What I love about making this podcast the chance to meet bright young people who are creating tools to help everyday investors and democratizing investing knowledge.
Jeff Tsai and Vinny Yu are the co-founders of JAVLIN Invest, a new app that helps investors assess portfolio risk and diversification. We talked about the data and industry-accepted formulas that are used by hedge funds and professional investors. They hope to provide powerful education on how to make better, safer, long-term investments in an easy-to-use app. Hopefully helping to avoid costly mistakes
“I make mistakes all the time. The important thing to know is that you have to learn from your mistakes quickly. Don't be married to any one particular position. Don't be stubborn. If your investment thesis changes, you have to change with it. You have to be flexible enough to get out and meet your own. Cut your losses so that it doesn't snowball into something bigger. There's always going to be a better opportunity elsewhere."
JAVLIN aims to level the playing field for everyday investors. Big league investors have tools to make portfolio optimization easier. JAVLIN Invest believes that everyone deserves access to the same insights and information that professional investors reference every day. Our proposition is simple: put you on the road toward smarter financial decisions with in-depth data and easy-to-understand portfolio analytics. It’s quick, intuitive, and stored right on your phone. No complicated spreadsheets or PhD in economics required.
"A lot of the mistakes that I see right now, like just reading about it in the papers [are] just a lot of people chasing these meme stocks that go up 100% a day, go down 50% a day in companies that just don't have really quality fundamentals. So, I think it's important to understand the fundamentals of a company, understand why you're investing in not just, you know, following what's hot. Just chasing.”
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Hi and welcome back to Stocks for Beginners. I'm Phil Muscatello. There's many ways of looking at risk. It's a core factor to consider in your portfolio. Diversification usually helps, but what is true diversification? To explain, I'm joined by Jeff and Vinny. Hi guys.
Hey, how you doing?
Vinny (1m 0s):
Hey Phil, thanks for having us.
Phil (1m 2s):
This is very difficult as the first time I've done two people at once. You know, you're making me nervous. Jeff Tsai and Vinny Yu are the co-founders of Javlin Invest, a new app that helps investors see the risk of stocks in their portfolio. Jeff previously worked in various capacities in risk management at Mutual of America and Vinny served as a portfolio manager for a variety of firms. So let's go through your backgrounds, where you came from. Who wants to go first?
Jeff (1m 28s):
Absolutely. I will go first.
Phil (1m 30s):
And this is Jeff.
Jeff (1m 31s):
Yes. Thank you, Phil. I was an actuary, trained actuary, and I know actuaries tend to be focused in insurance focused on risk. And that is my background. I helped with risk management, asset liability modeling, cashflow testing and ran a lot of the insurance functions for Mutual of America while I was there.
Phil (1m 51s):
Okay. And Vinny?
Vinny (1m 53s):
I've spent about 15 years in the financial industry as a trader, portfolio manager and mergers and acquisitions advisor. So I've done all kinds of finance with all types of different investment training.
Phil (2m 7s):
So how do you two come together? Where did you meet?
Vinny (2m 10s):
We both love basketball and we have a friend that loves basketball and a couple of years ago we met through basketball. And we're just talking about how we want to help people with their investments, because we see that a lot of our friends, you know, kind of just not knowing what to do, maybe like chasing a lot of these hot meme stocks that are popular. And, you know, maybe like just taken on a little bit, too much risk because obviously they're our friends and we don't want them to
Phil (2m 40s):
To blow p their accounts
Vinny (2m 40s):
To lose money. Right. So we got together and, you know, Jeff is a risk management guy and I have my background in trading. So we're like, "Hey, let's come up with something that can actually hel"p some people just kind of analyze the risks in their portfolio.
Phil (2m 54s):
So Jeff, this seems to be one of those things where it's a bit of a marriage made in heaven because risk is a really huge part of investing and the complimentary skills that you have seem to be able to help you to highlight what those risks are and to try and help to avoid them.
Jeff (3m 12s):
Absolutely. And you know, obviously like Vinny mentioned, you know, our first love and what brought us together was basketball and playing basketball together and also the drive to help people. But when we were actually talking about what we wanted to build, I said, "Hey, I really want to help people understand risk and investment risk." And Vinny said, "Oh, that's amazing. Like, I really want to help people understand how to be better investors." That's his passion in life. You know, my background while I'm not directly associated or involved with actual, you know, equities or stocks, you know, I helped a lot with the company with their asset liability modeling.
Jeff (3m 55s):
So I did have some understanding of risk from a company perspective. And I think that's a little bit of what we're trying to bring, too, is this whole idea of portfolio analysis and thinking of it as yourself as a company and bring that tool and making it available to a retail investor.
Phil (4m 14s):
Can you just describe what that is, how you go about looking at a company and managing that risk? Just give us an actuarial insight.
Jeff (4m 24s):
Absolutely. Yeah. So obviously I worked for an insurance company and so our focus is, number one, always safety. We're highly regulated, especially, you know, I live in New York, this company I worked domiciled in New York. And so we have some of the stringiest insurance regulators in the world. And so, number one is safety, but number two is making sure you can meet your demands, the demands of your liabilities. So whichever insurance products that you're offering. The company mutual of America, that I've worked on focused on annuities and life annuities. And so we were really focused on managing any cashflow guarantees that we had in our liabilities for our clients.
Jeff (5m 11s):
And then thirdly, what matters most is obviously as a company, you do want to be able to make money from your investments and your assets. And so on being able to analyze what you're invested in and seeing how you could one obviously safety to meeting your liabilities, but then three, making sure you can take enough risk in your portfolio to make money. And what a lot of people don't understand, or maybe some people understand is insurance companies, their portfolios are fixed income portfolios predominantly. And you know, they're really driven by analyzing the returns of the cash flows of the assets.
Jeff (5m 54s):
So for my former company, we were investing in like mortgage backed type securities because we cared about the cashflow that was generated through these mortgage backed securities and then just regular corporate bonds. And depending on our analysis of the liabilities, how much duration risk, and how much duration wanted to push out or credit risks to sort of push into, to generate more returns for a portfolio,
Phil (6m 23s):
You made an interesting point. I'm not sure if I misheard you, but you said that you wanted investors to look at themselves like a company that has to invest. Is that the case? Is that the way you'd like investors to see themselves?
Jeff (6m 36s):
Yes. And I don't want to put words in Vinny's mouth. So, you know, Vinny, when I'm finished, you can jump in and also give your point of view. But, you know, I think our perspective is a lot of times when we are thinking of what we're investing in or how we're investing, we may think like, you know, I've got my Vanguard account, I've got my IRA, I got my 401k and I'm looking at them very siloed, but companies actually look at a complete perspective. Right. And we want to really focus on thinking, not just, oh, you know, I've got an ETF here and I'm, I'm fine there. It's doing well. Yeah.
Phil (7m 15s):
They're naturally diversified. ETFs by definition are diversified. Aren't they?
Jeff (7m 20s):
Yes. Yeah, absolutely.
Phil (7m 21s):
But we know that they're not,
Jeff (7m 22s):
No. And then, you know, I hear in my brokerage account, that's separate from my retirement plan. I'm investing in these tickers. And so sometimes you don't think to manage it from one perspective and that's sort of what I mean by thinking like a company is a company you don't just silo your individual assets or what you're investing or your different accounts everything's looked at holistically.
Phil (7m 46s):
So if any, let's just step back for a moment before we talk about portfolio management and risk, but what was it like starting up a FinTech? Was it scary or exciting?
Vinny (7m 55s):
Yeah. I mean, starting up anything new is scary. Right? Cause you just, you really don't know like what's in hold for you in the future. But luckily, you know, I have Jeff as a partner and a good team that I work with that helps us because by trade, by training, we're not developers. We're not really coders. Jeff's a much better coder than I am. You know, I can get the simple things done. But for the most part, we have to rely on experts that are good at coding and doing the backend stuff for us front end stuff. So a lot of it is just project managing and just having the vision to kind of like see where the company should be going be hyper-focused on where we want to be.
Vinny (8m 38s):
And then hopefully just make a little bit of progress every day and move forward.
Phil (8m 44s):
It seems to me, this is part of the democratization of investing at the moment is that over the last 10 years, even just five years, we've seen so many of these new apps and services that are available to empower people that have haven't had this kind of power in the past. I mean, it must feel good to do that.
Vinny (8m 60s):
Yeah. I mean like in today's world with so many tools and resources, data available to us is really no reason why we can't make better investment decisions. So we try to, you know, make it super easy and super simplified so that people can use our app and just kind of know, get better data. It really?
Phil (9m 20s):
Yeah. So what kind of mistakes have you seen people? Well, especially a friends. I mean, you talked about your friends with meme stocks. Is that the main kind of mistake or what are some of the other mistakes you're seeing investors made and heavy committed? Any yourselves?
Vinny (9m 33s):
I can start with this one. I mean, I make mistakes all the time, right? The important thing to know is that you have to learn from your mistakes quickly. Don't be married to any one particular position. Don't be stubborn. If your investment thesis changes, you have to change with it. You have to be flexible enough to get out and meet your own, cut your losses so that it doesn't snowball into something bigger. There's always going to be a better opportunity elsewhere. You just have to look and yes, you know, a lot of the mistakes that I see right now, like just reading about it in the papers, you know, just, you know, a lot of people chasing these meme stocks that go up a hundred percent a day, go down 50% a day in companies that just don't have really quality fundamentals.
Vinny (10m 16s):
So I think it's important to understand the fundamentals of a company, understand why you're investing in not just, you know, following what's hot, just chasing.
Jeff (10m 26s):
Yeah. And I think I mentioned it a little bit earlier is, you know, a lot of times the mistakes that we make, we don't realize, you know, I'm holding Apple stock here, but then I hold a Vanguard SPY index fund ETF somewhere else. And I'm pretty much holding more Apple than I imagined. And so, you know, I don't realize maybe how diversified I am or how not diversified I am. And I also don't realize how concentrated I am per se.
Phil (10m 55s):
And that's usually known in the industry as correlation, isn't it?
Vinny (10m 58s):
Phil (10m 59s):
Do you want to expand a little bit on correlation and the risks involved with that?
Vinny (11m 3s):
Sure. I guess the big misconception most people have with diversification is the more stocks you own, the more diversified you are. Right. You know, that's true to a certain extent, but the key thing to understand is correlation, right? How each stock is correlated to each other in your portfolio. And what we try to do is we try to diversify your portfolio, find the right combination of stocks in your portfolio so that we get the lowest amount of risk and the highest amount of return. And we call that the sharp ratio. So we try to maximize your sharp ratio by optimizing your stocks, diverse finger's stocks in a way that it's as non-correlated as possible.
Phil (11m 49s):
So when someone comes to your app and downloads the app, hopefully they will, after hearing about it on this episode, what are they confronted with? What do they say?
Jeff (11m 58s):
Yeah. So the first thing that they actually see is they would need to register
Phil (12m 2s):
Yep. Know your customer,
Jeff (12m 5s):
Right? And once you've finished sort of the onboarding process, the first step is deciding if you want to manually input some tickers or you want to link your brokerage account or whatever accounts and we've partnered or are using Plaid to do that brokerage account linking. And so actually it's a pretty seamless type of function that you can use. And Plaid handles all the security. We don't hold any of your passwords. That's all handled by Plaid. And once that's done everything just sort of runs in our algorithms. Everything just runs in the background.
Jeff (12m 45s):
It is a little bit data intensive, algorithmically, intensive, mathematically intensive. So we do take a couple seconds, you know, and obviously it depends on how large your portfolio is, how many tickers you have any words up to 30 seconds or a minute to really run and all the analysis we need to run for the individual.
Phil (13m 6s):
Does it come up with a number that rates the diversification of your portfolio?
Jeff (13m 12s):
Right? So actually we're not just boil it down to one number per se, but what we do is when you come in, the first thing, you'll see if you go to the home screen where summary screen is a summary of your portfolio currently as is, so your portfolio's sharp, your portfolio's volatility, your portfolio's CVaR, conditional value at risk. And also we will show you your portfolio. You know, we'll put up a visualization or chart of sort of your individual holdings, your individual tickers and sort of graphic chart it out for you. So you can visually understand the, see which tickers are a little bit more risky with not great returns and those that have better risk adjusted returns.
Jeff (14m 1s):
And so you kind of see it right away. And we also offer individuals the ability to see how they are allocated across sectors and industries. So once you've sort of understood how you're looking today and really get into the meat and bones, you can go and we have this screen called build. We have as a screen called allocate and we have our screen called project. If you just click through build allocate and project, without adding anything in build, we can come back to that and project, you know, what we do is we take a machine learning algorithm and we tie it to macroeconomic factors in this case currently at this point, interest rate movements, interest rates scenarios, and we run a thousand different ones and we project how your current portfolio we'll do two years into the future using a machine learning algorithm.
Jeff (14m 57s):
And so that will maybe help you understand how your portfolio may perform into the future under different interest rate scenarios. And hopefully give you a little better understanding of how things will look into the future.
Phil (15m 10s):
It sounds like that part of the process is a learning process for users. So they can actually understand what's going on in their portfolio rather than just blindly throwing a dart and choosing stocks.
Jeff (15m 23s):
Absolutely we've quickly understood as we were testing with friends and beta testers that, you know, a lot of people, when they come to investing, they don't necessarily have a completely scientific process or methodology to sort of analyzing, you know, and I'm guilty of it. Vinny's like Jeff, "I love this ticker" and I'm like, "You know, I believe in Vinny. So I'm going to believe in the ticker," you know, but that's not really what we're trying to encourage people to do. We really want people to really put in the effort. We understand it takes effort, but it allows them to understand why they are in a position and allows them to think longterm.
Jeff (16m 4s):
And hopefully once they take that into perspective, they will do well in the longterm. Short term is a little bit, you know, a little bit tougher
Phil (16m 14s):
And Vinny, I think this is something important for new investors to learn is that investing in the markets is not easy. It actually takes a lot of knowledge. I mean, you've worked in the industry, you know exactly what it's like and people come in and they think, you know, stocks go up. I can just pick them and everything's going to be okay, but it doesn't actually work that way. It doesn't
Vinny (16m 35s):
No, no. I mean, you really have to put in the time and effort and you know, for the most part, some people, you know, they jump in and they start buying certain things. It may go their way. Right. But you know, that's not really investing to me. That's just, they got lucky, right? So, you know, to really understand how to invest, it is easier to play the long-term game because, you know, you might not have to be as active. You might not have to follow the markets as much as say, if you were day trading where, you know, you'd be constantly watching the market, every ticker, every price action, really to really like take advantage of the market. But simple strategies like dollar cost averaging into an index, or, you know, just investing over time.
Vinny (17m 21s):
It works. And there is a positive bias to the stock market tends to go up over time. So, you know, don't try to time the market. You know, if you're in it long enough, let compound interest work for you in your favor and you'll be fine, 10, 20, 30 years from now. Right? A lot of times we don't really have to overthink investing. It could be a really simple buy index, contribute to it frequently and consistently. And you'll be fine, you know, for those that want to be more active and really want to learn, you can pick certain stocks, you know, understand it and then diversify your portfolio and play that game. There's certainly different ways to invest. And there is no right or wrong one,
Phil (18m 2s):
But that's the point though, is that you actually have to learn a lot and spend a lot of time to start picking individual stocks. Like you say, you can, dollar cost average into index funds over a long period of time and you will do well if you've got a long enough time horizon, but the actual process of learning about individual companies and stocks requires a lot of research knowledge and understanding,
Vinny (18m 26s):
That's absolutely correct.
Phil (18m 28s):
What are the criteria for optimal diversification? This is a hard question. This is a big question. Isn't it?
Vinny (18m 34s):
This is the big question. And I think we mentioned some of the things that we looked for before our goal obviously, is to try to get the best risk adjusted returns, meaning the lowest risk and the highest return. So some of the things that we look for are the volatility, historical returns, and most importantly, the correlation of the stocks to each other, like for instance, like owning like a Visa and MasterCard, right? I wouldn't call that a diversified portfolio. Certainly it's better than just owning a hundred percent Visa or a hundred percent MasterCard. But you know, those two companies are very closely related because they have high correlation to each other
Phil (19m 12s):
That basically do the same thing. Exactly.
Vinny (19m 14s):
So, you know, to really get the optimal diversification, you'd have to find something that is in a different sector or, or even a completely different asset class. Right. And then finding the best combination of those weightings that gets you the highest sharp ratio would be your optimal portfolio.
Phil (19m 35s):
What is the sharp ratio
Vinny (19m 37s):
It's really just risk over return. So it's kind of like you're a risk to reward score if, you know, if you want to think about it, simply
Jeff (19m 47s):
Return over risk
Phil (19m 48s):
Return over risk
Jeff (19m 50s):
Phil (19m 52s):
Thanks, Jeff. Thanks for the correction. We'll put a link into the episode notes so that listeners can find some information about that. They actually do have an explanation on the website about that
Jeff (20m 3s):
We do. And in the app we do have what we think hopefully is a simplified explanation of it, but yes, or in the app, we have an FAQ and a definitions section.
Phil (20m 14s):
Okay, fantastic. So you must see a lot of data from users and speaking, generally the data is obviously anonymized. What are the mistakes in people's portfolios that you're seeing as they enter their data?
Vinny (20m 25s):
We actually don't really look at the data from our users. We try not to because we try to respect people's privacy as much as possible, right? But from the accounts that we've tested, we've noticed that, you know, over diversification is a big problem, which simply means that they just own too many things that in effect affect the returns.
Phil (20m 45s):
Whether you can be over diversified,
Vinny (20m 46s):
You can certainly be diversified because, you know, there are only so many companies that are good and if you buy everything, you know, it's going to drag down your returns, potentially your risk level might be lower, but your returns for that risk level is also lower. So that's what over diversification really means.
Phil (21m 4s):
Let's zoom out for a moment. As we talked about at the beginning of the interview, you're part of our technology revolution in the financial space. How do you see this playing out over the next few years?
Jeff (21m 16s):
So I think for Vinny and I, I think sort of what you're trying to do here, Philip is educating us retail investors and giving us the ability to really understand and take control over what we are investing in and how we're investing in and really customizing our risk tolerance to a certain degree. And back in the day, you would have a financial advisor and financial advisors are still going to be great for those that can afford real financial advisors. But as you know, more and more of us have to take control of our 401ks or retirement investments.
Jeff (21m 59s):
Our IRAs, unfortunately now more of the responsibility of understanding investing is in our hands and with the current environment with robo-advisors that are very popular here in the states and with an app like Robinhood, that's just made trading extremely, extremely, extremely accessible and easy. I think there's going to be a shift where a lot more people are now getting interested or have been interested through the pandemic and, you know, they want to get better at it. Once they understand the risk tolerance, they can go and sort of using Javlin or other tools or other investing methodologies, such as dollar cost averaging, as Vinny mentioned, they can really tailor their risks that they're taking and ultimately impact the returns that they get in their portfolio, which is what they, everyone really cares about how your portfolio performs.
Jeff (23m 4s):
And so I think over the next few years, we're going to see more people having a better understanding of how to manage this part of their finances.
Phil (23m 13s):
So please tell listeners how they can download the app and find out more information. And I think we should also spell the name because it might not be spelled like, that sounds like when we're saying it.
Jeff (23m 25s):
Sure. So you can visit us javelininvests.com, J A V L I N invest.com and there you'll see links for Android and or iOS devices, or if you want to go directly into stores, search for javelin invest J A V L I N space I N V E S T. And we should pop up in all the stores as well.
Phil (23m 50s):
And do you have an elevator pitch, just a few words that you can say to listeners to why they should use Javlin?
Jeff (23m 56s):
Sure. Javlin is an easy to use portfolio optimization app made for everyday investors. We try to make everything as simple and easy to understand as possible. You know, we know it's not an exciting subject matter, but it's important. And we want to make sure everybody has access to these types of tools. And so our goal is to help our users to be better investors.
Phil (24m 21s):
And you both came from a basket balling background and met, I have a basketball, I would have thought maybe the name would have had been basketball related, but you're actually moving into NFTs just as a little bit of a side hustle as well in the basketball space.
Jeff (24m 34s):
Yeah. That's one of the things that I've been sort of looking into. I actually made a basketball eight bit app game. And so I'm exploring, seeing if that's possible to do as well. Yeah. Just more as a fun thing to do.
Phil (24m 52s):
And how about you have any of your Vinny, any side hustles on the go?
Vinny (24m 55s):
I don't have any side hustles. I am just a full-time Javlin right now.
Phil (25m 0s):
And just before we go, Vincent, did you have an elevator pitcher? Is there anything that you wanted to add there about Javlin and why people should check it out?
Vinny (25m 9s):
Yeah. I mean, Javlin can help you make better data-driven investment decisions, right? So I think typically if you want to optimize a portfolio, it's a pretty complicated process. You have to pull the data, clean the data, to analyze the data. Julie have to know what you're doing to optimize know the formulas. And it's a very intensive and complicated process. And that's actually one of the reasons why we made a portfolio optimization app is a, there just, wasn't an easy way to do it. So Javlin can help you optimize your portfolio with a click of a button. So I think that's pretty cool
Phil (25m 48s):
Vinny and Jeff, thanks very much for joining me today.
Jeff (25m 50s):
Thanks for having us.
Vinny (25m 51s):
Thanks for having us Phil.
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