe Percoco (40:07):
And so, right, some tech businesses. I give money to a thing. There’s probably not going to be cash coming out of the cashier for a while. So I think in the future that it will. And so one way to get that right, that risk of no cash coming out of the pizza shop is, am I betting on a no brainer [trip 00:40:28]? So yes, commerce is shifting from offline to online, or yes, we are seeing home delivery in food really take off. Okay. So mega trends, being right about that can start the de-risking.

Joe Percoco (40:44):
Secondly, does this business have a true no-brainer opportunity to grow from whatever is today? Is it like a monopoly in this space? Is there no other alternative? And then the third piece would be to your team focus point earlier, has this management team in the past just demonstrated money comes out of the piggy bank, no matter what they do? So it’s like, great, we’re in an industry that makes a lot of sense.

Joe Percoco (41:11):
This company clearly can predictably grow. And this management team prints cash wherever they go. It’s like, okay, even though they’re saying they’re not going to make a profit until year seven, those three reasons mean I should probably believe them. Obviously, there’s a lot of rigor and analysis this goes each of those three dimensions, but that’s the same architected principle. They were thinking about all these strategies so that we can possibly achieve, knock on wood, high growth with risk on parity with other things.

Joe Percoco (41:43):
But the one thing I want to make very clear is there’s that Matt Damon commercial on a lot, which say fortune favors the bold, and there’s another investing quote that says ships weren’t meant to stay ashore. Risk is the price you do pay. So let’s say extra volatility or turbulence is the price you pay to possibly achieve set growth. So if for some reason you can match risk, that’s amazing. You’re going to be on CNBC if you can do that. But on a risk adjusted basis, if you can achieve more growth, that is what we seek to do.

Trey Lockerbie (42:20):
How active are the strategies individually? One number I didn’t see when I was looking around a little bit was something like an expense ratio, just to kind of get a glimpse of how much turnover there are in the strategies and how actively managed they are. How does it compare to some of the other ETFs or other strategies that you’re aware of, or maybe more or less competing with?

Joe Percoco (42:40):
Great question. We’re long term owners, but recently we’ve seen a bunch of possible near term paradigm shifts that said, okay, we want to make sure our clients are positioned in the right way. So for instance, no one maybe would’ve forecasted two years ago that our generation is going to witness inflation for the first time this year. And so, I don’t know if you’ve checked the Washington Journal or turned on CNBC, but you’ve seen these lots of tech stocks just effectively get cut in half.

Joe Percoco (43:09):
I think Robinhood was trading at $50 a share. And now it’s $15 a share. That was one of the hottest IPOs of the year. The short reason is when you buy a pizza shop that says, hey, we’re not profitable, but we will be someday. When all of a sudden the government raises rates, the expectation for you as pizza owner is wait. Okay?

Joe Percoco (43:32):
Those future cash flows are now worth way less to me. And so i.e., then, the stock collapses. It’s a very simplistic explanation. But so for us, we’re like, okay, we need to make sure we’re on the front foot here. There’s lots of stuff going on. And we actually think inflation could present a material thing in 2022. So we want to ensure we’re exposed to stuff in our portfolio that matches inflation, so i.e., things that have the ability to raise price.

Joe Percoco (44:01):
If all of a sudden prices are raising, we want to be with the companies that can then raise price to customers. And separately, we’ve seen a lot. We’ve gotten more conviction in several new trends coming about. Our investment team likes to say we’d rather be slightly late to a great party than early to a lame party.

Joe Percoco (44:21):
We recently got a ton of conviction on Coinbase as one of the operating systems go-to for crypto, so we made that trade in our flagship portfolio, trimming some stuff that was more inflation exposed for something that’s a long term mega trend that we believe the fundamentals are looking sound as crypto converts to, from a, which can I call it? From crypto, from an if to this monster thing called crypto to having fundamental subcategories. I won’t go into it, but like layer one crypto protocols versus layer two and stuff like that. So okay, we’re ready on behalf of our clients to put a position in Coinbase.

Trey Lockerbie (44:57):
Now the way you frame that, it kind of speaks to an uncorrelated asset, so to speak, that could benefit from the current environment. But we’re not seeing the same way that those high flying tech stocks you mentioned are getting beaten down. We’re seeing a lot of cryptos being beaten down as well. So the correlation is there to some degree. Is there a strategy that you deem to be somewhat uncorrelated to everything else? Meaning, going back to Ray Dalio and the all weather fund and having 15 uncorrelated bets as the holy grail, as he would say.

Trey Lockerbie (45:31):
I know that this is kind of the product or the strategy you’re trying to bring to mainstream. Is crypto, in your opinion, I guess, the best place that people can put their money to protect themselves against inflation? Or is there some other asset in one of the strategies that you would look to, to do that?

Joe Percoco (45:48):
If one is literally looking for an instrument designed to protect against inflation, there are a lot of like bond-based inflation protection vehicles that one could go get. The question is for, let’s say, the large swath, there’s like a really good question you’re bringing up, which is like a root question.

Joe Percoco (46:05):
What is the time horizon that Trey cares about? Does Trey even care about 2022 returns? Or is he basically saying, I just want the most amount of money 10 years from now? And as such, do you trim Amazon for slump things slightly more inflation proof that may see less volatility?

Joe Percoco (46:28):
The 10-year version of Trey would’ve been, no, I just need to find the biggest multiple their money. But if someone says, hey, realistically people have different time horizon, there was a trade that said, hey, I actually do have some pretty big purchases coming up, maybe let’s say a new home in a few years or things of that nature. You do need to be mindful volatility.

Joe Percoco (46:50):
To Dalio’s point on the all-weather philosophy, it’s like a really interesting root question. And the reason why it’s an exciting question to consider is because it comes down to one’s time horizon. So if you have Trey who doesn’t necessarily care about the next two years, and it’s just like Dalio, Joe Percoco, you name it, I just want the most money 10 years from now.

Joe Percoco (47:19):
Trey is then willing to take whatever volatility it takes. He’d be like, screw it, buckle me in. Give me race car-style seat belts. I don’t care. I just want the most money. And so then you almost don’t really even think about positioning your portfolio in 2022 for inflation risk, blah, blah, blah. It’s just we’re going to stay the course or whatever are the biggest mega trends that are going to drive Trey’s money to an insane outcome over long term.

Joe Percoco (47:47):
If Trey was like, yo, I got a new house. I got to go get in two to three years or some other big financial purpose, Trey’s time horizon actually goes down. And then an all-weather fund actually could really have a lot of value there. And so this philosophical question can oftentimes make or break certain managers based on who their boss is.

Joe Percoco (48:10):
Is their boss Trey, who says I’m never even going to check in on you on a one year basis. I’m going to check in on you on 10 years and see if you’re fired, whereas are there bosses a one year Trey? I expect to see you outperform every year on 12/31 on the year. And that’s what can drive really big opportunities for long term investors.

Joe Percoco (48:34):
Example, if you knew the whole industry had the boss, which is 12/31, and you, Trey, were solving for the 10-year outcome, you would basically try to say, all right, what things are major 10 bets that are going to be amazing that people are having to sell today, because they’re concerned about the one year outlook being too volatile. You should then go pile into all those things.

Joe Percoco (48:57):
Some people believe crypto or some of these high flying technology stocks could be that. Lots of investors are spooked by volatility. They’re selling. They don’t want to look bad to their one year boss. Long term investors, let’s say some of the most hyped crypto people in the country would be saying, are you kidding? Bitcoin’s at 40, this thing’s going to 4 million pile pile, pile. Who cares? Go, go, go. So it’s a big philosophical question, but it’s an exciting one.

Trey Lockerbie (49:26):
I love the idea you brought up earlier of all these kind of prospects, advertising that they’re deserving of your money. It’s just a great way to visualize it. And I know you’ve done a bit of angel investing as well. And bringing back those Y Combinator mentors of yours telling you that you had lightning in a bottle, first of all, I’m sure that felt great to hear.

Trey Lockerbie (49:47):
Second of all, it brings to mind how you identify that, what a skill to be able to identify that and sift through all the noise and be able to do that. Is there anything in your angel investing experience where you felt that for yourself, but for another company?

Joe Percoco (50:01):
Yeah, it’s really interesting when you think about, all right, how do I translate my day job to me being a good investor in angel companies? And I get a bunch of folks come my way, like, hey, Joe, do you want to angel invest or mentor the CEO? It’s like, right, first and foremost, who is this human?

Joe Percoco (50:21):
Going back to Titan, do you have the DNA, relentlessness, the slope and y-intercept for wherever you’re looking to go after? So again, same framework. Going to be like, that sounds repetitive. It is on purpose, because it’s that important. The second is even if you’re the Lewis Hamilton or the best or the F1 driver or the best jockey in the world, is there even a major profit opportunity for you to go get?

Joe Percoco (50:48):
You’d be surprised the number of people who are competing for half sub billion dollar total addressable markets. As an operator, I was like, there’s so many variables at play. I would almost want us to only be able to achieve, let’s call it 1% to 10% of our dream goal. And that be huge just to de-risk the downside.

Joe Percoco (51:12):
So let’s call that the profit opportunity. Is it huge? So if you have a great jockey and a huge profit opportunity, it’s like, all right, give them enough time. Even first idea doesn’t work out, they can pivot to something else, put it, that’s neighboring.

Joe Percoco (51:24):
And then the third would just be timing. A lot of stuff can sound really good. But if, let’s say, it’s not the right time or the regulatory environment or the right tailwinds behind them to bring them extra luck that they wish they had had, it can mean for a lot of headwinds. It can really make certain companies struggle. So yeah, that’s usually how I approach things pretty simply.

Trey Lockerbie (51:49):
So going back to that idea of you sitting around the dinner table, let’s say, with your family over the holidays. Say you have a cousin who is like, Joe, I want to learn how to invest. Where do I start? What resources would you start someone off maybe younger or what doesn’t matter, but if they’re just trying to get interested in the space and there’s so much to consume, right, but where do you start?

Joe Percoco (52:12):
I’m going to be really honest with this question, and I’m going to say shame on me for not having a good response. I was about to say go here, but then I’m like, that’s way too complicated. And you’re going to get hit with 401ks for adults. And you’re going to just be my little cousin would literally be like meh or you could say, well, just start out.

Joe Percoco (52:32):
If they were really just starting out, I’d be like, okay, if you have 50 bucks, let’s go download a self-directed account. I’ll buy you your first couple shares. Let’s just buy Google or Amazon. I’ll say, pick one you like, just to get you in. Okay, you like it. But then they’d probably have infinite follow ups when the first time they see, Joe, I had $50 in this thing and now it says $45, what’s going on?

Joe Percoco (52:58):
So I feel like you’ve given me an action item. I don’t want to be biased and say Titan. I think if they download the Titan app, I think we do a really good job. We have video-based onboarding. I think they’d learn a lot. But even that isn’t truly designed because our target user is in a non investor, someone who’s already invested. I generally don’t think there’s a great solution. I genuinely don’t. You’ve added something to my do list.

Trey Lockerbie (53:23):
I wouldn’t say that, but you touched on something really important, I think, which is, it reminds me of my conversation I had with Tom Gayner, and he’s highly diversified. He will take the smallest, most minuscule position in something that he’s even remotely interested in, and he claims that Buffett actually does this with his own personal portfolio.

Trey Lockerbie (53:42):
So what you were speaking to about, hey, just buy a little bit of Amazon, a little bit of Google, that might whet the appetite enough, right, to give incentive to then go learn about those companies and want to understand what you own. So I actually think that’s a really great place to start just getting some skin in the game, even if it’s a very little amount.

Joe Percoco (54:01):
Yeah. I agree. I think that the biggest problem is to get over the psychological hurdle of bank account safe over their dangerous. And in psychological theory, Professor [Jonathan Nye 00:54:20], he details every human being is like a rider and an elephant, the rider’s irrational brain, the elephant’s emotional brain. If the rider wants to go right, but the elephant wants to go left, you can rest assured you’re going left. There’s no convincing that elephant, and investing is deeply an emotional sport.

Joe Percoco (54:38):
Rider says, I should be invested. This year, I’m going to become an investor. It’s my new year’s goal. Elephant says I’m going to bank account. That is scary. I just turned on CNBC. They say inflation, so I do agree with you that if one can just sort of get over that hum. And then the real question is how do we get them on the good path versus put all their life savings in one NFT. I mean, who knows maybe that ends up working out well, but yeah.

Trey Lockerbie (55:08):
Totally agree. All right, Joe. Before I let you go, I want to give you the opportunity to hand off to our audience where they can learn more about you and more about Titan or any other resources you want to share.

Joe Percoco (55:18):
Yeah. If they want to learn more about Titan, they could go to titan.com. Me, I’m on Twitter @joepercoco or on Instagram @JPercoco. But yeah, excited to get to know them more.

Trey Lockerbie (55:29):
Joe, I really enjoyed it. I hope we can do this again sometime and best of luck with Titan, and congrats on all the success. It’s really incredible.

Joe Percoco (55:37):
Likewise, great questions. You’ve given me some action items as I’ve mentioned before.

Trey Lockerbie (55:41):
Well, we’ll follow up and see how you’re doing. I want a six month report.

Joe Percoco (55:44):
I love it. That’s good.

Trey Lockerbie (55:46):
All right, Joe. Let do it again. Cheers.

Joe Percoco (55:48):
Cool. See you, man. Bye.

Trey Lockerbie (55:51):
All right, everybody. That’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app and please leave a review. We would really appreciate it. You can also give us feedback on Twitter and find me at Trey Lockerbie. And don’t forget to check out our TIP finance tool, just Google TIP finance. And with that, we’ll see you again next time.

Outro (56:09):
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