In this week's Stansberry Investor Hour, Dan welcomes Cullen Roche back to the show. Cullen is the founder of portfolio-management firm Discipline Funds. He is also the author of several books, his most recent one titled Your Perfect Portfolio.

Cullen kicks things off with his thoughts on market uncertainty due to the Middle East conflict. He believes that volatile oil prices (and other commodities) will have an impact on the market. Additionally, he says that the U.S.'s attacks could prompt an escalating confrontation with China – where the latter decides to invade Taiwan and seize control of Taiwan Semiconductor Manufacturing (TSM), the world's largest semiconductor producer. And he expresses his desire to see a freer market unhindered by tariffs...

I think corporations should be able to dictate where they're going to trade and with whom they're going to trade. I don't love the idea of intervening in the markets... I've been really critical of that to a large degree because I worry about the way you have this negative knock-on effect, where China now, rather than trading with us quite so much, they start trading with India more, they start trading with their neighboring countries more, they start trading with Europe more. And this starts to fund investment in things that actually accelerate and closes the [technological gap] between the United States and these other countries.

Next, Cullen delves deep into AI and how it relates to his investing strategies. He states the risk that the technology poses with many companies and sectors pouring money into it. However, he doesn't see that outcome playing out. He then shares how AI has been beneficial for him and says that utilizing it in creative ways can help differentiate your business from the competition. And he gives his outlook on robotics and how that will impact jobs in the future...

The labor market that I always tell people that you actually need to worry about is, one morning, you're going to be driving down the road, and you're going to see a robot walking on a construction site carrying a nail gun. And that thing will wake up at 7:00 a.m., and it will start punching... 10,000 nails an hour... It'll navigate over complex construction sites, it will climb up second stories, and it won't require insurance. It'll operate from 7:00 a.m. until 7:00 p.m., at which point it'll shut down, recharge, and it'll start again.

Finally, Cullen details his exchange-traded funds ("ETFs") and what their purposes are. He also shares the time horizons for the ETFs so investors can know how to plan their strategies over those periods. But Cullen does allow flexibility with his funds to ensure that they can evolve and shift to match the changes in the markets and decrease risk. And he compares the pros and cons of using equal-weighted indexes versus market-cap-weighted indexes...

There's good and bad [in weighting strategies]. You could argue that there's a lot of good in that it creates a very efficient process for a passive fund. The problem, though, is that it's so static that there's no dynamic nature at all to these things where they can't evolve and change to [volatility]. So if the [Magnificent Seven] becomes 80% of the index, the S&P 500 will just look at it and say, "It is what it is"... And there's an argument that this is how the market has evolved... And then there's an element that would look at that and say, "Wait a minute. I now basically only own seven stocks in this diversified index fund. That's counterproductive to the whole point of indexing."

Click on the image below to watch the video interview with Cullen right now. For the audio version, click "Listen" above.

(Additional past episodes are located here.)

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This Week's Guest

Cullen Roche is the founder of Discipline Funds, an ETF firm focused on aligning investment portfolios with real-world time horizons rather than market predictions. For more than two decades, his research and writing have helped shape the discussion around macroeconomics and portfolio construction. He's the author of Understanding the Modern Monetary System, Pragmatic Capitalism, and Your Perfect Portfolio.

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Dan Ferris:                 Do you know what it means to temporarily structure your investment portfolio? I bet you don't, but you're going to learn it today, because that is exactly what our guest Cullen Roche specializes in as a money manager. In fact, he's created ETFs, DDV, DDX, DDXX, just to help investors do this very thing.

                                    And it answers perhaps the most important financial question you'll ever ask, which is, "Am I going to have enough money in X number of years when I retire, when my kids graduate from college?" All those big milestones that you're saving and investing for. That's what we're going to talk about. Cullen also has great views on what's happening with AI and global geopolitical risk. We'll talk about that, too. So let's do it. Let's talk with my good friend, Cullen Roche. Let's do it right now.

                                    Cullen, welcome to the show. Always a pleasure to see you.

Cullen Roche:             Dan, great to be back.

Dan Ferris:                 Yeah. All right. Well, I like the fact that you sent us four really good topics to talk about. And of course, whatever else is doing your mind is cool with me. You're somebody that we want to check in with frequently.

Cullen Roche:             Well, there's not much going on, so you know.

Dan Ferris:                 [Laughter] Yeah.

Cullen Roche:             So this is a fun recording. I'll talk to you guys next time.

Dan Ferris:                 That's right, the world is a boring place today. So the first thing that we have to talk about, because it's the thing that everyone is talking about, and it's natural for investors to ask about, is the fact that, how shall I say, the U.S. seems to have declared war, although it's, I'm told it's not a war on Iran. And oil was actually 100 bucks briefly. And as we speak, it has kind of plunged back down into the 80s, the last time I looked, maybe lower, I'm not sure, as we speak. What do you make of this?

Cullen Roche:             Boy, this just another one that's – adds a huge layer of uncertainty on top of everything else. The craziest part about this was you already had all this uncertainty going on with – like, the AI trade has just created so much uncertainty, especially in the labor market, is where things are really getting sort of messy right now. We saw with last month's labor report, the loss of 92,000 jobs. This is, finally, this is one of the first times where you're starting to see a real, an actual pullback in the number of jobs.

                                    And so from the, from, like, the [Federal Reserve's] perspective, and just the general economic outlook, I think everyone is pretty cautious about everything because of AI, of this underlying uncertainty with AI, and the way that's going to actually materialize in the especially the labor market. Like, is that going to cause a big bust eventually in the labor market, or is it something that is just sort of an evolution that we all have to digest?

                                    And so this whole thing, I don't know what's really going on. It's all very confusing to me. And I'm not a political strategist. I'm certainly not a war strategist. But from an economic perspective, I think this one is pretty black and white in the sense that this is an environment where the economy does not want to see anything that's going on with the price of oil that's been going on the last few weeks.

                                    Because the real simple math of this is that if you have, like, overnight, you actually had $120 crude oil. So it spiked, you know, it went from 90 to 120, and it round tripped it by, like the middle of the next day, back down to 85 bucks. But the crazy thing about this is that if you see this sustained oil price increase, you're going to start getting pretty high inflation readings, especially headline readings, where $110 crude oil translates into about probably 4% CPI.

                                    So you're talking about levels that start getting really uncomfortable. Where, even if you're at the Fed, you're looking at this and you're saying, ooh, the labor market is slowing, but we maybe have to be more cautious here, and see how all this oil stuff is going to materialize. Because if this starts to continue to flow through into other consumer prices, then we need to be more mindful of the inflationary impact here than we do the employment impact. And so –

Dan Ferris:                 Right. And the anticipation of rate cuts is, like, it's heading out the window, as far as I can tell.

Cullen Roche:             Oh, yeah. At a minimum, I think, the [federal-funds] futures curve has basically flattened over the last year. We were – just a few months ago, we were projecting three – the Fed Funds Futures market was projecting three rate cuts this year. So we're down to one now. And I think the probability now is increasingly moving to zero, because the – just the amount of uncertainty that this all creates through the way this is flowing through.

                                    And it's not only oil, really. Like, I've pointed out that earlier in the year, that the rise in commodity prices in general, and this has been fairly broad-based over the course of the last six months, especially, that whole commodity complex increase is an alarming increase, especially in a year over year basis.

                                    You're starting to see real, meaningful numbers flow through where this is going to translate into, at a minimum, you're going to continue to see this sort of sticky inflation environment where the trend over the course of the last, really, the last, like, 24 months, has been that inflation has been coming down, but it's just been stickier. It's been a little – it hasn't come down as much as I think the Fed would have liked, and the Fed probably expected. And so that sticky inflation makes them cautious, and this just, you know, this throws fuel on that fire.

Dan Ferris:                 So let me ask you something. I'm going to ask you the deep, the deep question, we're talking about inflation in the same breath that we're talking about price increases.

Cullen Roche:             Yeah.

Dan Ferris:                 But what is it really? What is inflation really? Because we know, you know, Uncle [Milton Friedman] was like, "It's a monetary phenomenon in all times and places," but we're constantly measuring it and talking about it, and everyone understands it, pretty much only as rising price, a general rise in prices.

Cullen Roche:             Well, it's confusing, because the way that the Fed would measure this is they want to put together, like the Bureau of Labor Statistics ("BLS"), and then ultimately, the way the Fed reads off of the BLS's data, is they're putting together a basket of goods that is representative of, like, a national average. And the phony thing about this, or the screwy thing about it, is that first of all, that basket is not a true national average.

                                    My basket is completely different from what your basket is right now, because you're out there buying daddy diapers now and stuff like that.

Dan Ferris:                 [Laughter]

Cullen Roche:             I kid. But no, you're buying completely different things than what I'm buying. And so your basket is very different than mine. And the basket that the BLS projects for the CPI, the consumer price index, does not really reflect anyone's individual price basket. And so there's a lot of discrepancies between the national basket and versus what your average consumer is measuring. But then, you also have just a measurement problem where a lot of these things are just very, very difficult to measure.

                                    And so measuring what the price level is, at any given time, is messy. And then the way that the Fed views it, the Fed views it as not just the changes in the price level, but a relative change in the price level. So they're looking at it on a year-over-year basis, or using a metric that, when they say inflation went up 2%, they would look at that, and say, "Well, on a year-over-year basis, the price level changed by 2% versus last year for this national basket.

                                    And you're probably sitting there, regardless of where you are, and you're looking at things that are more acute. Like, well, the things that matter to me have gone up a lot more than that. Sure, the price of a TV may have gone down by 10% in the last year, but my healthcare went up 20%, and the price of gasoline went up 15%. And the things that really matter to me went up a lot, and the things that didn't matter so much went down. And the Fed will say, "Well, yeah, but when then you average all these things out, and it comes out to 2%."

                                    And that's why, I think, the whole debate about inflation is really sort of messy, and politicized and controversial, because all of this is just, it's not relatable to an individual, and it's also, in fairness to the BLS, and the Fed and all of them, it's hard to measure this stuff, so it's just a really, it's an inherently, really messy debate. I like to look at lots of different metrics.

                                    It's part of why I like to look at commodity prices so much, is because when you, when you look at commodity prices, I think you can look at something that is, this is a true market measure. There's no subjective makeup of like, "Hey, this is a 'how many apples Cullen buys in a month,' or 'how many beers Dan drinks in a month,'" or anything like that.

                                    This is just a – when you look at commodity price index, like the Bloomberg Commodity Index, you get a really raw look at exactly what the price index is doing on a, you know, on a – whether it's a year-over-year basis, or whatever it is, you can look at commodities today, you say commodities are at all-time highs. So they're up whatever it might be, 20% year over year. Inflation as we feel it, and inflation, especially as corporations feel it, because that's really what commodities are, is commodities are ultimately cost inputs for corporations. There's a, there's a higher level of inflation today than what I probably think [personal consumption expenditures] or CPI would say.

Dan Ferris:                 Right. And even you looked at CPI, you know, sort of mostly like the bottom pre-2021, or so, or the top pre-2020, or so, is like the bottom now. I mean…

Cullen Roche:             Right.

Dan Ferris:                 And we've been above, you know, the target now for, I don't even know how long. It's like…

Cullen Roche:             Well, that's the screwy thing, too, about what's going on with oil now, is that – and you see this in gasoline trends, where, like, when the price of gasoline surges in, say, during COVID, 2020 or whatever, when it corrects, even if RBOB national gasoline futures come back down to where they were before, the retail price seems to be a little stickier, and it'll be sticky for lots of reasons. Regulations might have changed. The supply chains may have changed a little bit.

Dan Ferris:                 Right.

Cullen Roche:             Maybe the gasoline companies are – they're hedging themselves a little bit because now they're looking at this, and they're saying, and this is my worry about what's going on now. Trump came out and said, "Oh, well, don't worry about the gasoline prices or the oil prices. They'll be right back to where they were in no time."

                                    And I worry that when you get these big, big gyrations, especially to the upside, when they correct back down, the oil producers look at this, and they say, "Well, you know what? I now view this risk of Iran," or, who knows what it's going to be next, China, or whatever the big risk might be in the future, they say, "I've got to hedge myself a little bit from this risk, because this is now obviously a much more apparent risk than I perceived originally. And so I'm not going to let oil prices come back down to $65 or whatever they were a few weeks ago."

Dan Ferris:                 Right.

Cullen Roche:             They're going to – so the prices are going to come down, but they're going to come down to, like, 75 or 80 bucks. And then you start getting that flow through into inflation, where now, the price level got a little bit stickier. And so –

Dan Ferris:                 Right. The volatility. The volatility drives them just as nuts as it drives a trader or anybody.

Cullen Roche:             Yeah.

Dan Ferris:                 And they need sustained, just call it 70 bucks in the U.S. for the frackers, or at least, they need sustained 70 bucks for the independents, and the frackers in the U.S. They want to wake up and see $70 for months or so, weeks at least, right?

Cullen Roche:             Yeah, yeah. So you get in this environment where it all – it all just flows through and starts to look stickier. And this probably reduces the probability of interest-rate cuts throughout the rest of the year. It also just compounds a lot of the things that are already going on where, you know, I don't think, I don't think any firms are looking at the war in Iran, and saying, like, "Oh, we have to start firing workers." That's not, that's not really –

                                    In war, in general, it creates a lot of – at least, the wars of the last 30 or 40 years, I should say, they haven't created big economic disruptions. They will disrupt things in the short term, but in the long run, the U.S. economy kind of keeps chugging along. And, this, I don't know, this one is a little more worrisome.

                                    Because ultimately, the thing I worry about, and I've been saying this a lot over the last few years, is that what is the probability that all of this eventually leads to a confrontation with China in some way, where...

Dan Ferris:                 Well, it is a confrontation with China, now, in my opinion. I agree.

Cullen Roche:             Yeah, indirectly, nobody's going to admit that. Right?

Dan Ferris:                 Yeah. Yeah.

Cullen Roche:             But, yeah, I worry that, like, at some point, does China just wake up, and say, "The Americans, they feel like they can just go into Venezuela overnight. They feel like they can just go into Iran overnight. And so what's to stop us from just going into Taiwan overnight?"

                                    And then you get a real, you get a real shock, because then not only does the price of oil probably surge, but then the price of semiconductors explodes. And you then you get a real disruption, where, who knows how that could materialize. We all remember during COVID, when the Pacific transport supply line – supply chains all shut down.

Dan Ferris:                 And people don't understand that Taiwan is, like, Taiwan Semi itself, is like 70% and 90% shares of various parts of semiconductor production globally.

Cullen Roche:             Yeah.

Dan Ferris:                 It's enormous. It's enormously concentrated.

Cullen Roche:             It is so important, especially, this ties back into the AI trade, because the AI trade, obviously, and the amount of money that these big firms are pouring into all of this, that then starts to negatively impact the AI trade. Which, that's the thing that everybody's been worried about, especially for the U.S. stock market, is, does the concentration risk and the amount, especially of capex going into the AI trade from these big firms, at what point does that cause a big problem, if that were to peel back?

Dan Ferris:                 Right.

Cullen Roche:             And we haven't had that really happen yet. But, yeah, invasion into Taiwan, I think would cause that.

Dan Ferris:                 But it's inevitable. Cullen, I view that as inevitable. Rob Arnett Research Affiliates, they have good work on top dogs, the top 10 components. And the hyperscalers, have been in the top 10 for a while now. But it always, like, they rarely last a decade. You know, they always – those top 10, they always churn over time. There are targets, right? They're the biggest guy on the block, so they're targets.

Cullen Roche:             Yeah.

Dan Ferris:                 And what you're talking about is just another way that they're targets, I think. [Laughter]

Cullen Roche:             Yeah, God, I hope you're wrong. I hope it's not inevitable, but it does – it's starting to feel more and more like that, that this sort of confrontation with China is inevitable, and it'll be one of those things where, when it happens, if it does happen, everyone's going to say, "Of course. Of course, this happened."

Dan Ferris:                 Right. Well, I was just talking about the inevitability, for me, is the rotation of the top 10, you know, [crosstalk].

Cullen Roche:             Oh, I thought you were saying inevitable, that there would be a conformational with [crosstalk].

Dan Ferris:                 No, I don't think, in fact, if I had to guess, this has happened. That fellow, I forget his name, he wrote that book about the Thucydides Trap, where, where two great powers come up, and it's inevitable that they're going to come into conflict. But they don't – it doesn't have to be a war. It's not, it hasn't been a war every time. I don't think this will be a war.

Cullen Roche:             Yeah, I don't think, either.

Dan Ferris:                 There's too much on the line for a hot war, like, on either side – neither side wants that. But it'll be an economic, and a technological, and probably intelligence and all that kind of stuff, and these strategic moves like Iran and Venezuela. But I have to say, though, like as a – and no matter what you think politically, I don't care. I just care about the mechanism and the facts and what is happening.

                                    The U.S. hegemony is looking pretty solid in this hemisphere, with Venezuela, and the fact that we basically have reestablished that the Western Hemisphere is ours. And the projection of power, even into the Middle East now, is pretty awesome. And I don't mean awesome, like the way I think my favorite movie is awesome. I just mean huge...

Cullen Roche:             Powerful.

Dan Ferris:                 Yes, powerful, right?

Cullen Roche:             Well, our technological power is – I think it's become pretty clear, especially, you see this with the way the stock market has developed, and just the growth of economies. Our technological growth, has so far surpassed what so much of the rest of the world is doing, at this point, that it's not even really, I don't say it's not competitive.

                                    But especially with the Middle East and Europe, I think, unquestionably, we have just started to lap them in ways that is almost sad for the development, especially, of the way the European regulatory regime and stuff has sort of snuffed out a lot of any European innovation that seemed to have been in existence 10 or 15 years ago.

                                    So, it'll be interesting to see, though, the – I've been critical of the tariff policy, primarily because I worry that, like, I'm a, I'm a big free-trade advocate, in the sense that I think that markets should just be allowed to – corporations should be allowed to dictate where they're going to trade, and with whom they're going to trade. And I don't love the idea of intervening in the markets, in the tariff sense of the word.

                                    So I've been really critical of that to a large degree, because I worry about the way that the you have this negative sort of knock-on effect where, China now, rather than trading with us quite so much, they start trading with India more. They start trading with their neighboring countries more. They start trading with Europe more. And this starts to fund investment in things that actually accelerates and closes the gap in that technological gap between the United States and these other countries.

                                    And so, I think that that that has been sort of, I guess you could call it like an own goal, to use a bad soccer reference. And then, I think the, I also think the war in Iran right now is another sort of bad goal, in the sense that, you know, none of us are privy to exactly what's going on geopolitically. And this may be, who knows?

                                    There are rumors that this is some sort of second-level chess here, where they're playing the game well, and ahead of the rest of us, where they maybe know something about China or whatnot, or whatever is going on there. There's an angle that they're way ahead of the game.

                                    But from a purely acute economic perspective, if this sends oil to 150 or $200 for even for three to six months, or something like that, we get stuck in sort of a quagmire that we can't really back out of quite so easily, that is a – that's a hit to the economy that we cannot afford to have right now, because of all of the uncertainty across so many other spectrums.

Dan Ferris:                 Well, let's cross our fingers that we don't do that. Let's talk about AI, actually. Let's move on and talk about AI, because you I want to know what you're doing. There are clear risks here. You mentioned them earlier, right? How are you – let's talk about how you're viewing it in terms of risk, among wherever we are, where you think we are, in the AI cycle, the boom, whatever you want to call it, and what do you sort of – what are you doing about it? How are you navigating it?

Cullen Roche:             Yeah. Well, I think that it's going to be – my general view, I think has increasingly evolved to what I would call a sort of a disruptive decentralization. I think that – and what I mean by that, that big, big, smart-sounding word, is that, basically, I think that AI is super disruptive, but also decentralizing in the sense that it will – it empowers individuals, and especially small firms, in really, really huge ways. It exposes the big firms for what they are, which I think are clunky, bureaucratic, inefficient types of operations.

                                    That as these technologies become increasingly available, what this does is law firms are great examples, I think, where, let's say you have a law firm where you've got, let's just say 50 partners and 200 associates. And the way these firms make money, for the most part, is they bill. They bill hours. They're providing services. And they rely on not just those 50 partners, who charge, let's just say they charge 1000 bucks an hour, but all those associates, you know, they're charging, say, 250 to 300 bucks an hour, or something like that.

                                    Well, what happens in this environment where you have AI is, all of the sudden, a firm that has five partners, and, let's say, 15 associates, that firm, all of the sudden can start to operate a heck of a lot more like that really big firm, because that firm, now, the small firm, can scale all of these operations in really streamlined in much more efficient ways. And what this allows them to do is it allows them to become much, much more competitive.

                                    So you've got this, you have this boiling aspect, where the big firms now are sitting in this boiling hot water, and the small firms are getting much, much more powerful underneath them. And this creates a – this is capitalism 101, basically, that the small firms come in when they can more efficiently operate whatever the tool they're leveraging might be, they're then able to put pressure on the bigger firms.

                                    It brings prices down. It creates competition. And it, ultimately, it forces the big firms to evolve. It forces the big firms to probably start to shed workers in the long run. They have to now start cutting back. They have to reduce their pricing to become more competitive. And this happens across the services industry in mass in this sort of an environment.

                                    So it's not necessarily – this doesn't necessarily have to happen across the whole economy and won't happen across a lot of the, you know, especially any sort of like manual labor job, now, is actually pretty well insulated. Like the plumbers and the lumber workers of the world, the construction workers of the world, are all sort of laughing to work every day right now...

Dan Ferris:                 Right. That's right.

Cullen Roche:             ...looking at the white-collar service workers, who now all kind of are walking on eggshells all the time.

Dan Ferris:                 Right.

Cullen Roche:             But I think the lesson from this is that if you're, if you're a big firm, I think you now have to start being very, very creative about what you're doing. You probably have to start adding more servicers or whatever you're starting to do, because you're going to protect price cuts at any cost. You don't want to start reducing your billing rates or whatever it might be.

Dan Ferris:                 Right.

Cullen Roche:             And so I think that, though, from a, from a small entrepreneurial perspective, from a small firm perspective, this is a really, really awesome time to be alive, because now you have tools and the capability to start doing things that you never could have done. Like, I'll use my firm, as a great example, where, you know, as a financial adviser now, I have the ability, where I, in a lot of things that I would have worked on, tangentially, like, let's just use, like financial planning or estate planning or even tax planning, I have access to answers and tools now, that I just, I could have never, I would have had to outsource or rely on some other expert for.

                                    Whereas now, I feel like I've got a team of three or four experts in different arenas of the financial world, where I'm a much, much better financial adviser comprehensively now than I was a year ago, because I've utilized lot of these tools.

Dan Ferris:                 Yeah, granted. But let me ask you this, Cullen, like, OK, well, maybe I'll pick on you and your firm, OK, just to make the point, like, aren't you, to a certain extent, competing with people, like, and I'll just pull names out of air, you know, like Renaissance Technologies or even Fidelity, who have the resources to build like, especially like the energy that it takes to do a lot of this AI stuff. Tthose two firms, they could build their own data center and put their own natural gas powerplant in it, and their AI resources are going to dwarf what you can do, aren't they?

Cullen Roche:             Yeah. And I think that's the that's the outcome, where big firms that are innovative, that actually start to get ahead of the curve here, those are the firms that are, those are the big firms that are going to do really well in this sort of environment. It's the other firms that are clunkier, slower to get around to changes, and whatnot.

Dan Ferris:                 Totally agree. Yes.

Cullen Roche:             That's ultimately the big difference, too, between, like a better analogy between my firm and big firms is probably something more like a Merrill Lynch or a Morgan Stanley, where they have this army of financial advisers, who these people, not to knock on them, but this is just the way these firms work, they have operated with a certain framework for 15 to 20 years. And in order to get those frameworks to change, you have to go through the big bureaucracy of the big firm.

                                    Whereas, when I say, you know what, my portfolio management style is changing tomorrow, to pivot towards something that is more innovative, more advanced, we go to a board of one with me, and the Cullen Roche board of directors, where I say, OK, the firm now is going in this direction. We have to cut all the dead wood, and, you know, we've got to start charging ahead. So that's the advantage that small firms have over these big firms. And I think in the long run, this –

Dan Ferris:                 That's always been there, though.

Cullen Roche:             What's that?

Dan Ferris:                 I feel like that advantage has always been there, regardless of AI, though.

Cullen Roche:             Yeah, I just feel like this accelerated in ways that are really, really different, because I – I've always been like, I've always built my own websites and stuff like that. I've always been able to do things tangentially with code. But now, I can write code, and I can build software tools that I could have never even thought of building six or 12 months ago.

Dan Ferris:                 Cool.

Cullen Roche:             And so, for me, it's really cool, because especially if you've got any sort of creative or innovative angle on all of this, and you can really learn how to use these tools in really creative and differentiated ways, that's ultimately the big one for me, is that you can be creative in a way where you actually create a competitive advantage for yourself. Because you're doing things that are just differentiated, and creating moats for your business where, you know, you can be really, really innovative, and provide unique services to people.

Dan Ferris:                 Right. But you're also creating a similar thing to what we do, is you have a particular relationship with your client, right? They count on you for a certain level of prudence, let's just say, however you wish to define it.

Cullen Roche:             Yeah.

Dan Ferris:                 And whatever tools you use to fulfill that are, that's sort of an operational thing that Cullen might know, that the client might not. But to them, they just see that the relationship is as good as ever, and it's working as well as ever, etc., right?

Cullen Roche:             Yeah. And that's one of the interesting things, too, is that I – a lot of people have said that, that AI will come in and destroy large segments of, whether it's financial services, or the law profession, or whatever it might be. And I'm not, I'm increasingly not of that view, necessarily. I do think there's a lot of dead wood, especially at bigger firms, that's going to get cut over the course of the next five years, as this sort of evolves.

Dan Ferris:                 It takes over tasks. It doesn't ruin professions, right? It takes over tasks.

Cullen Roche:             Yes. Yeah. And that's the thing. So it makes everything more efficient. It probably is. We're seeing this to some degree, at least in the labor market. It certainly has. Like, I think firms, for the most part, they're not hiring as eagerly, because they're able to get so much more out of existing workers. But that's kind of the conundrum in the labor market right now, is that what's going on in the labor market is not that – firms are not firing people and cutting back in a really big way, but they've slowed down hiring a ton.

                                    And I think that's the caution that people are exhibiting in this environment, where they're looking at AI, and they're saying, "You know what, we're getting more out of our existing workers. Let's lean into this. Let's see how far we can push it. And until things really start to change and evolve, we don't need to necessarily fire anybody. But we're not eager to hire a lot of people, because now we're getting 10% more productivity out of Joe Schmo, and Amy, and all the other employees."

Dan Ferris:                 Right. Right. And so, you know, there is – I and others, lots of people have said this, I've written about it recently, there's a massive potential, Jevons Paradox happening here, where you get more efficient in the use of something. He was talking about coal in the 19th century, but I think you can generalize. You get more efficient in the use of something, and I wrote about this in relation to trucking, and other things recently, you use more of it. [Laughter]

Cullen Roche:             Yeah.

Dan Ferris:                 That means it gets cheaper and more abundant, and you use more of it. So given the efficiency-making nature of this technology, I'm really optimistic. I think there are probably a hundred jobs, industries, businesses, whatever, hundreds or even thousands of them that just don't exist yet, yet will. In the very same way the Internet – there was no e-commerce before the Internet. There were catalogs and telephones.

                                    And now, like, I don't know, does a day go by at your house where somebody doesn't click buy on something? We buy stuff every single day, and stuff arrives at the house constantly. And it's just totally different. And I'm really optimistic about AI in that respect. I know there's – disruption and creative destruction can cause pain. But overall, I have to tell you, I'm very optimistic, simply because this thing has made my work, made me much more efficient, and I've prided myself on not being efficient.

Cullen Roche:             [Laughter]

Dan Ferris:                 I'm the guy who wants to do all the reading and all the stuff himself to say, "OK, you there's no substitute for that. And I, even I've just, I've had to admit that this helps me."

Cullen Roche:             One of my favorite charts of all time, I point this out every few years on Twitter, just to remind people of how early we are in the technology curve, is ecommerce retail sales as a percentage of total retail sales. It is at 16. And the beauty of this chart is that it begins, basically, in 1999 so right when the Internet begins. And really when the big technology boom starts to take off, it's at zero. And today, it's at 16.4%.

                                    And this chart, it just, it ticks up a little bit every single year. But the adoption curve is still really, really early in the long run. And so, Joe Weisenthal from Bloomberg, sometimes jokes that when people say the market cap of technology is 35%, he says, "Oh, well, that just means that there's 65% more of more for them to consume before they become 100%."

Dan Ferris:                 Right.

Cullen Roche:             But e-commerce, as a percentage of retail sales, is really interesting, because I do believe in, gosh, in 50 years, that number is going to be, it's going to be 50% or something like that. It's going to be just way, way higher than it is right now, especially, you know, at some point in the future, you get to a world where retail sales, a huge percentage of it is, like, gasoline purchases and things like that.

                                    When you get, when you when that part of the technology curve starts to really accelerate, there is, there's a world in the next probably, probably 50 years, also, where the price of oil goes to maybe not zero, but it drops, and it drops precipitously, because the alternative energy sources have just become so abundant, so efficient, that petroleum use has just become diminished on a relative basis.

                                    And so, the world, where we have to worry about the Middle East, hopefully, is, in 50 years, a world where they're not, they don't, they can't just dangle the price of oil over all of our heads all the time in the future.

Dan Ferris:                 Right. If we get – [crosstalk].

Cullen Roche:             I agree with you. In the long run, I am, I am not just optimistic about technology. I think that everything becomes a technology at some point in the next 50 years. And I mean everything, every single company in the world will have to be some form of a technology company, or they just will be left behind.

Dan Ferris:                 Yeah, I've said the same thing. AI will touch every company and every individual on the planet the same way the Internet has touched every company. Do people do business without using e-mail? No, right? So even if you are producing oil and gas, as you said, and then oil and gas, they'll be using AI in all kinds of creative ways –

Cullen Roche:             Oh yeah.

Dan Ferris:                 – because they use – they process so much data, right? You can't have, you can't, like, big data happened, and now AI will happen to the data, so they'll get a lot smarter.

Cullen Roche:             And the world where this gets really interesting and potentially exciting or scary is when the robots get much more efficient. And this is the one thing. This is one thing that China, I think, has been pretty savvy about. China seems to be leaning into the robotics aspect of all this in a much more proactive manner than the United States is. The United States seems to be – we are doing robotics. I saw an ad from a company last night, actually, that they built a robot that can clean your whole living room now.

Dan Ferris:                 Yeah. I think I actually did see that.

Cullen Roche:             But China's – China seems to be ahead of the curve. And that's really interesting, because the labor market that I always tell people that you actually need to worry about is one morning, you're going to be driving down the road and you're going to see a robot walking on a construction site carrying a nail gun. And that thing will wake up at 7:00, and it will start punching nails. And it'll do 10,000 nails an hour, and it will navigate over –

Dan Ferris:                 And it won't smoke a cigarette or take a lunch. Yeah, that's right.

Cullen Roche:             Yeah. It'll navigate over complex construction sites. It will climb up second stories. And it won't require insurance. And it will operate from 7:00 [a.m.] to 7:00 p.m., at which point it'll shut down, recharge, and then it'll start again. And you'll have general contractors, in 10 or 15 years who have got – they've bought two or three of these things, and they're working on all the construction sites.

                                    And that's a world where, then, when this starts to impact, and, obviously, that technology is using AI inside of itself, and really leveraging the power of these tools, that's a world where things start to get probably scary, and where the labor market starts to transform in a way that is really unpredictable, because the adoption curve for all this stuff is going to be – it's much, much faster than previous technologies.

                                    Where, like the adoption of the automobile, when Ford comes out with a Model T in the early 20s, or whatever, whenever that happened, the adoption curve of vehicles into the economy is actually really slow, because cars are still expensive, and also the use cases for them was just not that widespread at that point. Where, so, if you were someone who was – you were drawing a, or riding a horse-drawn, carriage, or something like that, you had to learn how to use a car.

                                    But the adoption curve to be able to advance and evolve your skill set, it didn't take that long. Or, sorry, there was time over which people could actually do those things. Whereas this stuff, the AI stuff is happening really, really fast, where, you know, six months ago, you know, something like Claude Cowork didn't even exist. And all of a sudden, this is all anybody's talking about now the last couple months.

                                    And everybody's having to sort of scramble and learn this new tool, where – and this is going to keep happening, I think, where these new tools are coming out. And there's a hot new thing, you know, every few months, or whatever, and people are scrambling and trying to learn these new things. And so the evolution over which this occurs in the labor market is it's just going to be a lot messier to navigate, because it's going to happen so much faster, that the skill sets.

                                    I mean, you look at coding, you know, five years ago, everybody was saying, "Learn to code. You have to learn – the only way you can protect yourself from the labor market in the future is to learn how to code." Everybody went to school –

Dan Ferris:                 And now, Meta is clearing out the mid-level coders. It's just like – [crosstalk]

Cullen Roche:             Yea, it's crazy. Imagine going to school, and getting, you know, majoring in software engineering or something, five years ago. You're graduating today, and you're like, "Goddamn it. I feel like my degree is worth nothing."

Dan Ferris:                 Right. So this is a good time to talk about what you do. And with all other guests – with all our guests, we, you know, we asked them to give us specific stock ideas. In your case, I'm inviting you to really talk your book, because you have three ETFs that investors can use to structure portfolios in a way that means a lot to you. You've talked about this before on our show, but let's talk about it again, and also talk about your ETFs, DDV, DDX. And what is the other one? DDXX? Yeah, so talk –

Cullen Roche:             Yeah. The strategy that I talk about a lot these days is called "defined duration investing". And what I'm really trying to help people understand is the time horizons over which they're navigating their financial lives. And so I sort of – I stole this idea to some degree from some of the banks I used to work with after the financial crisis. Where I would work with these bankers, and you get an introspective look at the way they're managing their balance sheets, and it's all time-based, basically.

                                    They have – banks borrow short, and they lend long, and they have to be very sensitive about any asset liability mismatch in their portfolio, because any mismatch results in them basically becoming something like Silicon Valley Bank, where they have very, very – a lot of long duration liabilities, or long duration assets and short-term liabilities. And the short-term liability starts to outflow. They're very sensitive to that mismatch.

                                    And so, retail investors have the same exact problem in their portfolios, where we're all trying to navigate the uncertainty of the short term, and to a large degree, we're funding that with long-term assets, whether it's stocks or even bonds. Bonds are, on average, a long-term asset, or whether it's, like, I would say something like gold is actually – gold's like, one of the most long-term assets, literally, one of the oldest existing assets.

                                    And so we're all trying to fund short-term consumption with longer-term assets, and that creates a mismatch and uncertainty. And so our ETFs are unusual in the sense that they're not market cap weighted. They're not – like the S&P 500 is a market-cap-weighted ETF, where that thing is basically just adopting whatever the evolution of the market is. So if the stock market gets riskier in some environment, let's say valuations increase, I would say that what's happening inside of that instrument, basically, is the, what I would call the defined duration, or the time horizon of that instrument actually changes over time.

                                    Where, typically, when the stock market crashes, it actually becomes a shorter-term instrument, because the probability of it generating a return that is on a risk-adjusted basis, greater after the after something like a 2008, it actually increases. And whereas, when the stock market valuations increase, the stock market becomes a longer duration instrument, it becomes riskier, basically. So the way to think of that is, like, the sequence, the volatility in the returns is likely to become a little bit higher relative to the way it generates its returns in the long run.

                                    And so when that happens, it creates uncertainty. And you see this in today's environment, where when valuations are very high, investors look at these things with a lot of uncertainty because the expectations are so high in things like technology. You know, we're both very optimistic in the long run, but I have no idea what's going to happen with AI stocks in the next 12 or 24 months. I think they're going to be – they're going to be much more volatile than they are on average, because expectations are just so high.

                                    And so what we've done with these five ETFs is cool, because we've created, now, time horizons where investors can understand what is the probability that this instrument is going to be stable over specific time horizons. And then you can go in and you can run a financial plan, and you can start to actually match assets to liabilities in the same way that, like, a bank would. And so DDV is a five-year instrument.

                                    It's everything's a Roman numeral inside of these instruments, where the V, X, and XX are different Roman numerals, where what we're trying to do is build a sensible time horizon over which you can have expectations of the portfolio being stable and being able to actually consume out of that component. And so DDV is a very – it's a much more, a much more conservative instrument. It's like 87% bonds right now, short-term bonds.

                                    And what I did in this instrument was, which is also kind of cool, was I actually benchmarked it to basically like a bond aggregate, where – and the problem with a bond aggregate is basically that it's a five-year instrument, or designed to be something like a five-year instrument, but it is loaded to the gills with long duration bonds. And long duration bonds are terrible.

Dan Ferris:                 That is – [crosstalk]. Yeah.

Cullen Roche:             They're terrible instruments. They are. They're basically instruments –

Dan Ferris:                 They're like stock.

Cullen Roche:             – [crosstalk] it's beneficial to the government to issue a long-term bond. It is not beneficial – if you have a 30-year time horizon, I think you're an insane person to be matching that to a 30-year liability, because over the course of 30 years, the probability that real assets, or stocks, or almost anything is going to outperform that instrument after inflation is probably, like, it's at least 95%, probably. It's probably closer to 99%, frankly.

                                    So what I did in DDV, which was kind of cool, was we removed all the long-term bonds. We swapped it out. Our long duration instrument in that thing is a stock component. It's basically a high-quality stock component. And so what you create inside of that is you create something that looks like a synthetic bond aggregate, but it has no exposure to long duration bonds. It swapped out a bad, long duration instrument for a good, long duration instrument, basically.

                                    And so something like DDV is going to have a very similar return profile to something like a bond aggregate, or sort of, like, an intermediate bond index, probably. But we think it'll outperform in the long run, because it's got a better long duration component inside of it, when compared to something like a bond aggregate, or especially like long-term treasury bonds. And the other funds are sort of iterations of that, where they're sequentially more aggressive.

                                    The DDXX is actually a – it's an all-stock ETF. But the cool thing about that fund, and the surprising thing about building that fund, was when I wrote the algorithm for it, I picked 20 years, because 20 years, historically, was the longer end of the defined duration inside of the stock market. But the screwy thing about this environment is that valuations are so high today, that when I ran the algorithm to try to hit a 20-year target on that fund, the only things we could own was basically domestic value and international value.

                                    So it's, right now, valuations are so high in this environment that that fund, it virtually is, like, it's almost like an Anti-Mag Seven fund, because it can't own duration. The defined duration, the time horizons, the expected returns in things like growth and technology, especially in the U.S., are so long dated, the expectations are so long now, the risk is so much higher than it is on average, that you almost can't have any of that stuff inside the portfolio.

                                    So that one was interesting, because I built that fund to be the most aggressive fund. And compared to the stock market these days, it actually looks, doesn't look conservative, because it's still, it's 100% equity portfolio. But that fund compared to something like the S&P 500, or especially, like [the] Nasdaq 100, it has a much, much less risky profile, because it's basically all value stocks. It's much more built around, like minimum vol type of instruments. And so that was surprising to me, because I built it wanting it to be very, very aggressive, and it ended up in this particular environment being – looking relatively conservative.

Dan Ferris:                 How are the positions weighted in it? You know, S&P 500 is cap weighted. Couldn't I just, you know, make a rally well-diversified portfolio by using an equal-weighted S&P 500? How are you weighted in your long – [crosstalk]?

Cullen Roche:             Yeah, so that's – I like equal weight is interesting, because the way that I view all this is through these time horizons. So I would argue that, like, something like the S&P 500 has a – it has a longer time horizon now, meaning that the time horizon over which you can really reliably predict the way that it's going to generate its returns. That instrument, the S&P 500 is longer today than almost the majority of all other instruments, with the exception of probably, like, AI instruments, and you know, something...

Dan Ferris:                 Yeah, because it's so expensive.

Cullen Roche:             Yeah, because the valuations are so high. So the way I – the way I build valuations, and all this is that valuations are basically expectations. And when expectations are really, really high, the probability for underperformance, just not meeting expectations, the margin for error is so much thinner when valuations are high. And so you get, not necessarily like – the interesting thing about, you even like an environment like 1999, if you bought the very tippy-top of the tech bubble back in 2000, and what was it, 2000 or 2001, you've generated 8% per year in technology since then, which is a phenomenal return.

                                    But the problem was you've had a horrible sequence of returns over that period, because you went through basically a 15-year nominal drawdown in the instrument. And so you suffered through enormous drawdowns, huge amounts of volatility. Your risk-adjusted returns were far worse. And that's the risk that high valuations create, is that high valuations don't necessarily mean that returns have to be negative in the long run. It doesn't even mean they have to be low in the, in the long run. It means that the risk-adjusted return that you're likely to get from that instrument becomes much, much lower.

Dan Ferris:                 Right. And you can also model, can't you. like, just say, like, a decade. What's his name, John Hussmann does this. He says 10 to 12 years from valuations like this, it's probably flat or negative, right?

Cullen Roche:             Yeah, when you look out, environments like this, when you look at the risk adjusted 10-year future returns, they're just, they're very probable to be lower. And that, again, that doesn't necessarily mean that, like, if you're – it doesn't mean you have to be bearish about things like AI. It just means that I think you're – like, for me, for instance, for my retirement accounts, I've got 30-, 40-year time horizons. Those things are loaded to the gills with technology. They're aggressive. But those are also accounts that I'm not going to have to live off these accounts for the – in the next five to 10 years.

                                    If you need certainty in the next five to 10 years, and you're loaded to the gills with AI, and growth, you're just creating a lot, a lot of financial risk inside your portfolio. Because if you have to, for some reason, live off a part of that portfolio in the next five years, the probability that technology, and growth, and AI stocks could be down in the next five years is much, much higher than it is on average, because expectations are so high.

                                    And so any disruption, whether it's, whether it's China, or whether it's just not meeting those super lofty expectations of earnings, that just – it dampens the way the returns materialize over time. So that's why I love to communicate and think about all this stuff across very specific time horizons, because that's, ultimately, that's my job, ultimately, is to help people have the certainty that they can consume certain things in the future, whether it is the ability to meet their monthly expenses, or buy a certain car in the future, fund their kids' college expenses at certain points. People want to know, "How much money am I going to have at certain points in the future?"

                                    And so that's kind of the goal of everything that I do. And the purpose of the ETFs ultimately, is to help people compartmentalize and understand, "How are my financial assets actually meeting certain goals of mine across very specific time horizons?"

Dan Ferris:                 Right. That's a good way to think about it. And correct me, if you – I don't think you already said, or if I asked, these are all stocks and bonds, your ETFs, right? There's no option strategies or anything like that, right?

Cullen Roche:             Yeah, there's nothing – these are pretty – they're relatively plain vanilla in the sense that the underlying – they're fund of funds. And so for people who aren't familiar with the mechanics of ETFs, really, the beauty of a fund of funds is that you can create very tax-efficient vehicles, where the two shorter ones, DDV and DDX are, they're multi-asset instruments. And one of the main reasons we created these things was because we would manage these model portfolios in their individual forms, where, let's say, we had six underlying ETFs.

                                    Well, every year, when you're rebalancing these instruments, you're incurring capital gains in a taxable account, because you're rebalancing back to a risk profile, or whatever it be. The stocks grow too much. You want to rebalance away from a little bit. When you can do that inside of an ETF, a fund of funds ETF does this inside the ETF. It does it almost exclusively in in-kind redemptions, which means that there's no capital gains, which means that you maintain the same risk profile over time.

                                    You can actually be more active inside of the ETF, and not incur taxable events along the way, because of the design of the ETF structure itself, and the way that ETFs can actually rebalance internally. So that's the advantage of having a fund of funds. But you also, the other advantage of these funds is that even though they're new, and they're relatively small right now, they adopt the underlying characteristics of the underlying.

                                    So when we're using mostly Vanguard funds, that trade millions of shares a day, you'll see that the spreads often on these funds are very, very tight, because they're adopting the characteristics of the underlying, rather than, you know, a new fund that doesn't have a lot of diversity, or if it owns opaque things. Like, that's the one of the big dangers of owning things, like, whether it's options or private equity or anything that's sort of a venture capital, replicator, or something like that. You don't really know what the price is of that thing in the underlying, necessarily, on a minute-to-minute basis.

                                    And that's the other secret sauce of ETFs is that ETFs work, primarily, because they're very, very liquid instruments, where the market makers can look at the instruments and understand, OK, I know exactly what the underlying basket is valued at, so I'm willing to sell ETF shares at a very, very close price, where the arbitrage is really, really narrow.

                                    And when you try to jam, like, we've seen this a lot in the last few months, where these private equity funds, or these private-credit funds, they're trying to create something that is a public pricing mechanism inside of a private pricing mechanism. Where when you put that into an ETF, it just doesn't work very efficiently, because the prices aren't transparent. And that's one of the main – [crosstalk]

Dan Ferris:                 The thing you're putting inside there is not liquid, and you want this liquid-traded vehicle on the outside.

Cullen Roche:             Yeah, it creates a –

Dan Ferris:                 I wanted to ask you about that, because bond funds generally are criticized that way, right?

Cullen Roche:             Well, yeah, that's one of the other things is that, like a high-yield bond fund, or especially bond funds that trade in very thin or opaque markets, they also don't necessarily operate as the most efficient types of ETFs, because the markets are just too thin. And so, DDV, its short-term component, it's 87% bond component is basically Treasury bills and two-year notes for the most part.

                                    And so you're talking about the deepest, most liquid bond market in the world, that any investor can look at on a minute-to-minute basis, and they can say, "I know exactly what a T-bill is worth right now." And so that was another thing, when we put these things together, was we were very hyper focused on liquidity of the underlying, so that people can know that, hey, DDV, as I speak right now, has a one-cent spread on it. It doesn't get thinner than that.

                                    And that's in large part because the underlying, the market makers are able to look at the underlying, and they're able to say, "OK, well, we can set a one-penny bid ask spread on this instrument, because we know exactly what our risk exposures are in the underlying, because I know exactly what the T-bills are worth."

                                    Whereas if we if our portfolio was loaded to the gills with, you know, opaque private-credit funds or something like that, the spread would be much wider, because the underlying, we don't know what the actual underlying is worth. And so the market maker has to go in there, they have to hedge themselves against the risk.

Dan Ferris:                 Right. Right.

Cullen Roche:             So you see, and that that just starts to create lots of inefficiencies in an ETF wrapper, because the whole point of an ETF wrapper is that you know what that thing is worth every minute of the day that it's trading.

Dan Ferris:                 That's cool. So let me ask you another question about these. How, if at all, like, how actively do you trade? What's inside these? Like, how actively are they managed?

Cullen Roche:             They're really inactive. It's ironic. I actually got in a funny debate. When we when we started our first one, DDX, I actually gotten a little bit of a back and forth with the [U.S. Securities and Exchange] examiner about this, [laughter] because they label our funds active, because we're not pegged to a benchmark, because they're – or an index, because they're technically isn't an index. We theoretically could create it. But, but no, we want the flexibility to be able to evolve the index.

                                    So I didn't want a passive fund. All a passive fund does is it creates one static index, and then it always rebalances back to that index over time. And so you have a, you have a sort of fixed strategy there, where there's no flexibility to evolve over time. And the irony inside of our funds –

Dan Ferris:                 And it's constantly traded, though.

Cullen Roche:             Yeah, even though it's constantly traded, the S&P 500 is, it's evolving every day, every month.

Dan Ferris:                 Yeah, it's active. Yeah.

Cullen Roche:             And so the Vanguard trading desk at the S&P 500 fund is hugely, hugely active. But the underlying index doesn't change, which is, you know, there's good and bad. You can argue there's lots of good in that that creates a very efficient process for a passive fund. The problem, though, is that it's so static, that there's no dynamic nature at all to these things, where they can't evolve and change.

                                    So if the, you know, if the Mag Seven becomes 80% of the index, well, S&P will just look at it, and say it is what it is. We don't, sure, we've created huge amounts of crazy concentration risk now in this index. But that's just the way the market-cap weighted –

Dan Ferris:                 Oh, well. [Laughter]

Cullen Roche:             Yeah. And it's like, OK, there's an argument there that, OK, that's how the market has evolved. We want to follow the efficient market hypothesis. And then there's an element that would look at that and say, "Well, wait a minute, I now basically only own seven stocks in this diversified index fund. That's counterproductive to the whole point of indexing. I wanted to reduce my single entity risk. I didn't want to increase it."

                                    And so, that's where your argument for, like, an equal-weight index makes a lot of sense. And I would argue an equal-weight index has a little bit of a lower risk profile, because it's not as exposed to single entity risk. So again, it may not generate booming returns when the Mag Seven does really well, but on average, it also won't – it doesn't expose you to the single entity risk, where, if the Mag Seven were to collapse, you know, let's say they collapse 80%, like, they did during the Nasdaq bust, well, in that, environment equal weight beats the pants off of this thing, because it's a lower risk instrument.

                                    And so, if you're if you're sensitive to your risks relative to your returns, then you have to be mindful of this stuff. And I always, I laugh, because there's academics and people out there who say, "Well, you can't eat risk-adjusted returns." And I say that's B.S. That's absolutely, completely wrong, because the ability to predict your returns is the thing that creates predictability to consume, ultimately, from your portfolio.

                                    And so if you create a Bernie Madoff, like, straight line of 8% per year, and hopefully you're not managing your portfolio like Bernie Madoff, but if you generate that stable, steady 8% per year, well, that person has a much greater predictability to consume, because they have a really high-risk-adjusted return in their portfolio, versus somebody who, let's say you generate 20% per year, but your portfolio is like a yo-yo all the time.

                                    Well, your predictability, your ability to consume out of that portfolio, is significantly worse than the Bernie Madoff portfolio, because your risk-adjusted return is so much worse. Even though your nominal return might be better, you might technically have more, more money, at some point, than the other investor. Your ability to predict that return is far, far worse. So I always say, yeah, risk-adjusted returns are essential to understanding your ability to predict and consume out of the portfolio in the long run.

Dan Ferris:                 All right. We've arrived at the perfect moment to ask our final question, having major – your point about temporal structure, just one more way, which is really an important point. This question, by the way, you've answered it before. All guests answer it. It's the same question, regardless of topic, whether it's a nonfinancial topic, or whatever it is, the same question. And if you've already said the answer, just feel free to repeat it. There's no, no harm in that. So the question is, for our listeners' sake, if you could provide them with one takeaway, with one idea today, what would you like that to be?

Cullen Roche:             Boy, I would say – one thing that, I think, I've gotten much better at, over the course of my career, is when things change, and new stuff comes online, or whatever it might be, and I think the tendency, at least for me over the course of my career, has typically been to say, "Oh no, this new thing is not going to change the world in ways that we all expect."

                                    And we've seen, time and time again, that a lot of the times when these new things come online, and whatnot, or these new companies, new incumbents come online, they actually do end up changing the world in big, big ways. And so I've gotten really good at, you know, being more openminded, and actually diving in and trying to explore these new things. And so, you know, obviously the big one today is AI.

                                    And I would say that for people who aren't using these tools, who aren't exploring with them, and at least, like, even just having conversations with them. I oftentimes tell people, like, there are the most basic things you can do with these tools, where you can, you can start to have a back and forth, where you have to learn. And I think this is one of the big skill sets with AI, is learning how to prompt these things, is that learning how to have a conversation where you're constantly engaging it, and actually forcing it to ultimately succumb to your wants and needs in a way where –

                                    Because my experience has been that, especially with building like software tools with it, when you first initiate a conversation with it, it'll get 80% of the way there. But the 20% will be so bad that it will – it'll make the tool dysfunctional. But then you can prompt it again, and it'll get 80% of that 20% right. And all of a sudden, now you're at – the tool is 95% of the way there, and then there's 5%. And you have to keep tweaking, and you kind of keep doing that.

                                    And I've spent, god, I've spent some nights up till 3:00 to 5:00 in the morning, just going back and forth this. And it can be, it can be frustrating, but I think people who are, who are really leaning into all these tools, and really engaging with them, have a huge, huge advantage. So don't turn your back on it.

                                    Don't say that it's not going to be transformative. Because even if it's not as transformative as people think, it's going to be an important tool to know how to use. And I think that the people who really are leaning into this, and really trying to be openminded with it and really creative with it, have a huge advantage navigating the next 10, 20, 30 years.

Dan Ferris:                 Excellent answer. I totally agree. You need to mess with it at least. You need to start messing with it if you haven't been.

Cullen Roche:             Yeah.

Dan Ferris:                 Well, listen, man, it's always a pleasure to talk with you. Thanks for being here.

Cullen Roche:             Yeah, I loved it, Dan. Thanks for having me on.

Dan Ferris:                 It's always a pleasure to talk with my friend Cullen Roche. I've known him for several years. We invited him to the Stansberry Conference. He's obviously a very intelligent guy, and he has a lot to say about things we don't normally talk about. In fact, I can't name a guest who talks about the temporal structure of your portfolio, and what has a five-year duration, and a 10 and a 20. We just don't talk about that topic with anyone else.

                                    So in that alone, you're probably going to see him on the show every six or 12 months, just so I can remind people, "Hey, there's this other thing that you're not talking about, and yet, I think it makes a lot of sense for a lot of investors. In other words, I bet you want to hear about it, but nobody talks about it. And Cullen Roche fills that gap beautifully. And he's got DDV and DDX and DDXX, these ETFs that address it and help invest investors structure portfolios in that way.

                                    And just the idea, even if you don't buy his ETFs, just that idea probably is something to put in your brain, and to help you structure your own portfolio. Because I know you're thinking about, OK, well, if I'm going to retire in X number of years, how do I know I'm going to have enough money? That's the basic question that he addresses, and it's a super big question. It might be the Mac Daddy of all the questions we ever deal with on the show for a lot of investors, right? That's why we're doing this, so we have enough money in X number of years.

                                    And whenever you see Cullen Roche, or you go to investorhour.com, or wherever you look at podcasts, but you see Cullen Roche, man, click on that to get that question answered, because he'll always have an updated version. He'll always have more thoughts on it, and he's the only guy talking about it. So hey, another great interview and another great episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really, truly did. And remember to hit subscribe, like, and subscribe to our daily e-mail. All right? We'll see you next time.

Announcer:                 Opinions expressed on this program are solely those of the contributor, and do not necessarily reflect the opinions of Stansberry Research, its parent company or affiliates.

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