TGCI 66: Investing in ETFs? Learn from an insider on how it works!

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Episode 66: Investing in ETFs? Learn from the insider on how it works!

Copy of EP #18 - 2 Guests (1)

Summary

In today’s show, Pancham interviews William Rhind, an expert on ETFs. William is the Founder and CEO of GraniteShares which offers simple cost-effective access to differentiated investments.

Realizing his passion to help ETF investors have access to affordable investments, he left his high-paying job and built GraniteShares. Through his hardwork and dedication, GraniteShares was recognized as New ETF Issuer of the Year at 2017 ETF.com Awards and the Best New Smart Beta ETF Award for GraniteShares XOUT U.S. Large Cap ETF last 2019 ETF.com Awards.

 

In this episode, William shared everything he knows on ETFs investments. He will also guide us to understand how the process of investing works and how these ETFs could help build your portfolio. If you’re quite unsure on investing in ETFs, this episode will surely help you! Enjoy!

PanchamHeadshotTGCI
Pancham Gupta
Screen Shot 2020-10-16 at 3.27.45 PM
William Rhind

Tune in to this show and enjoy!

Copy of Quote #00 - 1 Guest

Timestamped Shownotes:

  • 1:48 – Pancham introduces William to the show
  • 2:56 – Why he build GraniteShares and how he innovated the business
  • 7:08 – What makes GraniteShares Gold Trust BAR different from GLD ETFs
  • 11:11 – His pricing strategy on expense ratios
  • 13:19 – Overview on GraniteShares XOUT U.S. Large Cap ETF
  • 17:37 – Importance of transparency to its ETF investors
  • 21:05 – How he manages their ETFs investments
  • 28:51 – Positive changes in his business amidst COVID-19
  • 32:08 – All about GraniteShares Platinum Trust
  • 34:43 – His everyday routine that helped with his success
  • 38:06 – His first investment outside Wall Street
  • 38:45 – Fears he overcame when he started GraniteShares
  • 41:23 – One investment that didn’t go as expected
  • 44:15 – Advice to people who wants to invest in ETFs
  • 45:50 – William’s contact information

3 Key Points:

  1. Understanding how different ETFs investment works
  2. Innovation of GraniteShares on their investment offers
  3. What to look out for investing in ETFs

Get in Touch:

 

Read Full Transcript

Introduction

Welcome to The Gold Collar Investor Podcast with your host, Pancham Gupta. This podcast is dedicated to helping high-paid professionals to break out of Wall Street investments and create multiple income streams. Here is your host, Pancham Gupta.

Hi, this is Joe Fairless. If you wanna diversify out of Wall Street investments, then listen to The Gold Collar Investor Podcast.

Hey, this is Mauricio Rauld, founder and CEO of Premier Law Group and if you are serious about investing in real estate, listen to The Gold Collar Investor podcast with Pancham Gupta.

Dave: Hey, this is Dave Zook and I listen to Pancham at The Gold Collar Investor Podcast and so should you.

 

Pancham: Welcome to The Gold Collar Investor Podcast. This is your host, Pancham. Really appreciate you for tuning in today. Let’s get into today’s show. Since the beginning of the podcast, I have been interviewing people to talk about alternative investing spaces. My intention has been to keep it purely educational with the focus on finances and the economy. Even though I discuss diversifying outside of Wall Street investments, I am not against investing in Wall Street. I just like to invest in the things that I understand. Investing in ETFs has gained popularity over the last two decades, and I have invested in my fair share of ETFs over the years. Understanding ETFs, their expense ratios, and the management fee is a very important piece of analyzing ETFs before you invest in them. How many of you actually read the prospectus that is issued by the management team of that particular ETF before investing in the ETF? I was always curious about learning the expense ratios and what really goes behind these ETFs before they even come to life, so I decided to invite an industry insider on The Gold Collar Investor Podcast today. My guest, Will Rhind, has been in the ETF industry for his entire career. In 2016, he founded his own company, GraniteShares, for investors seeking simple, cost-effective access to differentiated investments. GraniteShares is backed by leading fintech VCs such as Bain Capital Ventures and Clocktower Technologies. William has built and managed businesses in the ETF market for nearly his entire career, and previously was CEO of World Gold Trust Services which is the largest commodity fund in the world. So I hope you enjoy today’s podcast with William.

 

Hey, Will. Welcome to the show.

 

William: Hi, Pancham. Thank you very much for having me.

 

Pancham: No, pleasure is mine, and I’m really excited for today’s show because we are going to get into some of the things that everyone invests in which is ETFs and stocks and all that, but they don’t know really how they work in the backend so I’m super, super excited about the show. So, William, tell our listeners about your background and the person behind that background.

 

William: Sure, and I’ll be happy to. So I’m originally from Scotland and I’m obviously speaking to you today from New York City and I’ve been in New York City now for the last 11 years but I grew up in Scotland and spent the first part of my career in London in the financial services industry, originally in banking and then got into asset management and I got involved with ETFs really right at the beginning and found myself involved with the product really at the dawn of the ETF industry and so stayed with that product, albeit with different companies, throughout my career and obviously founded my own business, GraniteShares, just a few years ago. So I’ve been involved with the asset management space and particularly the ETFs for all my career and then also ultimately ended up founding my own company just a few years ago.

 

Pancham: Great. Yeah, no, absolutely. I see that you have many, many different kinds of ETFs as offering from GraniteShares. I wanna get into those but let’s start with why did you start your own company? Like what was missing in the industry and there are so many ETFs out there, what is it that your company does differently and why you actually started it?

 

William: That is a great question. I think — you know, my story is maybe a little bit more traditional route to entrepreneurship in the sense that I’m an industry insider so I’m somebody that developed experience, knowledge of an industry then obviously from that knowledge or from that experience, used that as a way to create something better that I felt compelled enough to do to offer that via my own company and I was just proud of this, I was the CEO of the largest commodity fund in the world, specifically it’s a gold fund, GLD, some of you might be familiar with it. From my seat there and knowledge of the industry, what occurred to me was that no one was really shaking up or disrupting the alternative/commodity investing ETF landscape and there were kind of really a couple of high-level problems. One, management fees were high relative to other asset classes, and, two, some of the structures were not ideal for investors. In other words, you had funds that distributed K1s, for example, which can be a pain for people around tax time or there were notes, exchange-traded notes issued by notes that had counterparty risk to that bank and so I thought, look, here’s an opportunity to go out and do something different and create fundamentally a better product at a lower cost and so that was really the genesis for starting GraniteShares and then in my opinion, obviously, I designed what I believe to be the best product out there sort of in this space and from — we do three things. We do commodities or real assets and within that umbrella we have broad commodities, we have gold, and we have platinum, and then we do income, and then we do equities as well. And so those are the three things that we do and what differentiates us is typically you’re gonna see ideas or investments from GraniteShares that you don’t see from the bigger firms or the firms that you might be familiar with and so, from an entrepreneurial perspective, we not only had to try and create a competitive product but we also have to do things that are different and the philosophy that we have is we try and do unique or differentiated IP strategies whenever we can and so we wanna offer something that is unique but obviously if it can’t be completely unique, it’s something that’s differentiated so I think that’s really the core and that’s what people should associate us with is unique ideas or differentiated ideas.

 

Pancham: Great. Thank you for explaining that and I wanna dive into a few reasons that you mentioned. One is the management fee, second that being more efficient and not having to issue K1s, for example, then exchange-traded notes, that was one of the other reasons, and then you said something about you were part of GLD, you were the CEO of that and now you have BAR as the gold ETF that your company does. So, tell us about the difference between, let’s say if I’m an investor and I really want to buy gold ETF, right? And to be honest with you, I have invested heavily in the past in GLD but as of right now, I’m a physical metal guy. I actually have bought gold bullion and that’s what I do and I store it in private storage facilities, but let’s say as an investor, I have GLD on one side and we have BAR, what’s the difference and why would one want to buy BAR versus GLD? 

 

William: That’s a great question. So, with the gold ETFs, the first point I’d make is that they are all substantially similar. In other words, if they’re physically backed and obviously I’m only referring to physically backed because there are ones sort of backed by derivative contracts and that’s something different, but assuming that we’re talking about gold ETFs that are backed by the actual metal itself, then largely really the two differentiating factors that people will probably care most about would be the management fees that you pay, so that’s the cost of owning the gold for you as an investor, and then where it’s stored as a sort of secondary consideration. And so really those are kind of the two high-level things that most people focus on but there are of course other reasons. So, specifically, with GLD, for example, their management fee is 40 basis points which is 0.4 of a percent. Our management fee is just over 17 basis points, so 17.49, so it’s less than half the cost to own as GLD. We also store our gold in a different vault so we keep the gold in London in a separate location to them. So, for people that are interested in diversifying that’s also an alternative, and then, specific to us, we have our gold audited two times a year. We have an independent inspector that comes into the vault and actually audits the gold two times a year and then we also do things like we have a specific instruction, for example, of the custodian where they can’t lend out the gold. It’s important to us because we don’t wanna create a credit or a counterparty risk for our investors. So, the gold doesn’t get lent out and then also, you know, we publish the BAR list on our website, GraniteShares.com, so very transparent in terms of the actual gold holdings, the gold bars that we own, they’re all LBMA, that stands for London Bullion Market Association, good delivery standard which means they come from only a certain number of refineries around the world which are improved, but, in addition and above all of those kind of checks, like I said, we have someone that comes into the vault and actually does that sort of auditing and testing of the bars on an annual basis. So there are a number of things which make it different but, ultimately, I think the most important thing to people is the cost and lower cost, for the most part, is always a good thing and then does it track the gold price and because it’s lower fees, it will track the gold price closer. 

 

Pancham: Got it. So, let me ask you this that you mentioned like you have your location, so definitely 17.49 bips versus 40 bips, that’s a huge difference, and the physical location of gold and being in London and auditing twice a year. Are those two things that are not done by GLD? Like audits, for example, or making loans on top of what they have to counterparties which are not associated with the ETF?

 

William: Something that — you know, everybody has their own different process. It’s not something that I probably should be speaking to in terms of how other funds do it but what I’m saying is that we at GraniteShares and specifically with BAR, these are the processes that we have because when I designed BAR, I wanted to design it so that I thought obviously I wanted — it was the most attractive ETF that I could design for the investing public, and so taking my knowledge of what products do or don’t do was very important in terms of putting that design into the market and making sure that it was as compelling as possible to the investor.

 

Pancham: Got it, got it. Okay. So, let’s get into expense ratios and management fee. You referred to it, even in the beginning, that your company’s genesis was to do stuff more efficiently, right? Walk us through the process of how do you come up with the expense ratios when you’re designing an ETF, right? You can take an example of gold or if you have something else, we can talk about that.

 

William: Yeah, so, in some respects, you’re either sort of subject to the market forces or you yourself have to decide what the price is gonna be and so in the case of gold, I’ll take two examples where we have gold where they’re existing gold products and so we’re subject to market forces and that — when we offer our own gold ETF, what we have to do is we have to compete with the existing products out there, knowing that there are some big competitors, knowing that there are some very entrenched competitors and what we gotta try and think about is how can we again have the most compelling offering that makes sense for people and one of the ways we could do that is to compete on price and in a market where you’ve got competition, automatically, that competition is setting the level for the price so you can come in under that or if you choose to go in higher, then obviously you’re taking the risk that you’ll be pricing yourself out of the market. So, I took a view that I wanted to be at the time it was the lowest cost gold ETF in the market and so obviously I knew where the competitors were priced and just made sure that we were lower than that and obviously taking a view on how low we could go with the efficiencies that we could save and that’s really the reason why we ended up where we’re at with the management fee. If you take something like XOUT which is our unique equity strategy, it was sort of a completely different thing because that’s a unique strategy so there are 2,000+ ETFs and only one XOUT and so there we are setting the price for that market because there is no comparison and you have what is essentially, in the large cap equity space, you have almost free ETFs on one side where they cost practically nothing, and on the other hand, you have expensive ones.

 

Pancham: Just one second. So XOUT is, just for the listeners who don’t know what that is, can you explain what XOUT is?

 

William: Yeah. I mean, basically, you got two schools of thought in asset management or money management. You have the active management which is the science, which is the philosophy of picking winners. So the idea is that if you pick the right stocks or identify the right stocks, you can outperform the market because you’ve identified those stocks that are gonna win over time. Now, we all know that that’s very, very difficult to do and, statistically, after fees and taxes, that’s incredibly difficult and the vast majority of active managers fail to meet the benchmark. Then you have the indexing for largely the ETF camp which says knowing that it’s almost impossible to beat the benchmark, we accept that we can’t beat it and therefore we’ll just hold or own the benchmark and therefore underperform after fees and taxes and accept the average and so that’s really the science behind indexing or index management. And so what XOUT tries to do is actually flip the investment paradigm on its head and say, well, actually, maybe it’s easier to identify companies that are in decline or are vulnerable to disruption than it is to try and identify who’s the next Google or who’s the next Amazon. And actually, it might be easier to identify losers as opposed to picking winners and if we just exclude the losers, the winners will take care of themselves. That’s really the idea behind XOUT. We’re X’ing out companies that we think are vulnerable to tech disruption and we’re leaving them out of the portfolio. What that creates is an index, a rules-based methodology that has outperformed the broad market pretty handsomely since we incepted the strategy.

 

Pancham: Wow, that’s pretty innovative. Never heard of that. Just completely opposite of rather than picking the winners, you take out the losers and then create an ETF based off that. That’s quite ingenious. Like it’s really, really cool. So, going back to the [inaudible 00:15:23] before I interrupted you explaining XOUT, we were like talking about how you priced out XOUT.

 

William: Yeah. So, again, we priced XOUT 60 basis points, so 0.6 of a percent and think of the scale as being on the one hand you have broad index exposure for almost free, like very nominal cost, then you have active funds and hedge funds on the other side of the scale charging anywhere from 1.5 percent to 2 percent plus incentive fees. And so we felt like XOUT was sort of somewhere in the middle of that whereby we had obviously a very rigorous research process that we had to implement to come up with the methodology that would allow us to be able to identify these underperforming stocks and so there was a lot of IP research that went into that methodology and so the pricing of XOUT is somewhere between the traditional index fund that you can buy for almost nothing to the active fund that you’re paying 1.5 percent for.

 

Pancham: Yeah, this is exactly right in the middle. So, it’s more like art than science. You know, I always think of pricing of these things and you had example of BAR gold fund that you have, like 17.49 bips, that includes the cost of all the storage, buying, and then buying insurance on that storage and these audits that you have to do and then you obviously have to make money as well so you have that spread on top of that so all that is, you know, I believe you have to make sure you are not going above competition, you have to be competitive, that all kind of goes into the pricing, right? So, in the expense ratios, is that right?

 

William: Yeah, absolutely. I mean, it’s ultimately just like any product that you have to a value proposition that’s attractive for customers and you have to understand where the market’s at and obviously how you can have a creative or have a compelling proposition and so price is obviously one thing, it’s not the most important thing when it comes to value proposition but it’s certainly something that everybody’s aware of and so it’s important to understand that position and make sure that you’re competitive.

 

Pancham: Right. So, deep diving into this a little bit more, like once you have like found the funds or, actually, before we even go there, this expense ratio, right? Is there anything hidden on top of this — not hidden, hidden is the wrong word. Like, if you have found the funds, for example, then in that case, fund 1, fund 2, fund 3, they may have their own expense ratios, right? So, even though the top level fund may have like 50 basis points but there might be other fees which are not reflected, right? So, does that apply to these basic like direct ETFs, for example, BAR?

 

William: That’s a great point. So, what I should point out that when I’m talking about a total expense ratio, what I’m talking about is the total amount of fees that you are paying. In other words, no hidden fees. So, the cost to own BAR, if you held it for 365 days or 1 year, would be 17.49 basis points or 0.1749 of a percent, and that’s the total fee. There are no other fees, other than obviously trading commissions, if that’s even applicable when you come in and out of the fund, but from a management fee perspective, that’s everything we charge. So we talk about total expense ratios because that is the total cost that you pay for any of our ETFs. Now, that’s a bit different when you hear someone talking about a management fee, and a management fee is just what it sounds. It is not the total cost. Management fee is just what the manager, typically the adviser, is charging the fund to manage the assets and, as you rightly point out, you can have a number of different expenses on top of that that make up the total expense ratio. There’ll be, almost always like when you’re looking at any kind of fund material or when you’re evaluating whether to buy any kind of fund, always look at whether it’s a management fee that you’re looking at or whether it’s the total expenses. In other words, do you understand all the expenses here or are there any hidden fees that are not being shown?

 

Pancham: Right, and to kinda continue that, if there are — like if I’m a very, I shouldn’t say naïve investor but if I’m looking at a fund prospectus and there is a management fee and there is expense ratio, then I understand those. If there is something hidden, I wouldn’t know if there’s something hidden because I just don’t know what to look for, I don’t know what’s hidden really, right? So, this is a question for myself too, like how do you figure that out? Like what would be the right thing to look at?

 

William: Yeah, when you mentioned it, it’s the prospectus and the prospectus, for the most part, it should be very transparent, that you have to disclose all the costs and so, regardless of how you display them, on your website or the prospectus, you should be able to see all the costs and, typically, if you just look up the expense part of that particular prospectus, you should be able to see a table, typically with all of the funds’ expenses, where they, you know, total expense ratio in there. But, certainly, that really should be the governing document that anybody should look at if they’re concerned about fees or expenses and know where to look, but, obviously, like anything, there’s always just the ask the manager and so go back to the fund company or ask them directly, you know, “Is this the total cost?” or “Can you confirm the total cost?”

 

Pancham: Alright, alright. Thank you for that advice and definitely very helpful. So, one last question I have on this management of let’s say BAR kind of thing. In my mind, right, like, so we know that recently gold recently spiked from like $1,300, $1,400, $1,500 to $2,000, right? A lot of money pouring into gold and we have Warren Buffet’s news coming out where he invested in Barrick which is the gold mining company and so how does that kind of spike, like you have, on your side, if a lot of people are investing into BAR, you have to manage that backing of gold in the backend yourself, right? So you have to kind of start your buying engine maybe on a daily basis or a weekly basis. How does that work? Like to make it completely balance out.

 

William: Yeah. So, sometimes I think it helps to think of what we do or think of the ETF as like a warehouse, a vault may be more accurate if we’re talking specifically about gold, but sometimes I think — this analogy I like to use with people because I think it makes it very clear as to what we are doing or what the ETF is doing, so if you think of it like a warehouse, then the job of the ETF is to accumulate or de-accumulate but it’s to store the gold on behalf of the investors that own the ETF and so if you think about the market participants, the market participants are the people that are trading, buying, selling, making the markets on the ETF shares on the stock exchange on a daily basis, and, ultimately, special class of those people called authorized participants, they’re the people that sign legal documentation with the fund that allow them to be able to deliver gold or take gold from the fund, so those are the people that are transporting the gold to and from the warehouse on behalf of the shareholders, then once that gold is in the warehouse, we give them something like a warehouse receipt and that’s ultimately what you as a shareholder own, which is to say, okay, I own x amount of shares in the trust and that is equivalent to x amount of ounces sitting in that particular warehouse, and so that’s really kind of what we do. So, the ability of the ETF to function is obviously purely based upon the underlying market or liquidity of the underlying market, so because gold is such a huge liquid market, we have, on a daily basis, we have millions and millions of dollars that transact in BAR and it’s now a $1.3 billion fund or something like that, and so you have a lot of two-way sort of buying and selling, sometimes it’s just one-way buying or one-way selling, but, ultimately, stepping back from all of that, what’s really happening is gold is just flowing in and out of the trust from the gold market and then that is reflected in the ownership which is the shareholders.

 

Pancham: Got it. Yeah, that explains it, and so, do you guys balance the books like every end of the day, like you have to buy and like put gold into that warehouse and get that receipt —

 

William: Exactly. Yeah, so put very simply, we cannot issue shares unless it is completely backed by gold. So, in other words, when we’re taking gold into the fund, we cannot issue a share that’s not backed by gold. That is impossible. And so what happens if we put gold in or gold comes into the fund, shares are issued off the back of it and each share is backed by a small amount of gold. In our case, with BAR, we started it with a hundredth of an ounce for every share and then, roughly speaking, if you look at the gold price and divide that by a hundred, that’s the price of a share of BAR, so right now it’s just under $20 a share and that corresponds to roughly a hundredth of the gold price which is of course around $2,000.

 

Pancham: Got it. Got it. So, if I come in today and I invest let’s say $100 million into your BAR, you won’t be able to issue if you don’t have that much receipts in the backend. Would I be able to buy that or what would happen in that case?

 

William: Yeah. So that’s a really important point. That has happened before on more than one occasion and with any ETF, again, the fund is just a wrapper. It’s just a package that facilitates access to the underlying market that you’re getting exposure to, so in our case, that’s gold. So, almost the structure that trusts the BAR as relevant in that context because what we’re providing the investor is an investment in physical gold, and so for you to do $100 million, really that equation is I’m buying $100 million of gold, is it possible for me to buy $100 million of gold in one day? And the answer to that is unequivocally yes. It’s happened many, many times. And also the gold market is huge. So, the relevant thing is not so much the ETF itself, it’s just that authorized participant, that broker, whoever’s executing that $100 million trade that’s based upon their ability to buy $100 million worth of gold and deliver that to us. Once we have that $100 million of gold, all we’re doing is issuing the shares off the back of it, just says, hey, we got possession of this gold, here are the shares that correspond or back that particular amount of metal, and then consequently it’s exactly the same in reverse. If someone wants to redeem $100 million, it’s just exactly the same process. It’s about taking that metal out of the vault and about selling that in the market cancelling those shares.

 

Pancham: Thank you for explaining all of that. I believe you found one consumer. I might buy some of that, because I’m a big, huge physical metal guy just because of all the things and experiences I’ve had with these kind of ETFs and when I learned about BAR, I was like this sounds very close to what I want and not have the hassle of being storage fee and private vault and accounting and all that and getting delivery if I want to —

 

William: Yeah, and this one goes back, I mean since the financial crisis particularly. What a number of people may not be aware of is that part of the reason why the ETFs exist is because typically, what an ETF — I think the best expression of what ETFs do is they solve a problem for people, and what’s the problem? Well, the problem was that it was difficult to access gold and certainly, if you ran a portfolio, if you ran a professionally managed portfolio, you couldn’t put gold in your portfolio. Just simple as that. And that got even more difficult after the financial crisis because a lot of the traditional bullion banks that would deal with individual investors shut their doors to individual investors because the compliance regulation, regulatory scrutiny increased and maybe the profit margins weren’t there from the bank’s perspective, and so it really kind of shut down an avenue for people and for the majority of people, the only access they have to physical bullion is through coin market now, the coin and small bar market which has gone largely to the online brokers, they’re dealing that. So, ETFs really sort of solve the problem for people that if you want to buy a large quantity of gold, there’s really no other way to do that other than buying via the ETF which is really the institutional market, it’s the interbank market you’re accessing for gold and for the retail market, the retail market is now almost exclusively with the coin dealers.

 

Pancham: Yeah, absolutely. Alright, so I think this is great information. I have two more questions completely different from what we have discussed so far and then we’ll move on to the next section of the show. So my second to the last question is given this pandemic situation, COVID-19, and I’ve been asking this to everyone, have you changed anything in your strategy, and if so, what is that? 

 

William: We haven’t. We’ve been positioned well. From a product perspective, it was important to me to have gold from an entrepreneur from the beginning because, as you know, it’s hard enough to start up your own business and what I didn’t want to have is my own and my teams’ kind of hard work in terms of building a company only to have the market kind of take that away from us. It was always important to me personally to have gold as part of our investment offering because I always felt like — you know, obviously, I believe in gold. I think gold should be a part of everybody’s portfolio just to state the obvious, but beyond that, I wanted a hedge for our business because after all the hard work we put in to set up the firm and to launch the investment strategies that we had, I wanted to make sure that if there was a correction, if there was a crisis, we would have a hedge for our business in gold and that is exactly what has happened. So, we’ve been positioned well. We’re in commodities, we’re in gold, we’re in platinum which I think is a very interesting story for those that don’t know it, and then outside of that, we have this unique idea, XOUT, which has really been gaining a huge amount of traction, especially since COVID because the thesis that we had, talking about excluding companies that were vulnerable to disruption. I mean, obviously, we had that thesis before COVID and COVID has just, it’s been a tech detonation event that has really split the market into the haves and have nots and if you look at the S&P, although the S&P is up and everyone will say, “Well, the market’s up this year,” really underneath that, if you pick it apart, if you leave out the big, mega tech stocks, the market is still down for this year and that’s a very important thing for people to understand that it’s really just a handful of companies that are driving the stock market. There’s this real dislocation between the companies that have a digital strategy that are fundamentally enabled by this digital environment, the new digital age that we live in, and those companies that are fundamentally disadvantaged and have been ruthlessly exposed via the pandemic.

 

Pancham: Absolutely. You’re so right. You know, there is this — I don’t know if you look at DOW, I was reading somewhere, this is long time back, that DOW or S&P, in terms of per ounce of gold, so — 

 

William: Oh, yeah, the DOW-gold ratio or —

 

Pancham: Yeah, DOW-gold ratio basically and like ’99 was the highest —

 

William: Yes.

 

Pancham: — and after that, it’s really not peaked up to even that level which means that, per unit of gold, market has not really returned to the all-time highs of ’99.

 

William: Yeah, still a big difference, and again, like you say, I mean, for people that believe in that particular ratio, the forecast is for that ratio to get back to 1:1 or somewhere close to 1:1, the idea being that from where we are right now with gold around $2,000 and the DOW where it is, that the DOW either has to come down a lot or gold has to go up or it’s some sort of combination of the two.

 

Pancham: Exactly, and before I go to my last question, I actually want to ask you, you mentioned this and I’m curious now, the story behind platinum. If you can tell us quick summary of that story, what is that and we’d love to hear that story.

 

William: Well, people should start by — I think, probably most of all, understand or at least have a good idea of what platinum is as a metal but it’s a very small market. It’s actually a metal that’s 30 times rarer than gold, so it’s a lot smaller market. It has some properties similar to gold in that it has some investment-related demand, also some jewelry-related demand, but, unlike gold, the vast majority of the use of platinum comes actually in industry and the main application is used in the auto industry to clean the emissions on cars, particularly in catalytic converters, and so what I think is happening right now is that we are experiencing a rally in all of the precious metals, again, in conditions that we saw similar to after the financial crisis and indeed the run-up to the financial crisis in 2008 and this is a market where the dollar is declining, inflation expectations are picking up, and people are looking for investments that are not correlated to the traditional stock and bond market, so gold is the obvious thing that everybody talks about but this is something that happened, the price of silver is rising, the price of platinum is rising, and the price of palladium is rising, but if you look at the metals in that sort of concert, that outside of gold which is trading now at or near all-time highs, silver pulled back a little bit recently but silver was on its way over 50 percent or higher than 50 percent below its all-time high, palladium price is at or around all-time highs and actually platinum is the one which is still trading at more than 50 percent below its previous all-time high, and so just on a pure relative value perspective, the people that perhaps believe that they’ve missed the rally in gold, it’s something that we’ve been getting a lot of inquiries about is people looking at platinum, and since the debt of March, platinum rallied pretty significantly, outperforming gold, but even with that significant rally, it’s still, like I said, still pretty far away from its all-time high relative to some of the other assets which I just think is a very interesting story.

 

Pancham: Absolutely. So, I actually have been looking into that. I’ve not invested in platinum or palladium, so definitely will check it out. So my last question before we move on to the next section is, you know, I’ve been asking this question lately partly to help myself as well kind of evolve, do you have any kind of morning or evening routine, and if so, what is it and do you think it attributes to your success? 

 

William: Great question. Certainly, I think like most people, I have a routine but it’s probably not as exciting as maybe some people. So, in terms of the morning, I normally don’t have breakfast, not that that may be is relevant to people, but typically it’s just you have coffee and start working and so I don’t do anything particularly different in the morning but I do have a routine in that — and I very rarely sort of deviate from doing that or doing something different, and then in the evening I guess, you know, again, similarly, I’ve got three kids so, I mean, one of the things that does take up a lot of my time outside of work and obviously sometimes it’s during work as well is anything involving the kids and so in the evening, it’s mainly just making sure that they’re getting to bed on time and that their routine is actually prioritized not so much mine and then sort of after they go to bed, I have a bit of time to myself and typically I do anything from just reading to watching TV before going to bed so sort of perhaps not the most exciting answer you’ve ever heard but definitely have a routine.

 

Pancham: I know. Whatever works for you is what I want to hear so that’s great, thank you. Thank you. So we’ll be back after this message.

 

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Pancham: So, Will, I ask these four questions to every guest on my show and I call this round Taking the Leap Round. My first question for you is when was the first time you invested outside or diversified outside of Wall Street? Would you call that your business that you started which is GraniteShares?

 

William: Well, I mean, I’d have to say that it’s owning properties, so the first time I made an investment outside of the stock market would have to be personal properties, so the first time I bought an apartment, first time I bought a house, that sort of thing. And so, I think the first investment that a lot of people make, if it’s not even their first investment, is an investment in the home that they live in and so, for me, that was it.

 

Pancham: Okay. Great. So, second question. What fears did you have to overcome when you started — actually, I will you ask this, GraniteShares, did you have to overcome fears before starting this company? If so, what were they?

 

William: Well, you have to overcome fear and I think the fear is always that it’s not gonna work and I think — what I would say is that, at least speaking for myself, it wasn’t so much about fear because I think if you’ve got your mind made up that you’re gonna do something, it’s difficult — you know, typically, the reason why entrepreneurs make things happen is because there’s no alternative voice telling you it’s gonna fail. You know, you believe in it and you believe in it to the point where you’re gonna quit your job and set up a company and launch whatever product or strategy that you’ve got and you don’t think it’s gonna fail. At least, I would not advise people to go into setting up their own business if they thought it was gonna fail. I think it’s probably quite healthy to believe in what you’re doing and so, from that perspective, I don’t wanna make it out like I sound naïve or something, but I think you gotta have conviction behind what you’re doing and you gotta understand, at least coming from where I was as an industry expert, so I understood the market, it wasn’t as if I suddenly decided to get into ETFs and I had no asset management experience and just thought this was a good way to make money, and so from that perspective, I knew what I was doing and you have to have conviction. I think it’s such an important part. And then really it’s I think just probably understanding and the biggest thing for me is just, you know, it’s like the old analogy about building a house or about doing any kind of refurbishment on your home and people always say, “Look, whatever you think, whatever the contractor says, it’s gonna take twice as long and it’s gonna be twice as expensive,” and it’s a little bit like that with a business. I think people just have to manage the expectations of what it really takes to build something and it takes time and I think people have gotta be patient, but at the same time, you have to have conviction in what you’re doing. You gotta believe in yourself, believe in what you’re doing, believe in the value that you’re adding to the market and, hopefully, if all those things sort of align, then you’ll be able to make it work.

 

Pancham: Great. Great answer. You know, that reminds me of this entrepreneur, I’m not sure if you’ve heard of him, Ratan Tata. He’s the founder of Tata Motors —

 

William: Yeah.

 

Pancham: — which owns Range Rover, etc., and a reporter once asked him like how do you make right decisions and the guy goes, “I don’t make right decisions. I make a decision then I make it right.” So, you know, it’s that kind of thing, that kind of conviction.

 

William: Important distinction.

 

Pancham: Yeah. So, my third question for you is can you share with us one investment that has not gone as expected for you?

 

William: Probably a lot, but I would have to say, again, bringing it back to property, that’s real estate. It’s never something that has particularly worked out well for me and either through wrong kind of property or timing or whatever it may be, it’s not something that I’ve had sort of a great amount of success in. Again, it’s never something I’ve been focused on full time what was in the market but I think with real estate, it’s a tough one because typically people get into it when they’re very young or at least they’re old enough to be able to get a mortgage and so you commit to something and I think it takes up a lot of your financial capital, and, frankly, it kind of inhibits you in many ways because you’re ultimately servicing debt for a bank instead of perhaps using that capital for better effect and I think that’s sort of one thing now which I think is changing so much in the markets because when I was growing up, and I’m not that old but I’m 41 now but when I was in my twenties, particularly growing up in the UK, the two things that everybody did was you wanted to invest in property as soon as you could, in other words, buy your own home, buy your own apartment. That was sort of seen as a rite of passage, if you will. And then, for people that obviously went into work, vast majority of people working, they thought, well, I don’t really need to invest in the stock market because I’m getting a state pension, you know, when I retire. And so, fast forward 20 years and I think one of the things that’s changing and I think it’s the same here in the United States and many parts of the United States is that people have realized they actually can’t get on the property ladder because buying an apartment in New York City or buying an apartment in, you name it, other big city in the country is if your starting price is $1.6 million for a two-bedroom apartment or whatever the number is, you can’t do that as a now 20-year-old or whatever entering into the work force. And the second thing is people have realized that there is no state pension coming at the end of the world of work so the first investment now for many people is into the stock market and that’s why I think you’re seeing this huge demand for Robinhood, just to name one service, but for investing just more broadly because I think that is the first experience that people are really getting now and that is a fundamental difference from even just a short period of time that I’ve been around.

 

Pancham: Great. Yeah, we need to talk offline about properties. You know, there are many diverse — but I would agree with you if you’re talking about your own house or apartments and high-rise buildings in major metros, it’s definitely not something that would be called as an investment. Alright, so my last question for you is what is one advice you would have for people who are thinking of investing in, let’s say, ETFs? I ask this question differently but for you, like I would say people who have not invested in ETFs, what would you tell them?

 

William: To get started. I think it’s just when you’re thinking of doing anything, assuming you’re thinking about it for the right reasons, in other words, that you want to get some experience investing, you want to build for retirement, whatever your particular sort of objective is and it can be many, I think the core advice is just to get started. You got to start somewhere and so now it’s easier than ever, I think in two respects. One, just to access the market in terms of opening up a brokerage account, online brokerage account, but, two, investor education is just — is so much better than it was even just 10 years ago. I mean, there’s access online. I mean, not all of it is good, of course, but there are plenty of reputable vendors, reputable sites that give very good information and it’s just one click away really from I think people doing research and I think from that perspective, people are just much more educated than they were even just 10 years ago. So, from an investment perspective, rather than the usual disclaimers about making sure you understand what you’re investing, all these good things, I think it’s just get started.

 

Pancham: Great. Great advice. And so it has been awesome, Will. This is like a ton of information and a lot of useful information. It’s been a pleasure. So how can listeners reach you if they wanna connect with you or wanna know more about your company? We’ll definitely put the website in the show notes. Anything you wanna share.

 

William: Yes. So the easiest way is we’re online, www.GraniteShares.com is the website but I’m obviously on LinkedIn and other social channels and so please feel free to reach out, connect with me, but, yeah, we’re very approachable as a company so have a look at the website and, yeah, please feel free to get in touch.

 

Pancham: Great. Thank you for your time today, Will.

 

William: Pancham, thank you so much for having me. It’s been a pleasure.

 

Pancham: Pleasure is mine.

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions. As always, please consult your own financial team before investing.

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