I’ve absolutely loved connecting with curious investors who have grown and evolved their views over the years.
Remaining rigid and static in your approach often leads to herding, groupthink and stagnation.
The opposite of that is to be open minded and willing to absorb/reject new information like a sponge.
This enables one over time to have the capacity to run a sophisticated portfolio on par with professional investors.
Fortunately, we’re blessed to have Jose Ordoñez Jr. of Slow Brew Finance share his personal journey with us as part of the “How I Invest” series.
It’s refreshing to hear how Jose’s views have evolved over the years through a relentless journey of education and how he’s become self-aware enough to have overcome stumbling blocks along the way.
I could spill the beans of the “golden nuggets” we’ll unearth in this interview but I’d much rather turn things over to Jose!
Meet Jose Ordoñez Jr of Slow Brew Finance
My name is Jose Ordoñez Jr.
I’m originally from Bogotá, Colombia and I’m a filmmaker and editor currently based in Waco, Texas.
I also run a little YouTube channel called “Slow Brew Finance”.
The goal for the channel is to provide sensible, implementable advice on personal finance while keeping a stoic view on life.
The name of the channel comes from the idea that people should live their “ideal” day every day – to stop chasing “retirement” as a means to escape the day to day, and challenging people to slow down (as if slowly drinking a cup of coffee).
All in all, I want to help both hardcore finance nerds and beginning retail investors from every background understand that money is a tool that can serve us, and that we shouldn’t live to serve it.
Yet, understanding how money works is part of that journey.
My goal is to be a cheerleader (sometimes even a coach) in my viewers’ money walk.
How I Invest With Slow Brew Finance’s Jose Ordoñez Jr: Concentrated Factors, Risk Mitigation Overlays and Systematic Strategies
source: Slow Brew Finance on YouTube
Hey guys! Here is the part where I mention I’m a travel content creator! This “How I Invest” interview is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor.
Investing Journey: From Dave Ramsey to Alpha Architect And Everything In Between
Who were your greatest influences as an investor when you first started to get passionate about the subject?
How have your views evolved over the years to where you currently stand?
If you had to recommend a handful of resources (books, podcasts, white-papers, etc) to bring others up to speed with your investing worldview what would you recommend?
Thankfully, I started my journey with probably one of the most sensible voices in personal finance, Dave Ramsey.
Though I now disagree with Ramsey on some subjects (most obviously, his investing advice), I’m glad he was there to correct me from “going for broke.”
I went from being a Ramsey die-hard, to learning how to use money to enhance my life with Ramit Sethi, to being a Boglehead with J.L Collins, to discovering about small-cap value with Paul Merriman, to digging into factor investing with the Rational Reminder community, Ben Felix and Cameron Passmore, to questioning predictability with Nassim Taleb while reading Incerto; and all of which lead me to consuming lots of content from the Alpha Architect, Newfound Research and ReSolve crew.
I can say that Nassim Taleb probably had the biggest impact in my investing philosophy, while (as you’ll see) the Alpha Architect folks had the biggest impact in terms of how I think about actual portfolio implementation.
If I had to pick some books to read I would recommend Incerto by Nassim Taleb, and all three books from the Alpha Architect crew.
In terms of podcasts, nothing beats The Rational Reminder, though I’ve been enjoying Pirates of Finance as of late.
From Overconfidence As An Investor To Sensible Risk Taking
Aside from investing influences, what real life events have molded your overall views as an investor?
Was it something to do with the way you grew up?
Taking on too much risk (or not enough) early on in your journey/career as an investor?
Or just any other life event or personality trait/characteristic that you feel has uniquely shaped the way you currently view yourself as an investor.
A major life event.
What has helped shape the type of investor you’ve become today?
There is so much about investing and finance that we pick up from our environment that gets deeply ingrained in our subconscious; kind of what Ramit Sethi calls our “money lens”.
One of the many wrong lessons I picked up from my childhood is that overconfidence is a good thing.
It’s taken me a while to realize that I even had that bias for a long time.
Perhaps one of the biggest decisions I have made is to reject a lot of what I was taught implicitly and explicitly as a child.
This was hard!
I come from a poor family in Colombia, and the only reason I ended up where I am was because my family was overconfident and we had a one-in-a-lifetime right-tail event.
But it’s taken me a while to figure out that while risk-taking can be good, overconfidence is not.
Sometimes it’s hard to distinguish one from the other, but that’s where wisdom comes in.
Building A Robust Portfolio: A Premium Paid Over Time
Imagine you could have a three hour conversation with your younger self.
What would you tell the younger version of yourself in order to become a better investor?
If I could have “leaned into” factor investing from the get-go, I could have avoided a lifetime of tinkering with my portfolio.
I believe my portfolio has only gotten more robust over time, but there was definitely a premium I had to pay for that robustness.
Portfolio Goal: Highest Expected Returns With Protection From Far Left-Tail Events
Let’s pop the hood of your portfolio.
What kind of goodies do we have inside to showcase?
Spill the beans.
How much do you got of this?
Why did you decide to add a bit of that?
If you’d like to go over every line-item you can or if would be easier to break your portfolio into categories or quadrants that’s another route worth considering.
When do you anticipate this portfolio performing at its best?
I think the best I can do here is show you my portfolio and break it down from there:
I think any investor could spot risk-parity denotations from the get go.
While that’s certainly true, that might not tell the whole picture.
My portfolio’s goal is “to target the highest expected returns while attempting to eliminate the far left-tail events.”
I utilize implied leverage via futures and concentrated factors to target high expected returns, and risk parity, trend following and tail hedging to mitigate blow-ups.
What you also notice is that there’s nothing in my portfolio that talks about tracking error or short-term performance.
So I can totally let go of those assumptions – hence, building a portfolio that might not be fully mean-variance optimal.
From what I’ve seen, value and momentum are the most robust factors with the largest premiums in the market.
Targeting those sounds like a no-brainer to me if the idea is to target expected returns over the long term.
That is what I believe will ultimately bring the dough home.
I utilize VMOT to get me those concentrated exposures.
VMOT does incorporate trend-following systems, and they are there to keep me humble.
There are dark events lurking in the future, and I have no idea what they are, how deep of a drawdown they could bring, and most importantly, how I will react to them.
One of the best ways to use risk mitigation systems while somewhat preserving the same expected return is to use trend-following rules to avoid steep drawdowns.
I expect this portfolio will perform its best when value and momentum “merge” and there is a strong beta trend.
I also expect it to underperform when we have a choppy bull market.
Basically, this strategy has stunk for the past five years or so.
However, this is not a 5, 10, 20, or even 40 year strategy.
I hope this strategy survives not just my generation but also my kids’ generation, and then some more.
Just within this exposure, I have built a portfolio that sticks with my goal “to target the highest expected returns while attempting to eliminate the far left-tail events.”
Now, equities are awesome and should get me a nice return over the long run.
But any educated investor could spot an undiversified portfolio from a mile away. Instead of watering down returns with additional diversifiers, I wanted to take a different approach.
What if I could “stack” a portfolio on top of this already pretty robust portfolio, that largely diversifies the current portfolio and brings additional returns over the long run?
That’s where the rest of the portfolio comes in.
source: Slow Brew Finance on YouTube
I run my own rules-based managed futures by going long/short in commodities and treasuries.
Because this divergent strategy can bring about returns when trends persist (mainly during times of crisis), I need something to offset mean reversion.
Unfortunately, VMOT is already heavily invested in trend-following and mainly located in retirement accounts, so I need a couple of “ballasts” to complement my taxable futures exposure.
All weightings are based on maintenance margin and VaR measurements.
First, I own some SPUC, a Simplify product that provides passive exposure to the S&P 500 while targeting upward convexity by buying OTM SPY calls.
This portion only has one goal, and that is to dampen the fall when my futures exposure mean-reverts.
The convexity portion here is the key.
The faster the mean-reversion, the more exponential the returns and the “softer” the landing may be.
Secondly, I overemphasize liquidity.
Messing with futures is like playing with fire.
Liquidity is like playing with fire near a pool of water.
Lastly, I have a bit of tail-hedging via short term VIX calls using VIXY.
Again, the key here is to provide convexity.
This portion will have negative carry over the long term, but it’s there to soften blows when correlations go to one.
A lot of products out there try to dampen decay in their tail-hedges, but that kills convexity, which is key in my opinion.
As you can see, adding an additional portfolio on top of an already-existing equity portfolio needs a lot of consideration and thought, so I wouldn’t go around recommending people do this.
All in all, my preference is for simple systematic strategies with heavily concentrated factor exposures and risk mitigation overlays.
My portfolio is not that simple, but it’s potentially as simple as it gets to meet my desired outcomes. If the reader sees any simpler way to go about what I’m doing, please email me 🙂
Understand The “Why” Of Each Component Of Your Portfolio
What kind of investing skills (trading, asset allocation, investor psychology, etc) are necessary to become good at the style of investing you’re pursuing?
Is there a certain type of knowledge, experience and/or personality trait that gives one an advantage running this type of portfolio?
Perhaps an obvious point, but being numerate is a requirement for quant investing.
I think that in order to implement my portfolio style, a person should be really educated on the why behind each component.
Understand why momentum works, why value works, and what to expect when going trend following (spoiler, it sucks most of the time).
Also, not just understanding the asset classes, but being able to look at the funds I chose and understand how they are implemented.
That’s a huge reason why I went with Alpha Architect.
Wes and company are as transparent as any money manager can be.
I understand the process and the why behind it, and that makes me really confident in sticking with it through thick and thin.
I know how it works and why it works, I just don’t know when it will work.
But that’s investing in a nutshell.
Generally speaking, I wouldn’t recommend retail investors mess with futures.
It may be better to look for products that do what you want.
Cracked Portfolio Version: Pure Global Momentum And Value
What would be a toned down version of your portfolio?
Something that’s a bit watered down.
Conversely, what would be a more aggressive version of your portfolio, if someone were willing to take on more risk for a potentially greater reward?
If I was at the beginning of my investing journey, I would consider just tilting globally toward factors with AVGE and RSBT to the taste.
UPAR and BLNDX are also sister approaches of what I’m trying to do here.
I’ve also been eyeing Simplify products just for fun.
It’s the equivalent of looking at beautiful pieces of art.
Some of their ETFs can get a bit too convoluted, so the construction has to be well thought-out.
A “cracked” version may be removing all trend-following and asset class diversification and just go with pure global value and momentum.
That would be fun (and painful) to watch.
Avoiding Discretionary Shadows Via Systematized Investments
What do you feel is your greatest strength as an investor?
What is something that sets you apart from others?
Conversely, what is your greatest weakness?
Are you currently trying to address this weakness, prevent it from easily manifesting or simply doubling down on what it is that you’re great at?
My greatest strength is (hopefully) being able to tamper overconfidence.
The best medicine against overconfidence is making sure my investments are systematized, so I don’t have any discretionary shadows in my portfolio.
It’s really important for me to eat a bit of humble pie and temper my emotions by hiding behind a spreadsheet.
Conversely, my greatest weakness is that I’ve “kept up” with my portfolio.
I like looking at the real time performance for some dumb reason.
I’m trying to get to a point where I peek in only when necessary, lest I get too tinkerish.
source: Slow Brew Finance on YouTube
Data-Mining Disguised As Expertise: Robustness Over Volatility Tampering
What’s something that you believe as an investor that is not widely agreed upon by the investing community at large?
On the other hand, what is a commonly held investing belief that most in the industry would agree with that rubs you a bit differently?
I am a healthy skeptic about so-called “experts”.
I’m very aware of data-mining tomfoolery disguising as expertise.
Especially when factor investing, it’s important to look at the economic theory behind these factors.
But also, believing in things that lie outside of the efficient market hypothesis that also make sense in “real life”.
As an example, lots factor investors don’t believe that managed futures have any credibility when tons of backtests and live funds perform exactly as they should.
It’s important to not cling to any model so tightly that you forget the complexity of, you know – the Universe.
Finally, as I mentioned before, I am not a mean-variance optimizer.
I totally get the appeal, and believe that I am (and should be) an outlier.
But to me robustness takes precedence over volatility tampering.
Sometimes robustness looks like destroying returns via whipsaws; where in a mean-variance optimal world that would be a “no-no”.
Again, risk to me looks like a left-tail distribution, not deviation from a benchmark.
Looking At Complex Products To Better Understand Them
What’s a subject area in investing that you’re eager to learn more about?
If you knew more about that particular topic would it influence the way you’d construct your portfolio?
I like looking at different complex products to try to understand them.
It’s just a nerdy guilty pleasure.
I am not expecting any of it will affect my actual portfolio, given my investing goal.
I think that question has already been answered for me.
But it’s definitely cool to figure out how certain pieces of the puzzle may fit together given different needs and wants.
Also running a managed futures program has made me super curious about commodities, alternative investments and technical analysis.
I never thought I would become “that guy”, but here we are.
I am a huge skeptic of “tea-leaf reading” in technical analysis, which actually prompts me to understand the subject more.
I hope all this teaches me how to run my own futures program more effectively.
source: Slow Brew Finance on YouTube
No Thanks To Buy and Hold Crypto, Flipping Real Estate and Home Country Bias
What would be the ultimate anti-Slow Brew Finance portfolio?
Something you’d never own unless you were duct-taped to a chair as a hostage?
What about this portfolio is repulsive to you?
Conversely, if you were forced to Steel Man it, what would potentially be appealing about the portfolio to others?
What is so alluring about it?
Any kind of buy and hold crypto exposure would be awful in my eyes.
Maybe it works if every currency gets devalued and everyone somehow agreed Bitcoin is man’s last hope.
I’d miss out hard on that. Conversely, trend-following crypto does not sound like a dumb idea to me, and I’ve considered doing so in the past.
Buying real estate, flipping or renting it would be hell to me.
But that’s just my personal aversion to owning real estate, and has nothing to do with the actual returns of the strategy (though maybe I could replicate using liquid securities).
I would hate having to keep up with old buildings and broken ACs.
But given where valuations are at as we reach a potential “steady-state,” I can see how price-inefficient income-producing markets have become alluring to retail investors.
Lastly, holding the S&P 500 index alone is so dumb in my eyes.
At least diversify globally a la VT (I’m actually a closet VT-and-chill believer).
You could not force me to invest 100% in the S&P, especially now.
But maybe the U.S. truly becomes the only last true beacon of capitalism and businesses can only prosper here till the end of ti- sorry, that just sounds ridiculous, haha.
I don’t think I can steel man this one.
I just don’t know why people wouldn’t diversify globally, especially hard-and-fast EMH believers.
Connect with Jose Ordoñez Jr of Slow Brew Finance
The best place to go is my YouTube channel www.youtube.com/@SlowBrewFinance, my Twitter @SlowBrewFinance or my website www.slowbrewfinance.com.
I actually write a bi-monthly email newsletter called Slow and Steady with bite-sized practical personal finance thoughts and tips, so I would totally recommend people subscribe to it 🙂
Nomadic Samuel Final Thoughts
I want to personally thank Jose for taking the time to participate in the “How I Invest” series by contributing thoughtful answers to all of the questions!
If you’ve read this article and would like to be a part of the interview series feel free to reach out to nomadicsamuel at gmail dot com.
That’s all I’ve got!
Ciao for now!