Ep 68: How to Generate Alpha in Volatile Markets with Jacob Miller of Opto Investments
Nov 2, 2023
auto_awesome
Jacob Miller, Co-founder of Opto Investments and head of its Advisory Practice, discusses how the U.S. is heading into a long-term debt cycle, challenges that investors face, and the importance of finding differentiated investments to generate alpha. He explains how Opto is enabling wealth managers to access and invest in private markets with confidence. The podcast also touches on the culture at Bridgewater, the appeal of private credit, and the importance of optimism in productive discourse.
In an inflation and debt-driven world, it is important to seek investments that offer a different correlation to stocks and bonds to mitigate losses.
During a long-term debt cycle, challenges arise as debt levels increase, and a significant restructuring of spending or a crisis may be necessary to navigate the challenges.
Deep dives
The need to think beyond static correlation in portfolios
In the podcast episode, the speaker emphasizes the importance of not assuming static correlation between stocks and bonds in portfolios. While this correlation works when growth is dominant, it doesn't hold in an inflation and debt-driven world. With both assets being long-term in nature, higher discount rates will drive down their prices. This was evident in the 1970s when stocks and bonds moved in perfect correlation. In order to have a healthy portfolio, it becomes necessary to seek investments that offer a different correlation to mitigate losses in both stocks and bonds.
Exploring the potential long-term debt cycle
The podcast episode discusses the concept of a long-term debt cycle. This cycle, lasting around 30 to 40 years, begins with low debt levels and is characterized by the ability to easily add debt and maintain low-interest rates. However, as debt levels increase and debt service becomes a significant part of the deficit, challenges arise. The government must either raise rates, increasing its own spending, or cut rates, risking inflation and higher debt. The decision becomes complex, and a significant restructuring of spending or a crisis may be necessary to navigate the challenges of the debt cycle.
Investing in alternative markets during challenging times
The podcast episode highlights the potential of alternative markets during challenging economic conditions. It suggests three areas of interest: private credit, specialist private equity, and early-stage venture opportunities. With banks stepping back, there are opportunities for specialty lenders in private credit to step in at attractive rates. Seasoned private equity firms can provide operational expertise to help portfolio companies navigate tougher economic environments. Early-stage venture opportunities are also emerging, as more common-sense approaches return to the market. These alternative investments provide investors with diversification and the potential for alpha.
Optimism in markets, innovation, and technological advancements
The podcast episode concludes with a discussion on optimism for the future. It highlights the fundamental misconception that if someone is doing well, someone else has to be doing poorly. The speaker believes that markets and innovation generate wealth and improve health outcomes, and America's support for market-based economies remains strong. Technological advancements, such as AI, medical science, and biotechnology, offer potential for positive change. While challenges exist, the ability to attract capital towards smart solutions-oriented people and bold new ideas makes the future appear bright.
Will high interest rates and inflation be the norm for the foreseeable future? Are we living through a 1970s redux? How should investors navigate these uncertain times?
We discuss the volatile financial markets with Jacob Miller, co-founder of Opto Investments [an 8VC Build company] and head of its Advisory Practice. Jacob studied economics and classics at the University of Chicago and cut his teeth at Bridgewater Capital, the world's largest hedge fund. In this episode, he draws on historical parallels to explain why the U.S. is heading into a long-term debt cycle similar to the late 1970s, and why a prolonged period of readjustment is more likely than a major crash.
He discusses the challenges investors face in the coming years, and why it's vital to find differentiated investments that can generate alpha. One area of opportunity is the private markets, but they have been historically difficult to access and navigate. Jacob explains how Opto is equipping wealth managers with a new tech-enabled platform to understand and invest in these markets with confidence.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit blog.joelonsdale.com
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode