“Look for ways to connect the dots before others do.” With Jason Hartman & David Dorr

I think over the next couple of years Environmental, Social and Governance (ESG) strategies will outperform. There’s nothing like a pandemic plus climate change for humans to realize that we are dependent on the planet for our very existence. As a part of my series about “Investing During The Pandemic”, I had the pleasure of […]

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I think over the next couple of years Environmental, Social and Governance (ESG) strategies will outperform. There’s nothing like a pandemic plus climate change for humans to realize that we are dependent on the planet for our very existence.

As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing David Dorr.

David is the Co-Founder and Managing Principal of Dorr Asset Management, and Co-Founder of Coro Global Inc, a Florida-based fintech company focused on creating a new financial system where gold can be used as currency in everyday transactions as easily as fiat currencies.

Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

I was first exposed to investing during a class in junior high where we got to create our own stock portfolios. I found it fascinating that I could take money from my job delivering newspapers and become a small owner in some of the world’s most iconic companies. While the portfolio in class was built with fictional capital I ended up opening my first brokerage account with the help of my father shortly after. I bought Harley Davidson stock. Of course I did zero analysis and didn’t know what I was doing. I just thought their motorcycles were cool and they must be doing well because I saw them everywhere. Fortunately that investment worked out well but only due to pure luck. A couple of years after that my passion really kicked in when I began studying commodities futures, financial futures, and FX. I was fascinated by the way that futures contracts could be used to manage risk and how through macroeconomic analysis one could gain an edge in predicting what in direction prices might move. I was also attracted to the symmetry of futures markets and the ability to express an investment view and make money in rising markets and falling markets. That left a lasting impression on me. I would say it was learning how derivatives function that laid the groundwork for my career. The other pivotal moment that fortuitously occurred around the same time was that playing craps had become popular in my high school. At that time I was working in a pizzeria and it so happened my boss was basically a professional gambler. One night after work I was invited to “shoot dice” with him and his friends — an opportunity. I quickly lost $200 of hard-earned tips from delivering pizzas. At first I thought it was simply bad luck and that was what I deserved for gambling, but as the evening went on and I watched him play I noticed that he was steadily making money. I knew that this was more than good luck and that either he was cheating or he knew something that I didn’t. I knew him as a gambler but never as a cheat, so the next day I went to the local library and checked out every book on gambling I could find. Sure enough, it was all right there. Basic math. I memorized all the odds with craps and for the next year and a half I made 100x what I was making delivering pizzas simply playing craps against others that didn’t understand the odds. Learning how to calculate odds and manage risk become part of my DNA.

I would say the combination of learning risk management and how to trade derivatives cemented for me that I wanted to have a career in trading and investing. In 2001 my brother Brian and I moved to Miami to join our other brother Cameron who had been stationed there in the Coast Guard. Brian and I were committed to setting up a global macro hedge fund with the ambition to be the next George Soros and Jim Rogers. We floated our idea past a few investors and during that process we got offered the opportunity to work for a brokerage firm in the secondary market for life insurance. That was a burgeoning new part of capital markets and two years after working there we co-founded a company called Life-Exchange, which became the first electronic trading venue for the life insurance industry. Our clients were Wall Street banks and global insurance carriers. In 2010 we set up Dorr Asset Management as a multi-family office to manage our own assets as well as those of international families. Our expertise remains global macro and many of the tools we use today are almost identical to the ones I learned as a teenager.

If there were one critique I would make of both retail and professional investors today it’s that they don’t understand how to manage risk, and the pandemic is a prime example of the importance of risk management.

Can you share with our readers the most interesting or amusing story that occured to you in your career so far? Can you share the lesson or take away you took out of that story?

I’ll share two that relate to extreme events, since the focus of this interview is how to invest during a pandemic. In late October 2012, hurricane Sandy had veered away from hitting the SE United States and moved its trajectory towards the NE. It’s pretty common to see lumber prices jump when a hurricane is going to cause a lot of destruction and I think it’s simple to understand why. What caught our attention during Sandy was that lumber prices were actually dropping when the hurricane changed its trajectory. Home builders in the SE no longer needed to hedge against lumber prices rising and sold their positions. What we found fascinating was that NE builders were not buying lumber contracts. Our rationale for this was quite simple: New Yorkers aren’t as familiar with the damage of hurricanes as Floridians because they are rare in the NE. We immediately moved into the lumber market and recognized that not only would prices go up but they would have to go up a lot, because even a mild hurricane hitting a much more densely populated area would cause a lot of damage and require significant rebuilding. As you can see from the rest of the chart, that’s exactly what happened as lumber prices made a 31% climb in less than 60 days after we started buying.

Another example was the ebola outbreak in West Africa in 2014. On March 23, 2014, WHO officially declared an outbreak of EVD. A few months later on August 8, 2014, WHO classified the outbreak as a Public Health Emergency of International Concern. West Africa is the largest grower of cacao, which is what chocolate is made from. If ebola were to spread it would keep cacao farmers from being able to harvest their crops. Upon some additional research we found that cacao trees are pollinated by fruit bats. Most people have heard how important bees are as part of the food chain because they are responsible for pollinating a wide variety of food sources. What most people don’t know is that fruit bats are equally important to pollinating certain food chains. Fruit bats were also linked to ebola: contact with animals such as bats in West Africa is probably how ebola spread to humans. Sound familiar? When we looked at cocoa futures prices we felt that they didn’t reflect both the risk of farmers dying and not being able to harvest their cacao fruits, as well as the possible contamination risk of ebola-carrying bats pollinating the cacao trees. If West Africa’s crop of cacao was considered unavailable or contaminated it would send cocoa futures soaring as chocolate producers would have to procure cocoa from other regions of the world.

The lesson learned from both of these examples is to look for ways to connect the dots before others do. Do your homework. Sometimes the best investments are right in front of your eyes and they are obvious once you look closely at them. Don’t be afraid to pull the trigger on a trade just because no one else has done it yet.

Are you working on any exciting new projects now? How do you think that will help people?

Yes! After the last financial crisis I saw first hand how powerful global macro investing could be. My brother and I were busy operating our electronic trading platform for life insurance and myopically focused on that sector. Bear Stearns was one of our clients and when their mortgage hedge fund blew up in 2007 we stepped back, put our macro hats back on, and realized we were staring into the abyss. We lost an enormous amount of money during the Global Financial Crisis (GFC) and what was most painful was that we had the precise backgrounds to have seen the crisis coming, had we only been using our global macro training and paid attention.

The one thing that saved us was that we bought gold after it sold off during the early stages of the crisis. When global governments started printing money to support markets (again, sounds familiar right?) and they started to rally, we knew that gold would outperform. And outperform it did. We then made the commitment to never abandon our macro roots again and instead vowed to provide global macro investment management to international families around the world. However, there were a couple of things since that period over ten years ago that kept us up at night. First was that we would have another financial crisis and it would be much larger than the GFC, which was already the largest crisis since the Great Depression. Governments had not reduced global debt as they had committed to do, but rather they had increased it much higher than it had been in 2008. The second thing that kept us up at night was worrying about how everyday global citizens would be able to weather the next crisis. Gold had saved us in the last crisis, and we believed that ultimately gold was going to return to being a currency after the next crisis.

Most people think of gold simply as an asset class, but its real value is as the most stable currency in human history. Around the same time that we were forming our multi-family office, Bitcoin was starting to grab some attention. The spirit of Bitcoin is basically digital gold. It was a great technological invention. We looked at it carefully and felt that while the technology was a great first draft, it wasn’t ready for commercialization. On another occasion I’m happy to explain how we came to that conclusion so early on. We decided to wait and watch the evolution of distributed ledger technology until it arrived at a point that met all our specifications for use in everyday commerce. That breakthrough occurred a little over three years ago, when computer scientist Dr. Leemon Baird invented the hashgraph consensus algorithm. When we came across hashgraph we knew it was the future. It had all the features necessary to create new financial rails for faster, more secure transactions. We co-founded the second fintech company of our careers: Coro Global. Coro Global’s mission is to use hashgraph to facilitate cross-border payments around the world. Making transactions cheaper and instantaneous. But Coro Global’s most important feature is that it allows users to transact in gold as easily as any fiat currency. Our mission is to democratize access to gold as a currency so that everyone will have the ability to survive and rebuild through the next financial crisis with stable money.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

I’m most grateful to my parents for instilling in me a sense of curiosity about the world, and nourishing that curiosity through books. Growing up in a lower middle class family in the midwest it wasn’t feasible to explore other countries and cultures by travelling, so books became my closest companions. As I mentioned earlier, it was books that ultimately taught me the mathematics of gambling. I’m sure that when my public library was founded the intention wasn’t to educate young minds on the inner workings of gambling, but thankfully they did and that’s led to a successful career in financial markets.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

This is such a great question! The first thing I’d say is that it’s really important to reconnect with your family and community. In our digital bubbles we sometimes lose touch with those who are physically in the same house or neighborhood as us. My hobby is teaching and practicing yoga and I’ve found immense value in moving my body and stilling my mind. Yoga is free and widely available to practice in your home. Meditation is a part of yoga and when practiced daily, even if for only 5 minutes, has innumerable benefits.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

This is a tough one. I simply don’t believe in dollar cost averaging. If we look at Japan’s Nikkei 225, which is basically the equivalent of the U.S. S&P 500, we can see that if you were dollar cost averaging since their 1989 peak you’d have been throwing money away the whole time. I think that buy and hold mentalities are very dangerous. I think investors spend way too much time thinking about what to invest in and how much to invest, rather than where they will exit their investments if things don’t work out. I think being in cash is currently a great place to be. The market could rally or it could sell off another 30–40%. Stocks were in a bubble and bonds have been in a multi-decade bubble so preservation of capital should be the focus.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

Eventually is the key word. It’s too early to know if that’s going to be starting this year or if the pandemic has been the accelerant for the next financial crisis which is long overdue. That said, with the right horizon, I think over the next couple of years environmental, social and governance (ESG) strategies will outperform. There’s nothing like a pandemic plus climate change for humans to realize that we are dependent on the planet for our very existence. ESG have been around for a while, but in the coming years I believe they will mature and be easier to measure. For example, a company that chooses to power its operations with renewable energy will find that not only is it better for the planet but it is better for their financial bottom line. Biotech will be a fascinating field in the coming decade as well. It’s a more volatile and riskier sector of the market, but for investors willing to put in the time and due diligence there will be incredible opportunities. I also think there will be enormous opportunity in commodities and agricultural companies, especially those focused on sustainable agriculture. We have a growing population that needs to be fed, and commodity prices are the lowest they’ve ever been versus equities, so there are going to be tremendous gains made in those areas.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

For investors who can be nimble and tactical in their trading there are a ton of opportunities. Professional skills are necessary to attempt these higher risk investments. Precious metals miners are unbelievably cheap. I think the bigger opportunity for playing volatility and uncertainty is shorting companies with high leverage and weak balance sheets. There’s plenty to pick from in that category and they are exposed to heavy moves to the downside.

Are there alternative investments that you think more people should look more deeply at?

Well, not to promote our own style, but I think investors today really need to understand the basic principles of global macro investing. By learning to look at the world from the top down and looking for the interconnectedness of markets, there are lots of opportunities and it’s easier to spot risks ahead of time

If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long term investment what would you advise them to do with it?

That one’s easy. Buy physical gold.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?

The first and most important lesson is risk management. Everyone skips it. Nothing else matters if this part isn’t ingrained from day one. Second, find a hobby like yoga or surfing, anything that stimulates your mind and then see if you can mirror that state when investing. I think it’s important to travel. Nothing brings out investing instincts like going to other places. You can’t help but notice what’s available in one country and not available in another country. I think it’s also important to develop intuition. No one likes to talk about intuition because it’s intangible, but I would tell you that the best investors in the world all incorporate it. It shouldn’t be used in isolation but combined with sharp analysis it’s a game changer.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Vision is the art of seeing what is invisible to others.” — Jonathan Swift

That’s been the quote at the end of my email signatures for years. Vision comes from hard work, listening to your intuition, and self-confidence. True success in investing for me has come from independent thinking. The confidence to take action on that thinking comes from a lot of hard work combined with inner-self development.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

That movement is to educate young people (and old) on basic economic principles for financial and environmental sustainability. Civilization has advanced in so many ways with technology but our financial and governmental systems keep repeating the same mistakes of the past, which we already know with certainty don’t work. I believe that vicious cycle can be broken, and the impact of doing so will bring greater peace, prosperity, and harmony between us and this blue marble we all live on together called Earth.

Thank you for the interview. We wish you only continued success!

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