Corey Hoffstein

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In this episode, I talk with Corey Hoffstein, co-founder of and Chief Investment Officer at Newfound Research.

Newfound Research LLC is a quantitative investment and research firm dedicated to helping investors pro-actively navigate the risks of investing through thought leadership and investment acumen.

At Newfound, Corey is responsible for portfolio management, investment research, strategy development, and communication of the firm’s views to clients.

Corey holds a Master of Science in Computational Finance from Carnegie Mellon University and a Bachelor of Science in Computer Science, cum laude, from Cornell University.

I hope you enjoy this conversation with Corey as much as I did…

 

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Transcript for Episode 33:

Taylor Pearson:

Hello and welcome. This is the Mutiny Investing Podcast. This podcast features long form conversations on topics, relating to investing, markets, risk, volatility, and complex systems.

Disclaimer:

This podcast is provided for informational purposes only, and should not be relied upon as legal, business, investment or tax advice. All opinions expressed by podcast participants or solely their own opinions, and do not necessarily reflect the opinions of Mutiny Fund, their affiliates or companies featured. Due to industry regulations, participants on this podcast, or instructed to not make specific trade recommendations, nor reference best or potential profits. Listeners are reminded that managed features, commodity trading forex trading and other alternative investments are complex and carry a risk of substantial losses. As such, they’re not suitable for all investors, and you should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making a decision on the appropriateness of such investments. Visit mutinyfund.com/disclaimer for more information.

Jason Buck:

My special guest, I always say that for my guest, but this time is actually is a special guest. It’s my favorite VO guest. But I say that for all my guests. Is my partner in crime on Pirates of Finance. It’s Corey Hoffstein.

Corey Hoffstein:

You just couldn’t get enough of me.

Jason Buck:

Exactly. Yeah. But I think this won’t be a little different as we move towards this more combo style on the Mutiny Podcast, I just flew up to Chicago, shout out to Jeff Malec for this beautiful setup. I’m using all his equipment. So I appreciate it.

Corey Hoffstein:

So I’m sitting here going, I know that looks very familiar to me and I know it’s not where you live.

Jason Buck:

Yeah.

Corey Hoffstein:

All right, Jeff. All right. So it’s the RCM Podcast background.

Jason Buck:

Exactly. It’s the derivative podcast background, shout out and go check out The Derivative Podcast. Corey, you and I do tons of podcasts and tons of shows and I was just lamenting to Jeff. I don’t know how he does it every week too. And like booking guests, it’s quite relentless.

Corey Hoffstein:

I can’t do it. I don’t know how people do it. I am seasonal. I’ve always been seasonal. I’m in the middle of recording my fifth season. And every time I’m recording a season, I go, “I’m never doing this again. I’m never doing it again.” And then somehow six months later I go, “It wasn’t that bad. Was it?” It’s like, you forget. You forget the pain. And then I start doing it again. I’m like, “Why am I doing this?”

Jason Buck:

Just [inaudible 00:02:34] for punishment. I end up bulking like you, I do like three episodes in three days and I’m like, “Never again.” And then three weeks later, the deadlines coming and I got to do it again. And like, you think I’ve learned my lesson at this point, but I’m not. So I was on my flight here, on the plane I was watching the new series called The Offer on Amazon Prime and it’s about the making of The Godfather. So it was really interesting in the sense that like it’s from the producer’s perspective and all of the behind the scenes that went to making of The Godfather, it’s a really good series. Actually. It’s got Miles Teller, Matthew Goode. A lot of great actors, a lot of great writing, but what was fascinating to me is just, I think producers of movies and directors are very similar to entrepreneurs in that it’s what I’ve always said for like entrepreneurship is like, it’s like running the hurdles and every day they throw a new hurdle at you and you’re going to have to figure out how to overcome that hurdle. And the hurdles never stop.

Jason Buck:

Everybody’s like, “I just want to reach a plateau and kind of coast a little bit.” And I’m like, “Well, that’s not entrepreneurship. That’s business ownership.” And that’s probably going to be like a plateau. And then just a decline to zero. I can’t even speak now. Obviously, I’ve been on planes. But that’s what I was just thinking on the way here was like, that’s what we should talk about is a little bit of like entrepreneurship and that just resiliency of like, you and I have a lot of private chats about… Texts about just getting through the day, you know? What do you-

Corey Hoffstein:

I thought that might have been what spurred this conversation.

Jason Buck:

Yeah. Exactly. It’s like just getting through the day and I always think about it as like, if you can just move one inch down the field or as my partner Taylor Pearson always talks about just getting 1% better every week is like the Japanese kaizen kind of thing. What gets you going, like when you’re feeling down, how do you push through? Like, what do you do to like pick yourself back up?

Corey Hoffstein:

Well, I think first and foremost, when you told me you wanted to talk about this as a topic, I sort of thought it was funny because you know my answer, which is, I don’t even consider myself an entrepreneur.

Jason Buck:

Really?

Corey Hoffstein:

We’ve had this conversation.

Jason Buck:

Oh no.

Corey Hoffstein:

We’ve had this conversation. How well is my wife’s alarm going? Is that coming through clear?

Jason Buck:

Loud and clear.

Corey Hoffstein:

What, loud and clear? Great. Good podcast right there.

Jason Buck:

Yeah.

Corey Hoffstein:

All right. Back to the topic at hand. Yeah, we’ve had this conversation. I told you, “I don’t really consider myself an entrepreneur.” I’m a business owner, and I think some of the struggles are the same of just trying to get through the day. I very much ascribe to that mentality of just do one good thing a day. I’ve been at this now for 14 years in the same business with really high highs and really low lows and I think the only thing that’s consistent is that time moves forward and time moves a lot faster than you think it will. And I have found that the days in which I just do one good thing to make progress in my business, they add up a lot.

Corey Hoffstein:

It accumulates a lot over time and it’s actually sort of helped me find balance in my life in the sense that if I do that one good thing, if I know what that one thing is that I need to get done, then it gives me some freedom later in the day to say, “I’ve done the one thing I need to do. The most important thing of the day.” Like I don’t need to slam my head against the wall anymore today. I can go outside for a walk. And I think that sort of helped me find balance, but I certainly didn’t have it in the first five years of my career.

Jason Buck:

So is that like the founder of Keller Williams, he has the the one thing, I’m trying to remember his name, but that was the idea. You figure out what the one thing is to get done that day, or I think even Tim Ferris talked about is like, do you do like note cards of like things you need to get done that day. But number one is like, if you can get that, that’s like 80% of what you need to get done today. And then when you wake up, that’s what you hammer on. And then like you said, if you can check that box, it doesn’t really matter if you just walk on the beach for the rest of the day. How did you come about what that one thing is? How do you think about the one thing? Or did you steal that from somebody else?

Corey Hoffstein:

Yeah, I wish I was more organized than the one thing candidly, like I know there are some people who every Sunday night they set out their schedule for the week or they have their one thing. Typically, my calendar just sort of falls as it does. Right. I’m scheduling two weeks out for the most part. And it’s sort of obvious what the one most important thing is every day. And for me like there’s pillars of running a business, there’s the people that you employ, making sure that they’re on track, so sort of the relationships and personnel, the business. There’s the business development side of it. There’s the actual products and widgets you create that you need to focus on. And I find that my job as an owner of a small business is often rotating between those, and my focus on any given day may be something very different.

Corey Hoffstein:

So for example, as much as I was lamenting running a podcast earlier, the podcast is a large marketing vehicle for my firm. And so getting these podcasts done and I consider them an incredibly draining effort, is often one of the most important parts of my day. Because that season lives on and episodes get tens of thousands of downloads and that just adds up in value and accumulates in value over time. So if I can spend an hour and a half, two hours getting a podcast done for my own season, that has incredible value. And then it sort of takes pressure off the rest of the day. Doesn’t mean I’m slacking off the rest of the day, but I’ve sort of gone, “Okay, that one key item is done. I can turn my attention elsewhere and sort of like cruise through the rest of the day, hopefully.”

Jason Buck:

And just for the audience’s sake, I’ve never seen you slack off. We were able to just finally spend some time together and came and I can very clearly tell the audience. You definitely do not slack off. Like you get up very early in the morning, start your workout and just plow through the day. By the nighttime, you’re exhausted. So it’s a little hard to pick your brain at like seven o’clock at night, which I’m trying to do now, which is always a great idea. I can’t remember if I ever told you, when I was at IMG academy, because the tennis academy there had all these sports psychologists and they would work with the soccer players too. And we would have these binders where in the week ahead, we had to have 15 minute increments. We had to write down our entire week ahead in 15 minute increments.

Jason Buck:

And then after that I got really into like seven habits of highly effective people, like all that stuff. And this is like back in like the late nineties. And over time, I felt like by the time I was like 30, I was almost like burnt out from doing all that stuff and now I find, I think you nailed it too, the interesting thing is like, I used to take notes of the night before, or like you’re saying on Sunday night or usually the night before, like write down what I needed to do the next day. But now it’s just obvious what that one thing is every day. Do you think that we built that through habit or you just think like, “Yeah, I don’t know, a form of maturity, it’s just oh so clear in our businesses.” What is the thing that can really move the needle in the business?

Corey Hoffstein:

I think partially it’s probably through habit when you do it long enough. But I think for me, I did try that. I remember early in my career, I did try to sort of take on those practices. And I also tried to do a lot of the quarterly meetings with my business partners and talk about goals that we were trying to hit and things we wanted to do. And I’m sort of the belief now, particularly for the type of business we run, which is asset management, there’s a huge amount of it that’s just out of your control, right?

Corey Hoffstein:

So the two major things in asset management are often running money. Well, that’s just a constant, right? You might have research projects that you’re focused on, that you can sort of work through that backlog, but you never know what’s going to hit and what’s not in terms of being value add. So that’s just sort of a constant in your business. The second is raising money, and the truth of the matter is raising money is very dependent upon your performance and the market. What you find is that when the market goes down, people are just reluctant to make changes to their portfolio. So I can have a goal to raise a certain amount of assets in a year. Doesn’t mean I have any hope of raising that amount of assets, just because I want to, like you can put the effort in, but the market might not cooperate or your investment style might go out of favor, ask any value investor for the last five years, how raising money has gone for them.

Jason Buck:

That’s my least favorite question. Yeah, my least favorite question. I have people ask me all the time from outside the industry is like, “What’s your goal for AUM for this year or whatever, like growth rate.” And I’m just like, everything is so outside of your own hands, like you’re saying, all you can do is move the ball one inch down the field. And so you can put in podcasts, you can be doing sales calls, but like the sales cycle could be one month or it can be two years it’s based on performance. There’s so many factors.

Corey Hoffstein:

I have done this for so long now. There are years where I’ve overshot my target by 700%.

Jason Buck:

Yeah.

Corey Hoffstein:

There was one year that I picked up a 700 million mandate. I’m done for the year after that. And I know, because there’s going to be the next two years where I can barely raise a penny. You don’t know when it’s going to be there. So to me it’s like those quarterly goals are really hard. Even launching product can be hard. You can have a goal to get product out the door. I want to launch a new ETF, a new fund. You can sort of hit that pipeline, but you’ve done it, you know, it sort of always takes twice as long as you think it’s going to. There’s always [inaudible 00:12:08] and the more complex you want it to be, the more difficult it is to get out the door and then, great. It’s out the door. Now you need to get it on platforms.

Corey Hoffstein:

Well, it’s totally out of your hands as to when LPL decides they’re going to open up the platform again for you and they have their written rules, but that’s sort of the minimum threshold. And then after that, it’s sort of like… It’s relationships and do they feel like letting you in the door? And so some of this stuff is so out of your control compared to other businesses that I’ve largely given up on goals like that and have much more of a focus of just doing the things that I think get me towards those goals over time, without having those like very specific, I want to be on a certain platform by a certain date because I just feel like it’s so out of our control.

Jason Buck:

We have no leverage with the platforms. I mean, the analogy for us would be the regulators, right? We put our PPM together. Then we go out to the NFA and you just have zero clue how long it’s going to take. It could take a month and a half. It could take 10 months.

Corey Hoffstein:

Right.

Jason Buck:

You have no control over it. And that’s always hard as an entrepreneur, I think like just having that no leverage scenario and then yeah, raising AUM. I mean, who knows what’s going to work? What’s not going to work, when it’s going to come in. You have no idea. I want to go back though, you said you feel like you’re a small business owner and not an entrepreneur. What do you feel? What’s the difference for you?

Corey Hoffstein:

Yeah. And I know this isn’t the strict definition of an entrepreneur, but an entrepreneur to me is someone who focuses on starting businesses and starts multiple businesses over their lifetime. My father was an entrepreneur, right. He had a passion for starting businesses. When he was in college, he started a company selling calculators. He ran four or five different companies from the day I was born. And the last one, he took public in the .com era. Like to me, entrepreneurship is your passion is starting businesses. My wife is an entrepreneur, right? To me, it’s a different mindset. My passion is not starting businesses necessarily. I have a passion for finance and I happen to run my own business. And I think of myself as an operator of an asset management firm, as well as an investment manager. But I don’t consider myself an entrepreneur.

Jason Buck:

Is that because you-

Corey Hoffstein:

You are an entrepreneur. You’ve started medical businesses. I would consider you an entrepreneur because you approach these things from the mindset of a business owner. I’m sort of a business owner almost by force just because I ended up running my own investment management business.

Jason Buck:

No, but like an entrepreneur, you started Newfound Research and then I would argue even when you’re launching new products or pivoting, that’s a form of launching a new business wouldn’t you say? I mean it’s a new business line.

Corey Hoffstein:

Yeah.

Jason Buck:

I’m splitting hairs. It was just curious, when you said you don’t feel like you’re an entrepreneur, I just didn’t know what that meant. To me, like the entrepreneur and the business owner, I think about a lot of times people, like I was saying is they start off as an entrepreneur and then they get a small business or medium or big or large business and then they just want to hold on in cash checks.

Jason Buck:

And then that’s what I’m saying. You’re in a slow, steady decline. Whereas I guess if you’re, to me, then this is not standard definition either is you’re in entrepreneur mode. You’re just constantly pushing. And basically it’s Red Queen Principle, you’re running faster and faster to stay in the same place. Like you can never get stagnant. You can never really, hire enough people to really run the business without you really behind the driving force I don’t know. I mean, that’s a good question.

Corey Hoffstein:

I don’t have a good answer for it. I actually looked it up while we were talking in the intro and the definition of entrepreneur doesn’t help me at all in terms of these semantics.

Jason Buck:

I’m sure.

Corey Hoffstein:

But no, I don’t know. I don’t really think of myself that way and perhaps that’ll change over time, but because I’ve been running the same business for 14 years, I don’t really think of myself as someone who starts businesses and that’s sort of the way I think about an entrepreneur.

Jason Buck:

Yeah. I always think about when I was younger, like in the nineties, entrepreneur is a bad word. I mean, and men unemployed. And then now it’s like, everybody-

Corey Hoffstein:

It’s like, sexy.

Jason Buck:

Yeah. Now it’s in their Instagram profile, just, entrepreneur or whatever. And I’m just like, now it’s almost meaningless. Right. I remember Taylor was like, “We shouldn’t call ourselves serial entrepreneurs even though they are,” Because he feels like that’s a pejorative now for millennials.

Corey Hoffstein:

Yeah.

Jason Buck:

So that’s why I was wondering if you were just trying to stay away from the word.

Corey Hoffstein:

No, no, no. I mean, look again, I think of my father as being an entrepreneur and that was back in the days where it was hard to be an entrepreneur and it was hard to raise money and you were really an outcast as an entrepreneur versus the early 2010-a where startups became very sexy. Right. Everyone wanted to do a startup, but everyone in many ways still does. So yeah, it’s not me trying to avoid the phrase. It’s just me sort of not thinking of myself that way.

Corey Hoffstein:

Again, running an asset management firm, I think it’s very different because I wear both the hat of an operator running an asset management firm as well as the hat of being the CIO. So I spend a lot of time thinking about the investment side and candidly the business I would run and operate if I didn’t care about the investment side, if I was just trying to run an asset manager on easy mode would be very different than the business I run today. If I just had no… Didn’t care about investments at all and was just trying to raise money in product, it would be a totally different business.

Jason Buck:

Yeah. Remember I remember when I was a… Maybe before we started business right at the beginning, I remember having long talks with Mike Green about there’s two very different things between running a portfolio and running an asset management business. And every trader investor thinks it can run a portfolio, but the actual management of the business side is actually almost harder than running the portfolio. Especially the portfolios kind of like we build are broadly diversified, not necessarily set it and forget it. But that’s the general concept as far as like the asset buckets. They’re going to be changing around the margins, but every day there’s a new fire to put out it seems like when you’re running the asset management side of the business.

Corey Hoffstein:

Yeah. You hear enough stories about people who spin out and they love the investments and they don’t realize that the investment part is just one small pillar of what it takes to run an asset management firm, right? It’s the operations, it’s the compliance, it’s the administration. And then it’s the sales. This is not a, we build it and perform and people will come. No, you perform, that’s the minimum threshold. And then you go knocking door to door at the consultants and try to get rated. No, by the way, you’re competing with everyone else who’s doing that. So now it’s a relationship game and you’re trying to get platform access. So you need people in key accounts, if you’ve got 40 act product, like a mutual funder, an ETF, you’re going to knock on the door of advisors and trying to sell to them. And oh, by the way, so is BlackRock and Vanguard and Investor and everyone else offering dozens of free services just to get their attention, right. Table stakes became in the mid 2010s that you now had to do portfolio consulting for free for financial advisors just to get in the door, to talk to them about your product. Right? This game is getting more and more competitive. All of which has nothing to do with actually running money. That’s just table stakes.

Jason Buck:

Well, and that’s what I’m saying you have this huge [inaudible 00:19:30] especially in your space incumbents whether it’s in mutual funds or ETFs is like, everybody loves the low fee mantra but like if you’re Vanguard running trillions of dollars, you don’t have to charge that many fees to pay all those thousands of employees. But like you’re saying, you’re a small business owner and out the gates, all of the costs we’re talking quarter million dollar minimums just to run like an ETF, let alone mutual funds, building out sales team, everything. And it’s just like, you have to be able to charge money to be able to run a sustainable business. And you’re competing against these incumbents that obviously can just crush you basically. I mean, I’m just thinking in my head of like, you’re putting it together and looking at the competition or with the total addressable market, you’re like, “I’m going to get dominated.” It’d be like going out and like trying to compete with Amazon.

Corey Hoffstein:

Yeah. That’s another massive trend in the industry, towards low fee product. And I do find that if you run high octane enough product with enough active share, you can sort of carve out to that 80 basis point level whereas otherwise you might have to be in the 10, 15, 20 basis point level. But yeah, there’s certain people who will say 80 basis points. We’re not going near you. That’s 60 basis points more than we’re willing to pay. And there’s nothing you can do about it. That’s just where the trend is going. Ultimately, fee is something that advisors and investors can control. Doesn’t mean everything. If you can overcome that fee hurdle with whatever excess return you can generate, great, but all else equal, you obviously want a lower fee and it’s hard as a boutique to compete in that environment.

Corey Hoffstein:

I’ve always said everyone thinks like passive beats active at the end of the day because active managers aren’t that great. I always thought Vanguard’s knife in the back of the industry was the mutual fee structure that they set up. That by definition, the more assets they gathered, the lower their fees went. And what you saw was active management fees flat lined while passive management fees continued to go down, which means the relative fee hurdle that active managers had to overcome to justify their fees, got fatter and fatter.

Corey Hoffstein:

Again, that sort of happened until smart beta came around and you start to see active fees have come down more in line with passive, at least from like a directional perspective. But there was a time period there sort of in pre 2010 that the gap got pretty wide between active and passive. And at that point it’s almost impossible from an active perspective, particularly when you’re talking large cap equity to run any sort of 253 hundred stock portfolio and generate enough alpha, you need to be super concentrated in what you’re running.

Jason Buck:

Is it Bechuanas or Wiggles worth or both that just wrote about Bogle and have you read it any of those book? Like I think it-

Corey Hoffstein:

Was both, right? So, Bechuanas wrote… Wow, this is really embarrassing that I can’t remember the name. Wow. This is really embarrassing.

Jason Buck:

We’ll put it in the show notes. I’ll give you a second to look it up, but what he also-

Corey Hoffstein:

He wrote The Bogle Effect, didn’t he? He just wrote The Bogle Effect.

Jason Buck:

Yeah.

Corey Hoffstein:

And didn’t Robin Wiggles worth, didn’t he write Trillions?

Jason Buck:

Trillions. Yep. I can remember Trillions because I think that’s what we’re both chasing. Right? Trillions.

Corey Hoffstein:

Yeah. I think I’m like literally Googling this as we do this. Yeah. I think it was Trillions. Yeah.I think Trillions is more about passive specifically just how like passive changed the world. But I haven’t read either, not for lack of wanting, but as you know, living in Cayman right now, getting those books is actually pretty difficult. I’m back in the states in two weeks and hopefully picking up lots of good summer reading.

Jason Buck:

Yeah. You don’t have that Amazon effect nor did I see any great bookstores when I was walking around Cayman.

Corey Hoffstein:

There’s one bookstore that I know of and you’re lucky if you find any investment books.

Jason Buck:

What it does remind me of in a way though, like every business is hard and starting up any business is hard. And so I always think about, because a long time ago I was in restaurant business and everybody is a decent home cook or can throw a good house party. Everybody goes, “You should start a restaurant.” And then they go and do and nine out of 10 fail in the first year. And it’s because of lack of like professionalism or forethought, really more than anything. And typically almost any business that fails in the first year is usually under capitalized due to like hopium, right? Hopes and dreams. Every business is hard. We were having a conversation at lunch the other day with some other business owners. And it was like, what always fascinates me too is it’s all the same shit. Right? It’s like revenues, minus expenses, equals profit. But every industry has-

Jason Buck:

Revenues minus expenses equals profit. But every industry has this moat around it, where they have specific nomenclature that tries to keep everybody out. In commercial real estate, we talk about cap rates. In other businesses, it’s IRR versus ROI, or whatever. Every one has different things, but at the end of the day, business is hard, it’s a struggle, and everybody’s doing the same thing. There’s not too many terribly moving parts to the overall, like I said, revenues minus expenses equals profits. That’s just one way of looking at it, and then you looked up which ones you were looking for.

Jason Buck:

The other thing I thought would be interesting to talk to you about while I was sitting on the plane, in my head, I was thinking, “What would people want to hear from Corey?”. Before I get to that though, as I lead the witness here, is when we started Pirates of Finance show, do you feel like that’s starting an entrepreneur business? Or, do you think that’s a media arm of what you’re already doing at Newfound Research?

Corey Hoffstein:

You know those people that call everything a call option, and you hate them?

Jason Buck:

You know I hate when everybody uses options to describe everything in life.

Corey Hoffstein:

“Pirates of Finance was a call option.” I looked at it more as continuing to extend an experiment in media. You and I have had a lot of discussions. I think we’re in an era where personal brand is incredibly valuable, and I think personal brand is incredibly valuable within asset management. Even though I have a really strong emphasis on systematic and quantitative approaches, when you look at major systematic firms, there’s typically a figurehead. It’s because people like people. For me, it’s important that Newfound has a figurehead. For many years, I was reluctant to play that role. I eventually decided to step into it. You and I, I think, both agreed that there was a large lack of sophisticated, I’m going to use sophisticated in quotes here, for anyone who’s just listening. I don’t know if I’d call what we do sophisticated. But, especially coming out of 2020, there was a huge amount of content going on YouTube that, I think you and I both watched and said, “This is really doing a disservice to people. It’s not thoughtful. It is encouraging potentially very bad behavior.”

Corey Hoffstein:

We thought there was an opportunity to do something, particularly on YouTube, and maybe experiment with other things, like Instagram and TikTok eventually, to put some more thoughtful media out there, from the finance space. We’ll see if it resonates.

Corey Hoffstein:

We made a big pivot. We did the original Pirates of Finance show for, I think, 22 episodes, where we had to come up with a topic every week, and we did more of a deep dive, and it was heavily edited. I will say, I don’t think we got the traction we were hoping for. It was an experiment that, for lots of reasons, maybe it didn’t work. You and I didn’t do a ton to promote it. We did a lot of work on it, and this has, I think, probably been the big failure of my entire career. I do a lot of work on something, and I get it out the door, and I just forget about it, versus, we should have maybe spent more time promoting it, or hired someone to promote it. We’ll see if this new format works. I think there’s a core audience that seems to enjoy what we do, but I don’t know if it’s necessarily YouTube as a whole.

Jason Buck:

Yeah, well I think, you and I talked about it too, we probably needed to put two to three years into just consistently putting out episodes. But, that was such a heavy lift, especially on your side, as far as doing the more content-centric show like that. By the way, have you, it just popped into my head, have you used any of those skills you learned in editing for that show? You taught yourself editing, and you edited all those shows. Since we stopped doing that, have you used it for anything since then?

Corey Hoffstein:

Not a thing. This is how it goes with me, though.

Jason Buck:

Yeah.

Corey Hoffstein:

I think you know, I’m a bit of a control freak.

Jason Buck:

You think?

Corey Hoffstein:

My first season of the podcast that I did five years ago or whatever, I sort of did the first round of editing, and then I ended up hiring a fantastic editor. Shout out to Matthew Passy, who is an unbelievable editor, who now edits everything for me. I need to go through that process of learning it myself, and this is probably a big flaw of mine. I need to learn something myself to understand how difficult it is, to then really value someone else doing it. And go, I know I should pay you, and I know what good quality looks like because I’ve tried this and I know how hard it is.

Corey Hoffstein:

Now of course, everything’s hard when you first start. But after 22 episodes, I knew how long it would take for me to edit something, so I knew if we were going to hire someone to do that type of editing, the type of knowledge they’d need, both from a finance perspective as well as an editing perspective.

Jason Buck:

We talked about that a bunch of times. I don’t think it’s anytime wasted when you’re teaching yourself that because then you have a context, or framework, for hiring people and like you said, to know who you want to pay for that. More importantly, a lot of times you’ll fire a lot of people trying to find that good one, so you’re wasting time and money if you don’t know exactly what you’re looking for and you knew exactly what you were looking for. For those that don’t know, that’s a hidden gem there, Matthew Passy, is probably the editor of any finance podcast you love.

Corey Hoffstein:

Every finance podcast out there. I think he does Patrick’s, mine, yours, Brewster’s.

Jason Buck:

He doesn’t do ours.

Corey Hoffstein:

He doesn’t do yours?

Jason Buck:

He does Brewster’s, Yinh Hinh’s. Who else?

Corey Hoffstein:

He does Michael Batnick’s.

Jason Buck:

Yeah.

Corey Hoffstein:

He is the man pulling the strings behind the entire finance podcast scene.

Jason Buck:

That’s amazing. The other thing I thought that would be fun to talk about, because what I think happens a lot is, you and I are just jumping into conversation. I think when you have your own podcast, but we rarely hear about Corey. If we do, it’s usually about a paper you’ve written, whether it’s return stacking, or rebalancing timing lock, but we don’t hear too much about your bio.

Corey Hoffstein:

That’s on purpose.

Jason Buck:

I know it’s on purpose, so I’ll make you uncomfortable. As you’ve learned, I’m actually a fairly private person. I’m going to turn the tables on you a little bit. When you originally went to school you went to Rochester Institute of Technology, correct?

Corey Hoffstein:

Yeah, I went there my freshman year.

Jason Buck:

When you went there, all bright-eyed and bushy-tailed, was it 18 year old, or 17 year old, or 16? Did you skip grades?

Corey Hoffstein:

No, I showed up at 18.

Jason Buck:

18. What did you think you were going to study? What was your grand plans in life at 18?

Corey Hoffstein:

I had taught myself to program when I was 12, I think, because I wanted to make video games. In high school, I actually on the weekend, I went to a private high school in New England but I wasn’t a boarding student, I was a day student, and I lived 45 minutes from school and my friends were all over Massachusetts. Actually when I was too young to have a car, I couldn’t go see them on the weekends, so I would spend Friday nights, basically coding and on AOL Instant Messenger. I taught myself how to program video games. I programed video games for the Game Boy Advance and actually had like these cartridges that I would flash ROMs onto that I built, and I would play them on my Game Boy. By my senior year wrote my own scripting language and 3D game engine as a senior project. Yeah, I really thought I was going to go on and make games for a living.

Corey Hoffstein:

Then I got to college, and did my first sort of official computer science classes and realized I didn’t particularly like my classmates, nor did I particularly care all that much about the classwork. It became very apparent to me that this was not something I wanted to spend the rest of my life doing.

Jason Buck:

Well one, I don’t think I ever told you when I was in middle school in Michigan, my best friend left and went to Deerfield Academy, in central or western Massachusetts near Amherst I think, if I remember correctly. I wanted to go so badly, I was begging my parents to go there and everything and never ended up going. Of course, I ended up at like the IMG Academy at a Sports Academy for my senior year, but that’s nowhere near the Deerfield Academy.

Jason Buck:

I wonder, when you said you started to teach yourself at 12, you were playing games on your Game Boy, I think about when I first went to university, I studied international business. Just being an entrepreneur since I was a little kid and being around both my parents are fairly entrepreneurial as well, just like your dad is. The international business classes were super easy for me, so I was bored there. Then my other passion is comparative religions and world religions and mysticism. But like you said, I was almost bored as well, so I just started at the 400 level classes in my freshman and sophomore year. And they’re like, “You need to go back and take the electives” and I was like, I already knew more than my teachers on the basics of Buddhism because my dad was a Buddhist his whole life, and I was bored to tears out of my mind. So, you’re bored that freshman year, was it because you felt all that self-taught nature, were you just ahead of everybody else?

Corey Hoffstein:

I don’t know if that was necessarily it. I was put into some of the advanced courses because I also took the AP credits. So it wasn’t necessarily that I was more advanced because I was self taught. When you’re self taught, you don’t get all the formal side of things. I think there’s also this big difference between programming, software engineering, and computer science. And the thing I would stress for people who don’t know the difference, is that computer science as a degree can be done without ever programming. Computer science is a very theoretical concept and more or less is about algorithms and can be done with pen and paper.

Corey Hoffstein:

Software engineering is about the practice of being an engineer and how to develop software, which is a skill set. Managing tens to hundreds of thousands of lines of code is nontrivial. Developing these projects is nontrivial. The same way you might have a physicist versus an engineer, you can have sort of a computer scientist, who’s going to think about algorithms and run times and computer structure, and then you can have a software engineer, who’s going to take many of those ideas and actually build the building. And then programming is the skillset by which that building gets built, but it’s just a skillset.

Corey Hoffstein:

So me learning programming was not really computer science. I wouldn’t say I was ahead, a lot of the things I had self taught and learned. Yes, I had learned some of the algorithms that we were eventually taught in computer science, but not formally. I don’t know if I was necessarily ahead. This is sort of arrogant to say, I did not find Rochester challenging as a school. I did end up transferring out and went to Cornell. I knew within about a month that I needed to leave Rochester, it wasn’t the school for me. I think ultimately what it was is I went through the computer science degree and said, “This just isn’t what I’m particularly interested in spending the rest of my life on”.

Jason Buck:

So, what appealed to you about Cornell?

Corey Hoffstein:

Well, that’s a good question because I actually went to visit it prior to going Rochester and I hated it. My mom always thought I would go to Cornell and I went there and I was like, “This is not the school for me”.

Jason Buck:

For our international listeners it’s about the coldest place and I grew up in frigid Michigan and the upstate New York, the wind just whips through there. It’s like negative 20 degree wind chill in the wintertime.

Corey Hoffstein:

I think Rochester was worse though. Going from Rochester to Cornell, wasn’t that bad from a weather perspective. I originally wanted to go to Brown, actually. I think the only two places I applied were Brown and Cornell. I had a bunch of friends at Brown. I was going to stay in computer science, even though I knew I didn’t want to spend my life making video games, I still liked programming and some of the aspects of computer science. So I knew I was going to stay in computer science. Cornell has a fantastic computer science program. Brown, I thought had some really interesting electives, ability to design your own degree that I really liked.

Jason Buck:

Did I tell you my sister did her undergrad at Brown? The other thing Brown known for is you can, speaking of electives, you can elect to not get grades at Brown.

Corey Hoffstein:

Yeah.

Jason Buck:

That doesn’t seem like you’re MO though.

Corey Hoffstein:

No, but I had a bunch of friends there who really liked it. I was just looking for somewhere to go and ended up getting wait listed at Brown and accepted at Cornell. That was sort of that.

Jason Buck:

But you said you continued along in computer science, even though that wasn’t what you necessarily like. So, you get your degree and then did you go out and work before you went to postgraduate?

Corey Hoffstein:

No. So I graduated in 2009, spring 2009. For those listening, I’m sure will remember that was not a great time period for jobs. I remember sitting in our graduation and whoever was doing the whole speech was saying how great it was that, something like a quarter of the class had jobs coming out of graduation and how proud they were. Cornell’s a pretty good school. You would expect more than 25% of the students to have jobs, but it was just a horrible, horrible economy.

Corey Hoffstein:

During Cornell, I really found a passion in finance, particularly quantitative finance. I loved this sort of application of the things I was learning in computer science to the field of finance and found all these financial engineering degrees. Said it was sort of for me. Carnegie Mellon at the time was the top program, their computational finance program. I applied and ended up getting in. I went right out of undergrad, right into grad school to Carnegie Mellon. I knew myself, that if I didn’t stay in school, I was never going back.

Jason Buck:

Oh, that’s a good point. Yeah. It’s tough. It’s tough to go back. But also, I took time off and went back as well, but it was great to have some life experience go back in adult because I took it much more seriously. I knew why I was there instead of just going to check boxes, but I was just thinking, you just touched on all the beautiful places in America from Rochester, to Ithaca, to Pittsburgh. But I’m curious, what kind of student were at, even at Cornell? Were you just extremely studious, and then just go balls to the wall on the weekends? I’m just curious what, what young Corey Hoffstein was like.

Corey Hoffstein:

No Corey Hoffstein was studious, but not to the point of, I never needed to get all A’s. I was sort of someone who wanted to learn for myself and if I didn’t care about a topic, it was really hard for me to put the time and effort in. I never got bad grades, but if I didn’t care about something, I was a B, B+ student. And if I cared about something, I was an A, A- student. I was never going all the way to A+, but that’s sort of where I lived.

Jason Buck:

At your prep school, you played lacrosse. Did you try to ever think about walking on Cornell’s team or anything and doing any of that or playing club?

Corey Hoffstein:

No. I thought about walking on at Rochester. Ultimately ended up playing club and then I got to Cornell and was like, “These kids are really damn good”. At that time, Cornell had probably one of the best teams in the country. I don’t know if that’s true anymore, but they had a really phenomenal team and they were just at another level. Even though I went to a prep school in new England playing lacrosse, the division we were in was not a sports division. I played varsity my freshman year in high school, which never would’ve happened at a real New England sports prep school. I was not the best lacrosse player, despite the fact that I was captain on my team. So going to college and going to Cornell, I was like, this isn’t going to happen. I actually ended up playing rugby for a bit, which was pretty fun.

Jason Buck:

Wow. So when you think about all those memes about like Chad lax bros from New England, do you take offense to any of that? Because you’re almost like the opposite of that mentally, but then obviously physically you did that as well.

Corey Hoffstein:

No, that was 100% me. In high school I had double popped collars, I had a lanyard, we hung out on the quad and threw lacrosse balls around. I had a hat and like the curliest hair sticking out of my hat. It was just like, lax bro lettuce everywhere. I don’t take offense, that was a 100% who I was. My entire identity.

Jason Buck:

Then coming out of Carnegie Mellon then, why didn’t you end up on Wall Street because that would’ve been like the pure path for you, right? You were checking all of those boxes.

Corey Hoffstein:

So it turns out Wall Street wasn’t really hiring at that time.

Jason Buck:

Cornell graduated in 2009. When did you graduate from Carney Mellon?

Corey Hoffstein:

December, 2010. So it’s not true. They were hiring, I’m sort of making a joke there. But a lot of those derivatives desks were dismantled. A lot of my friends who did go work at Wall Street, ended up finding themselves out of jobs within two or three years because internal hedge fund desks were getting spun out and couldn’t necessarily take them with them. So a lot of the jobs that my degree had prepared us for, which were sales and trading jobs specifically related to complex derivative structuring, just sort of disappeared from the banks. And if you actually look at these programs now, they’re much more buy-side focused. There’s a lot more machine learning and portfolio construction and factor analysis. I think a lot more people would end up working at something like an AQR than they would a JP Morgan or Deutsche Bank.

Jason Buck:

Well isn’t that Dodd-Frank or the Volcker Rule where basically they’d get rid of all their projects.

Corey Hoffstein:

Exactly. That was happening while I was in grad school. Doesn’t mean the banks weren’t hiring because they still need quants in a lot of roles. It was just the demand had gone down and the roles got a lot less interesting. But the real reason that I didn’t end up going to work on Wall Street was because when I was undergrad, that’s when I actually started Newfound. Newfound Research was named Newfound Research because I had built some quantitative models that I got introduced to a local asset manager in Boston through one of my internships. He liked the models that I was running. I ended up licensing him signals from the quantitative models. I named Newfound Research after a lake in New Hampshire that my family used to have a cabin on, and I called it Research because we were providing research and honestly I thought maybe I’d get beer money.

Corey Hoffstein:

The guy basically wasn’t running any assets on it and said if I raise any money, I’ll pay in these things called basis points. I had no idea what a basis point was, but by the time I got out of grad school, he had raised over a billion dollars using the research. So I had a company that all of a sudden had a bunch of free cash flow. And I said well, this is as good as time as any to try an entrepreneurial venture because it’s already bootstrapped and worst case scenario, I can always fall back and work on Wall Street.

Jason Buck:

What do you think now? The name Newfound Research.

Corey Hoffstein:

Everyone thinks we do research, which we did. So it’s not wrong, but I was at a conference once and someone said, “Well, if your name’s Newfound Research, why are you an asset manager?” I said, “Have you ever heard of research affiliates? Have you ever heard of applied quantitative research, AQR?” Like what do you mean I can’t have the name Research. But yeah, I probably should change the name.

Jason Buck:

Or even call it like Research Lab or Newfound Labs or something.

Corey Hoffstein:

Or Newfound Management, I don’t know.

Jason Buck:

I can’t imagine what I would name something as an undergrad and then having to stick with it all these years later, I would be like…

Corey Hoffstein:

Yeah, people ask me where did Newfound come from? I’m like, it came from the fact that I thought I’d be out of business in three months and I just named after a lake. There was no thought, I was 18. Or I guess at that point I was 20. You never know how these things are going to stick with you.

Jason Buck:

So it’s interesting to talk about licensing now because you and I have been talking about licensing stuff again recently. For anybody that maybe is thinking about licensing, what lessons have you learned or what would you do differently with doing any sort of licensing deal in the future?

Corey Hoffstein:

Well, I should be really clear, the licensing deal I did was not a full strategy. I think research affiliates really helped pioneer the model of you build investment strategies and then license the index of that strategy out and you sort of serve as an index provider or sub-adviser.

Corey Hoffstein:

I think it’s a brilliant business model if you can pull it off because it’s so asset light. It’s personnel heavy, but you’re not having to manage the compliance of funds. You’re not having to do all the regulator overhead. You don’t have to hire the sales teams, necessarily. You probably need product specialists that can go out. If all my product is being run by Invesco via ETFs and mutual funds, it’s their wholesalers that are out selling. I don’t need key accounts or any of that stuff. It’s really just at that point, a marketing game, which is, in this industry, focused very much on publishing thoughtful research, which is what they’re doing anyway. If you can pull off that business model, it’s brilliant. The problem is, people caught onto that business model and the fees you can charge now are very thin. I think research affiliates probably in some of the ETFs that they manage, are getting single digit basis points and are happy about it.

Jason Buck:

Or is part of the issue, like you talked about earlier, about trying to get on platforms and everything, let’s say you do get all that on, it’s almost like being on Amazon, you have no control over it. So you could just get kicked off the platform and lose all of your AUM and dips almost all the time.

Corey Hoffstein:

And you can get fired, right? You sort of asked the question, for example, like why does BlackRock continue to pay MSCI? Why don’t they launch their own indices and have their ETFs track their own indices? That’s sort of out of your control in many ways. And you can’t force the product advisor to lock in with your index for fiduciary reasons, so they always have the ability to fire you. They might have to change the name of the product, because they’re licensing some part of the product name from you, but that’s not really a big deal.

Corey Hoffstein:

The other side is that you lose control of the sales. I used to sub-advise for a fund company and when they’re not your sales people, you cannot force them to sell your product. My experience is most wholesalers in the asset management business, carry three products around at any time. It’s like a fixed income product, an equity product and maybe an alternatives product, and it’s whatever’s performing really well. So if you’re a sub-advisor at a fund company that’s got 40 funds, the only chance you really have at selling is if your brand is good enough to sell, or you have really hot performance. Other than that, the sales people are just going to ignore you and you are really prohibited from going out and selling that product on your own.

Jason Buck:

It jumped in my head too, he’s never going to watch this because he is living the dream, but Chris Abdo Macia also went to Cornell. Do you guys ever talk about Cornell stories, even though Chris is a little bit older than you are?

Corey Hoffstein:

Never. I try to avoid mentioning I ever went to Cornell because it’s like.

Corey Hoffstein:

Never. I try to avoid mentioning I ever went to Cornell because it’s like, who’s the guy in The Office that always talks about he went to Cornell?

Jason Buck:

I don’t know. But it’s like Harvard, right? You find out in the first five minutes if somebody went to Harvard because they’re always telling you, right? [inaudible 00:48:14].

Corey Hoffstein:

Cornell is just like, they had a great engineering program, but they’re like the runt of the Ivy Leagues. I don’t know. I’m not one of those people that takes like great pride in the schools I went to. I know people love their schools. I’m not a school pride person. It doesn’t define me and nor do I think you should be proud about something that you did, I don’t know, what’s that coming up on, 20 years ago in my life. Who cares anymore?

Jason Buck:

Right. I would think part of it is you either go to a state school that has amazing athletics and people get really into that. And that’s what they carry on for like the rest of their life is almost that passion for athletics. Or you go to an Ivy League school, like you did, and then people love telling people they went to an Ivy League school. But like you said, who cares? It was 20 years ago. Are you carrying around your CV?

Corey Hoffstein:

Yeah. Again, if I’m still talking about stuff I did 20 years ago it means I haven’t done anything interesting in the last 20 years. I don’t know. I would hope you’ve grown as a person and have accomplished more interesting things in your life that that’s not what you want to talk about anymore.

Jason Buck:

So before we move on from the initial licensing business and Newfound Research, what actually were the models you were developing as an undergrad? Why were they so interesting and why did other people find them interesting?

Corey Hoffstein:

Yeah. So at the time what I was working on, to make a very long story short, is I had developed some dynamic trend models that I was running on US sector ETFs. And the gentleman who saw what I was working on really keyed in on the idea that the portfolios I was trying to build had the ability to go to cash. So I was using these dynamic trend models on US sector ETFs to then build portfolios that could be up to a hundred percent cash. And this was during the 2007, 2008 period. So during 2008, for example, my models had said, hey, get entirely out of financials and all that sort of stuff. Stay long energy until about midsummer 2008. And then for all a Q4 2008, Q1 2009, all the signals were in cash. And that was a very unique proposition at that time, sort of an equity strategy that could go a hundred percent to cash.

Corey Hoffstein:

And again, it was just trend following. Sort of a dynamic approach and a unique approach to trend following, but it was more or less trend following. And it was very early on in the era of ETF strategists. So this is something that came out of the 2008 period. Technology platforms enabled unified managed accounts, UMAs. And so what this basically allowed is asset managers could put their portfolios up on technology platforms like Envestnet and advisors could subscribe clients to those portfolios as just a sleeve within a client account. And then it could be managed in t