(Ep.43) The Acquirers Podcast: Sean Brown – Why Charts? Value, Fintech, And Charts

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Summary

In this episode of The Acquirer’s Podcast Tobias chats with Sean Brown, the President and CEO of YCharts. YCharts is a cloud based investment research tool. During the interview Sean provided some great insights into:

  • YCharts – The Swiss Army Knife Of Investment Research
  • How A Corporate Crisis Creates Opportunities For Investors
  • There’s A Real Opportunity For Wealth Advisors To Communicate Better With Their Clients
  • Cycles In Markets (And Fashion) Come Back Around – If You’re Prepared To Be Patient
  • Sometimes The Simplest Investing Strategies Can Generate Outsized Returns
  • Investors Should Focus On Ways To Mitigate Downside Risk – Even In An Extended Bull Market
  • Successful Cloud Based Investment Research Requires A Large Focus On Human Interaction
  • A Snapshot Of Life In Silicon Valley – Just Before The Very Top Of The Dotcom Boom

You can find out more about Tobias’ podcast here – The Acquirers Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript

Tobias Carlisle: Okay. When you’re ready sir.

Tobias Carlisle: Hi, I’m Tobias Carlisle. This is the Acquirers Podcast. My special guest today is Sean Brown. He’s the President and CEO of YCharts. They make the very attractive charts that you see around on Twitter, social media, blogs. Sean describes it as a platform for enabling smarter investment decisions. We’re going to talk to him right after this.

Speaker 2: Tobias Carlisle is the founder and principal of Acquirers Funds. For regulatory reasons, we will not discuss any of the Acquirers Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit acquirersfunds.com.

Tobias Carlisle: Hi, Sean. How you doing?

Sean Brown: Hi, Tobias. How are you?

Tobias Carlisle: I’m really well. Thank you. Thanks for coming on. What is YCharts?

Sean Brown: Well, you just described it pretty well. You know, we enable smarter investment decisions and better communications. So I like to think of us like a Swiss Army knife. If you just want to stay abreast of the markets, we have … and oh, by the way. I should flag, it’s not those crappy Swiss Army knives that break apart when you go to some trade show. It’s the really good ones that if the blade you’re looking for is, “I want to stay abreast on the markets. I need a dashboard. I need alerts to tell me what’s changed in the market relevant to me.” That’s a blade we’ve got.

Sean Brown: People know us for this word that you just mentioned: charts. It’s in our name. We think we’re really, really good at visualizations, but behind those visualizations are a lot of really interesting blades like screeners to help you narrow down a list of securities. You know, especially with a guy like you to put a screen on for the Acquirers Multiple and get it down to a list of select securities. Then you can do some deep dives on those all the way to excel tie ins to keep the inevitable spread sheet up to date, to the ability to create and monitor model portfolios, and several blades from there.

Tobias Carlisle: So you’ve been with YCharts for three years. What was the impetus? What was the reason for joining?

Sean Brown: So I’ve become an old man somewhere along the way.

Tobias Carlisle: Happens to us all.

Sean Brown: It’s one of those funny things that when you’re younger, you don’t realize you’re missing this thing called experience, and then you come to a point in time where you don’t know when you got it, but you seem to have experience. I found my way to YCharts three and a half years ago where I was part of a very nice exit when Interactive Data was sold to ICE, the owners of the New York Stock Exchange.

Sean Brown: I had promised my wife we were going to take a bunch of time off and head to your homeland and see Brisbane and see all over Australia and see the world a little bit more than we already do. And literally stumbled upon YCharts. I just saw it as an opportunity that ii could not pass up.

Tobias Carlisle: So what’s your background? Is it finance or is it data? Or is it financial data? Where did you come from?

Sean Brown: I’m a screwball. I started out as a software developer. Finance degree in college. Didn’t know much about computers, but I thought they were going to change the world, so I became a software developer. Got an MBA, went into some strategy consulting, and then was asked to join a startup as a CFO. So I’ve basically been a startup or small company grower since then. Software, SAS, almost always and financial services predominantly.

Tobias Carlisle: That’s been a good place to be for the last 15-20 years.

Sean Brown: Yeah. You know, it’s a fun place. You see this everyday. I think financial services is a bit behind other industry segments in the way we take advantage of cheap data, cheap storage, commodity data, and easy and great technology for user interfaces. I think we’re behind other industries in the way we apply those to solve meaningful business problems.

Tobias Carlisle: Why do you think that is?

Sean Brown: I think there’s a lot of regulatory overhang, which isn’t necessarily conducive to innovation, and I think there’s also a little bit more of it’s always been done this way. So what’s the real catalyst for change? I think maybe some other industries are seeing either existential threats or have less of a regulatory overhang and therefore maybe adopted technology a little bit quicker.

Tobias Carlisle: Are you an investor in your own right? Are you a trader or investor? Do you dabble in the public markets?

Sean Brown: I invest my own book, and it’s an interesting thing for me because the main clientele that we serve are wealth advisors and asset managers, but my fundamental premise is, if I’m really going to understand our target market well, I need to not talk to them only. I need to live like they do. I need to understand what it means to manage a portfolio. So, yes, I manage my own book and love doing it on the side, and I figure it’s the least I could do to leverage two finance degrees.

Tobias Carlisle: What’s your approach? What’s your philosophy?

Sean Brown: I’m a real buy and hold guy. I mean, I have a fundamental bias in everything I do, and it starts with me, with do I like, know, and understand the company and products? And do I have faith in those? So can I visualize the business problem they’re solving? Then when I get over that hurdle, I can take it to the next level and do some fundamental analysis, get comfortable with them, and then put it in my portfolio and only if I’m doing some tax loss harvesting or things like that am I likely to dispose of it.

Tobias Carlisle: Yeah, I’ve been doing a little bit of that over the last few years. Are you a … is that a Peter Lynch style approach, or how do you … who’s your investment heroes?

Sean Brown: Kind of an amalgamation. You know, honestly. And where I end up gravitating to is I’m a technologist, right? So I have a probably heavier than a good wealth advisor would advise proportion of Fang and Fang-like stocks because that’s the world I know really well. That and banking stocks. I try to keep a long term view and don’t get too upset when there’s a quarterly earnings miss or a slight blip in the market. You know, one of the interesting things that I love using our software for after seven pm at night is, you know, you look at something like Boeing and a crash that they had and the 747 Max being taken from the market. The neat thing about happened to work for a financial research software company is I love to take a look at things like corporate crises and say, “What happens after a corporate crises? What happened after Chipotle had an E. Coli scare?”

Sean Brown: I ask questions like this, and then I and my team, we use our software and our data to say, “Hey, is a corporate crisis an opportunity for somebody to buy? Is it an opportunity to want to trade?” Because there are plenty of opportunities to get in and out. That doesn’t happen to be what I do, but is it an opportunities to buy and hold for the long term? So I end up using our research capabilities to help inform some approaches I take to buy and hold.

Tobias Carlisle: And what’s your view there on Boeing and Chipotle? Was it … is crisis a good time to go and buy?

Sean Brown: It’s a great time to buy, especially over the one year horizon. You’re inevitably good companies recover from setbacks, and there have been so many, you know, from back in the days. I don’t know if you even remember where the Toyota and the pedals were sticking and the accelerators and people were driving through their garage right into their kitchen.

Tobias Carlisle: What vintage is that?

Sean Brown: I don’t know, but I’ve stayed away from those cars since then. You better check your license plate.

Tobias Carlisle: Was that the Prius when the Prius was getting the pedals stuck?

Sean Brown: You know, I can’t remember exactly what model that is. I hope I’m attributing it to the right company, but …

Tobias Carlisle: No, I think that’s right. It was the Prius. This is only in like the last five or ten years, right? It’s not a long time ago?

Sean Brown: Yeah, and there was the peanut butter. You know, whether peanut butter had, you know [crosstalk 00:09:14].

Tobias Carlisle: Or something like that?

Sean Brown: Yeah, yeah. I think good companies recover and markets forgive and forget. So if you buy to the dip, and the dip usually occurs sometimes in the first … the depth of the dip usually has the first 30-60 days. We’ve just found you’re going to outperform the market over a one year horizon by a meaningful margin.

Tobias Carlisle: Yeah. You’re a man after my own heart. That’s exactly what I go looking for. I’ve done it several times, but … BP, you remember BP had the spill in the gulf?

Sean Brown: Yeah.

Tobias Carlisle: I thought, “You don’t want to be at ground zero, so don’t buy BP.” So I went and looked at all the … you know, everything sold off. Anything that had any exposure like all of the rig companies and anything that was in there. They all recovered a little bit, but nothing did as well as BP, which was right at the absolute ground zero. So that’s kind of … my philosophy is now is you just got to go in at … if you see it blowing up, you want to be in right at ground zero. So that might be BP or whatever it might be.

Sean Brown: You know, the funny thing when you mention BP is I went to get gas over the weekend with my kids, and while I as an investor and the markets have certainly forgiven BP, my children haven’t. My children, when I pulled up to the four corners. There’s a gas station on each one. The most convenient happened to be BP. My kids are like, “Dad, you can’t go here. They polluted the oceans.” I said, “Maybe there’s a difference between my kid’s sentiment and market sentiment.” Maybe when my kids get a little older, market sentiment and age group sentiment may converge a little bit more, but the markets have forgiven and forgotten and BP has done great.

Tobias Carlisle: It has done very well. It’s one of the funny things about they say about all the oil companies and all commodities in particular. There’s no branding for a commodity. You don’t get … like the fuel really isn’t that different from any one to the next. So there’s nobody really driving looking for … you know, nobody’s driving looking for the Chevron, but that’s interesting. I hadn’t considered that before that maybe there is that overhang.

Sean Brown: And that’s the interesting thing that you’re saying. You know, tying this back to software and research platforms. Much like gas station, data has become a bit of a commodity, right? So the differentiator and the thing that we have fun with is how do you make developing insights and communicating insights unique, and how does that differentiate you? Because there’s all kinds of gas station-like commodity data out there. What are you going to do to make that easier for people to use?

Tobias Carlisle: So what do you guys do? Do you scrub the data at all? Because that’s one of the things that I’ve found. It’s very hard to find really reliable data. They’re almost always riddled with errors. This is not even talking about back testing. If you can find good back testing data, that’s one thing, but even the real time data is always … even just the decimal place is in the wrong place.

Sean Brown: Yeah. We do. We do a couple things. One is we try to scrub the data, but we think if we pick the right data provider, largely speaking, a lot of that has been done. We try to do some value adds on top of that data. A ton of calculations we put on top of that data. We also cultivate or pull from the source a ton of economic indicators. You know, simple things like you’re wanting to know the GDP of Sweden, and you’re also, for whatever reason, wanting to do a graph of the jobs reports and the trendlines there. We cultivate that from the sources and try to make that easy to use and a lot of ways look at that data the same way we do an equities fundamental data. We say if we’ve got the underlying data, we can help you compare it, screen off of it, filter it, and develop insights from it.

Tobias Carlisle: I should say, in full disclosure, the reason that you’re on is I really like YCharts, and I’ve used it at various times. If I’m looking for a total return of a series, often YCharts is the only one that has it, and you very cleverly make the day that I really want, which is the last day, not available for free. So you have to pay for it. You guys have very kindly provided me with the access to that now. So thanks very much, though. I really do appreciate it.

Tobias Carlisle: What’s the philosophy of Y Charts. What are you guys seeking to achieve?

Sean Brown: Well, if you think about who our target market is, it’s over 3500. We’ve got almost 5000 total customers. 3500 and north of there are wealth advisors and asset managers. We want to make their lives easier, is ultimately what it comes down to. So to be more specific, we think they’re pressed for time, especially the smaller wealth advisors. We think they’re pressed for time and we know their fees are under compression. So we try to make them as badass as possible by finding ways to save them time, finding ways to help them improve their investment returns with the fundamental thesis that better research delivers better returns, which helps you justify your fees.

Sean Brown: And a huge one that we’re focused on now is we think advisors do an adequate job of communicating with their prospects and their customers. One of the big things we’re working with advisors on now is, “Hey, people come to you not because they want to be your best friend and not because you have the best Broadway tickets. They come to you because they have a nest egg that they want you to grow and manage the risks in growing that.” We think it’s imperative that advisors are in regular communication with their customers, not just waiting for a quarterly statement to come out. On a weekly or a monthly basis, how are you sharing insightful information, either on financial education, communicating on Fang stocks. You know, what’s happened today with Facebook? What happens with the 10-2 spread inversion? And how do I, your advisor, what do I see this as?

Sean Brown: We just think there’s a real opportunity for advisors to communicate much better.

Tobias Carlisle: So there’s a couple of interesting questions there. One, what do you think about the 10-2 spread inversion?

Sean Brown: Well, I listen to a lot of experts who, you know, have tried to make it clear that’s a harbinger of not great things to come. I found in my investing career, I spend more time listening to experts who have sound opinions on it, but I’ve also found that experts aren’t always right. So my personal opinion is it’s yet another indicator that this 11 year bull market may be changing trajectory, but I’m not sure in my opinion the evidence suggests it’s tomorrow, next month, or next quarter.

Tobias Carlisle: Yeah, I heard Cam Harvey is the … Campbell Harvey is the creator of that. He wrote it as his doctoral dissertation. I think it’s his doctoral dissertation, and he was on [inaudible 00:16:43] podcast, which is a great one as well. He said, typically you see the impact of it about a quarter later, which should be about now. I think he was on it about June. Hasn’t seem to have happened yet. He says it’s never missed, which is kind of amazing, but it seems to have. Maybe this is the time. There’s a first time for everything.

Sean Brown: Oh, you know. It’s interesting because even looking, and I’m seeing a lot of posts lately about this has been the first decade where there hasn’t been any hint of a recession. You haven’t been in any kind of a recession. It’s interesting. We’re all making really good use of data and trendlines and things like that. The market continues to prosper.

Tobias Carlisle: Have you read The Man Who Solved the Market? Have you read that new book on Jim Sloans?

Sean Brown: I haven’t.

Tobias Carlisle: It’s kind of interesting because they started out in the time before there was any good data. They predated Bloomberg being able to supply data. So it was a struggle. I think they actually had to record data on a tick by tick or like a daily closed, open-closed, high-low kind of basis because they just couldn’t get it anywhere else. So they sort of … that was one of their early adventures. They actually recorded. It’s kind of interesting. I think it might be something that you’re interested in because they were kind of pioneers, and then when Bloomberg became available, they sort of drilled that down pretty hard. Clearly, it’s worked for them. They’ve got absolutely ridonculous returns.

Sean Brown: Yeah. Yeah. You know, it’s … and you see this more than I do. There’s all kinds of ways to make money in the market, and if there was just one way, we’re all smart enough to have followed that one way. And if there was one guaranteed way, you know, again, we’d be like lemmings. We’d all be [crosstalk 00:18:44].

Tobias Carlisle: It would be gone. I mean, if there was one guaranteed way, it would be arbitraged away. The only things that work consistently are things that don’t work for periods of time, which that’s why I’m a value guy. Unfortunately, it’s been a painful decade for value guys.

Sean Brown: Yeah.

Tobias Carlisle: I think it’s coming back.

Sean Brown: It really has, but you know, just again bringing it to my home front. I have a wife of almost fifteen years and a couple kids, and they’ve got their own investment philosophy, and I don’t know what you’d call it. The mall philosophy? What’s going on in either the digital or the physical mall. They’re always like, “Wow, Dad. You need to look at this Tween or teen girls clothing shop because it’s all the rage,” and lo and behold, I put it on my tracking list, and lo and behold, that’s sky rocketing. A few years ago when my son said, “Dad, you’ve got to stop wearing all this Nike gear when you work out. You got to go with Under Armor.” You know, I adopted it and then I saw what it did. I also see what it’s done lately. It’s interesting. You can go with the gut approach. You can go with the quant approach and not even know what the company does but know what the technical analysis says and know what the back testing says. You know, that’s what I love about the markets. There’s all kinds of different ways to win and lose.

Tobias Carlisle: Yeah. There’s a million ways to skin a cat, and you just got to find the one that works for you that you can stick in when it’s not working. I think that’s really the best approach.

Tobias Carlisle: My wife’s brother, for Christmas, he was asking for an off white shirt. Do you know what off white is?

Sean Brown: I don’t.

Tobias Carlisle: Yeah, so it’s a … neither do I. Like, when he said … and this is the mistake we all made, because he said, “I want an off white shirt.” So we’re all like, “Just go anywhere and get an off white shirt.” He’s like, “No, no, no. That’s the brand. How old are you guys?”

Sean Brown: Yeah.

Tobias Carlisle: Yeah. I didn’t know that. I’m not living on the cutting edge of fashion. Nobody who would look at me would think that either.

Sean Brown: Hey, but listen. Look. You’ve got better hair than me. At least you’re doing something right. I’ve become the … I was telling some friends a funny story. A few months ago at my company, we did a ’80’s day. Dress like you’re in the 1980’s. I went home and I talked to my wife and I said, “Lisa, do I have any 80’s clothing?” Her response was both biting and made me proud. She said, “Sean, all of your clothes are from the 80’s. You haven’t matured your wardrobe.” I was thinking, “Yeah. Somehow I’ve fallen out of a little bit of touch of what’s hip.”

Tobias Carlisle: It’s come back. It’s come back. That’s the thing that I’ve learnt as I’ve got older. You’ve just got to hold on for long enough and the cycle comes back. So don’t throw anything out. If the skinny tight comes back …

Sean Brown: It’s no different than the markets, right? Like we were just talking about BP and we’re talking about Chipotle and we talk about whoever it was that had the Toyota or whoever had the pedal scare. Things come back if you’ve got a patient time horizon. I happen to be waiting around for clothing to come back to 1980’s. I’ve waited 20-some years. It’s coming back. So, yeah.

Tobias Carlisle: I think it’s back. You might even be on the tail end of that trend. You’ve got to get it out of the closet and wear it now, otherwise you’ll miss it.

Sean Brown: Yeah.

Tobias Carlisle: Were you around in kind of the 90’s power suit phase with the really big shoulders and lots of material?

Sean Brown: Yeah. I was, although, I quickly moved into startup land, which startup land hasn’t really changed its wardrobe. I got a big boy shirt on today, but I’m usually in a t shirt and it usually says the name of my company on it and I’m trying to look hip and young and I have my Vans shoes on like you guys are wearing in California. Yeah, at the end of the day, I’ve gotten a few gray hairs and I’ve gotten a little older.

Tobias Carlisle: Yeah. So Vans is something that that is my generation. That’s kind of a 90’s kids thing, and yeah, happy to see that come back again. Just tell me a little bit about when you’ve got … just when you’re working with a client, an example of how that process happens or an example client.

Sean Brown: Well, we try to … first of all, we let them contact us for the most part. We try not to be too aggressive in reaching out to people who are real busy trying to do their day jobs and bothering them. We hope by our good work in the market, people have come to us. We try to quickly understand from clients which pain point is most important for them to solve in the near term. Like I said, if it’s, “I want to do better research,” if it’s a, “I need to save three to four hours a week. I’m going to all these different sources for data and my spreadsheets. I’m constantly trying to update them with market information.” That’s an efficiency problem.

Sean Brown: If their problem is, “I need to improve my client communications,” that’s a different one. So we will understand what their problem is and we will try to set them on a curriculum. Well, first of all, take a few week trial of our software, and then set them on a curriculum that makes them, and I’ll repeat the word, badass. That’s the word we use a lot around here. Makes them badass at solving that problem, but also opens their eyes to some other problems that they can solve without paying us an additional dollar.

Tobias Carlisle: So what sort of other problems can you solve for them?

Sean Brown: Well, I mean, let’s talk about an investment challenge, you know? Let’s say … you and I were talking about maybe different or similar philosophies on investing, but let’s say somebody had and Acquirers Multiple bias, but also wanted to know what a fundamental score and also wanted to know a Peter Lynch score and they wanted to know the inner section of those. They said, “Hey, I’m not an investment genius, but you know, I’ve read Tobias’s books and done some research. I’d feel most comfortable going for the inner section of these three approaches.” And we can show people how to screen on each of those and then how to find the intersection. Then once you’ve got that down to a list of three or four, how do you evaluate those three to four?

Tobias Carlisle: I have seen some of those charts. That’s one of the things that I like most is that you can plot an earnings line against a market capitalization line or something like that. So you can see if there’s been a sell off. You’ll see that in the market capitalization line. And if the earnings are pretty steady …

Tobias Carlisle: When I very first started out, this is in Australia, though. I’ve told this story a few times, so I apologize to anybody who’s heard this one before. The way we invested was we had this phone book sized … Phone book. Again. It was something that used to exist before Google.

Sean Brown: Can you pause and remind people what that is?

Tobias Carlisle: That was … but this thing was like that pulpy paper and they had every company listed on the AS6. Basically the way that we invested was we just went … they just plot like the last ten years of earnings and the stock price over the last ten years. The way that we picked them was when the market capitalization line had fallen, but the earnings were still in a pretty good trajectory. We’d buy those stocks. That’s a pretty effective investment strategy. So I was very happy to see, you can do that with the YCharts.

Sean Brown: Yeah. You know, and I don’t know if you’re seeing a lot of this. We started talking about technology as it relates to financial services and how the financial services space is behind. It’s interesting, though, as technology is getting applied more and more, you look at something like Model Portfolios, right? They came into existence to make like easier for advisors and individual investors, right? “Hey, you don’t have to be an expert. You may want more sophistication than picking a single ETF or a set of funds. Subscribe to my model.”

Sean Brown: Well, what we’ve seen now is there are 10,000+ commercial models out there, which creates yet another challenge, which is what’s the right one for me? How do I even evaluate? You know, how do I find the needle in the haystack? Yeah, it’s easy enough.

Tobias Carlisle: Well, that’s a good question. How do you do that?

Sean Brown: Well, that’s the thing we’re having a lot of fun with now is we have the ability to ingest some models that you want to compare. There is no market yet for a single data provider who’s got all the fundamental statistics and holdings for 10,000 models. We’ve got some of that data, but you either want to create your own model or you want to ingest commercial ones and the characteristics. We can then help you evaluate them. You know, what’s the return? What’s the fees? What are the risk characteristics? What are the exposure? You know, you don’t want china exposure for whatever reason because you have a thesis about tariffs. How do you compare these so that you can pick the right 60/40 model? 70/30 model? You know, whether you’re active or passive in your investment approach, we think there’s always a need to be able to do side by sides and be able to screen from lots to just a few.

Tobias Carlisle: Have you looked at that, specifically, the 60/40? What’s the future of 60/40? Because we’ve sort of … it feels to me that the 40 has … they’re both pretty expensive. Both sides of that equation look like there’s not much juice left in them.

Sean Brown: Yeah. You know, it’s tough to make money on the 40 side of things with all that’s going on with the interest rates. So I think we … you know, and I think somebody like a lot of people on social media are, “60/40’s dead.” I think that’s an easy thing to say in the 11th year of a bull market. I think when you get into a bear-ish market, there’s going to be a re appreciation for a 60/40 type of model.

Tobias Carlisle: It’s hard. It’s one of those … it’s been declared dead numerous times over the last five years, and it’s done very well over the last five years. It’s just I don’t think anybody could have foreseen interest rates where they are, with negative interest rates all around the world. So I don’t know if the US can go negative as well. Do you have a view on that? Can the US go negative?

Sean Brown: I don’t have a personal view on that except the very concept is one that I have a hard time wrapping my mind around.

Tobias Carlisle: Yeah, it doesn’t make sense.

Sean Brown: Yeah. Why do you think that it makes more sense elsewhere than it makes sense here?

Tobias Carlisle: I don’t know that it does.

Sean Brown: Yeah.

Tobias Carlisle: I have this … you know, this is unsupported by the data. I mean, I don’t have any empirical view of it. I just think that higher interest rates do in fact tend to make the economy work a little bit better because I think that that makes some investment options look more interesting than others. If you suppress the interest rates, it has a variety of knock on effects, and I think that some of the [inaudible 00:30:01] in Europe is as a result of having very low interest rates, not the other way around. They seem to have low interest rates because of the [inaudible 00:30:08], but I think that the chicken and egg thing, back to front.

Sean Brown: Yeah, I tell you. In my house, I got a paper bank statement. Don’t ask me why I still receive paper bank statements somehow as a technologist, but I got a paper bank statement. I did have a real appreciation for earning, I think, 11 cents interest on my savings balance.

Tobias Carlisle: Here’s your $15 fee and here’s 11 cents in interest.

Sean Brown: So, I was explaining to my kids why it still makes sense to keep money in places like banks. You know, as low as the interest rates are. I got to tell them the story of the Great Depressions and sticking money in mattresses and things like that, but more and more, people have the fear of missing out on the market, fear of missing out on Bitcoin, fear of missing out on Fang, fear of missing out on a raging bull market in year number 11. You know, I see a lot more aggressive portfolios now. I hope everybody has their downside risk appropriately managed or at least expectations that this could change quickly. I think that’s the role of a great asset manager or wealth advisor is to help people understand that stuff.

Tobias Carlisle: Yeah. I think that’s right. It’s been a particularly tough time, I think, for anybody who’s a little bit risk managed because if you haven’t been exposed to the S&P 500, which is the best performed asset, if you like, in the entire world for the last decade, then you’ve kind of underperformed. So if you had a value bent or you’ve hedged or you’ve gone international or anything else that’s not just straight long the market, then you’ve underperformed. So you look like an idiot.

Sean Brown: Yeah. Yeah. Yeah, and we see asset managers who say, “Yeah, if you put me on a trendline, that’s how I look,” but what I like to show when I’m defending my services is, you know, let’s look at the max draw down now. I actually am managing that downside risk based on my draw down profile. So if I can get an enlightened client or prospect who says, “Yeah, I may sacrifice a point or two on the upside, but on the downside, I feel like that downside risk is mitigated appropriately.”

Sean Brown: It’s all hypothetical now because, again, memories fade. I don’t think that many people still have a fresh memory of the late 90’s and some things that made portfolios drop dramatically in a matter of weeks. So …

Tobias Carlisle: There aren’t that many people around who even saw the 2007-9 draw down, which that’s not that long ago.

Sean Brown: I know. I know. And it’s … you know, it’s one of those things. We did a survey of people who are advised. This is a strange one. We surveyed and it ended up being we got 666 respondents, and I got really jittery.

Tobias Carlisle: Get one more in.

Sean Brown: Please, guys. Go get one more piece of feedback. We heard just some pretty damning feedback that I rarely hear from my advisor, and an appreciation for the fact that if I don’t hear from my advisor, that makes me not want to recommend them. That makes me not comfortable with my financial plans, and that makes me increasingly likely to churn.

Sean Brown: Well, guess what? Nobody’s churning in a rising tide, right? Everybody’s just saying, “Ah, I got another good statement, honey. Let’s plan another trip to Florida.” It’ll be really interesting once things get shaky. You know, back to why we’re focused on advisor communication is an additional problem we’re helping them solve is that’s becoming a real challenge going forward. I don’t hope … on a personal level, I absolutely don’t hope for a bear market, but I do know when that bear market comes, advisors need some help.

Tobias Carlisle: When … can we talk about YCharts, the firm?

Sean Brown: Mm-hmm (affirmative).

Tobias Carlisle: So are you privately owned? What’s the ownership structure?

Sean Brown: We’re ten years old. We are privately owned, venture backed. But we, you know, we haven’t made it a practice to go get repeated rounds of funding. The last round of funding we took in was 2015.

Tobias Carlisle: Right.

Sean Brown: One of our backers is Strategic Morning Star, but largely Chicago and London based venture capital or seed funding companies.

Tobias Carlisle: So your software is a service [inaudible 00:34:54]. So that would be a pretty … that’s a nice little niche to be in right now.

Sean Brown: Yeah. But we’re a little quirky, though, in that we’re hugely digital in a really cool space, but we’re also very brick and mortar focused in terms of interactions with our customers. We just think, our target customer base, busy people, various problems. We don’t want to make it difficult for them to get our help. So one of the things I think that I pride myself in and we do a lot of is real easy to chat with us from our platform. Real easy to find a phone number. Everybody knows the name of their account manager, and we have a large team that’s focused on helping. So cool digital platform, but one of those where we pride ourselves on actually people to people interaction, which I suppose, you know, some private equity firm would say, “No, no. You need to be all digital.”

Tobias Carlisle: [inaudible 00:35:57].

Sean Brown: Yeah. We’re pretty darn happy with helping our customers in the way they want to be helped.

Tobias Carlisle: How many employees in the firm?

Sean Brown: Quickly approaching 60. I think as of today, we’re 58 and we’re spread between Chicago and Manhattan with a few remote employees, too.

Tobias Carlisle: Yeah, that’s a good number. That’s like half that Gladwell number that he says, like 120 was the size of your tribe or something like that.

Sean Brown: Yeah. My wife … you live out on the west coast. I grew up in Manhattan beach.

Tobias Carlisle: Oh, yeah. Really?

Sean Brown: Not too far away. My wife keeps saying, “Is there any time in the near future where you’ll be opening an LA office?” I, unfortunately, say, “No, but maybe I’ll go visit my friend Tobias at some point in time.”

Tobias Carlisle: I’ll come sub some space from you when you do that. Manhattan Beach is a really nice spot. I think Ned Favors, he’s close by. He’s in El Segundo in Manhattan Beach around there somewhere. It’s a good spot.

Sean Brown: It is.

Tobias Carlisle: Do your parents still own property out there?

Sean Brown: No, but they …

Tobias Carlisle: That’s a shame.

Sean Brown: They certainly wish they did, and I do have a younger sibling who still lives there. She’s in her mid thirties and looking to buy a house and she’s saying, “Wow, this is a difficult path.” I tell her, “Come back to the Midwest. Property values are a little bit better, and we got those cold winters which means you can just work 24 by 7, just focusing on your career every day if you want to.”

Tobias Carlisle: Yeah, that’s the problem with Manhattan Beach. There’s always the nice wave, just out there, you can go and catch.

Sean Brown: Yes, there is.

Tobias Carlisle: So did you grow up in California?

Sean Brown: Until I was about 13. Then very transient family. Lived in a lot of different states. My dad was an executive that we ended up relocating a lot. Eventually ended up in my senior year of high school … or what do you call it in Australia?

Tobias Carlisle: High school.

Sean Brown: High school. Okay. You call it university, though?

Tobias Carlisle: Oh, that’s college. So college is university. Yeah.

Sean Brown: Yeah. So ended up moving to the Midwest my senior year of high school.

Tobias Carlisle: And where did you do your MBA?

Sean Brown: Stanford, not a little bit north of you.

Tobias Carlisle: When did you graduate from that?

Sean Brown: Tobias, you can’t ask a man these questions.

Tobias Carlisle: Yes, you can. You can’t ask a woman these questions. I can ask you.

Sean Brown: 1997.

Tobias Carlisle: So that’s a pretty exciting time to be at Stanford. That was right close to the very top of the dot com boom.

Sean Brown: Oh, yeah. It was, you know, it was right when email was making its charge. It was when Google was coming out. It was classmates that started the service, evite, and Invisalign. Just technology and brick and mortar and the social media and everything was just coming about then. It also was a really interesting time to be an individual investor, too, right? Those were the days where you bought Cisco and all of these stocks that could only go up and up and up until they didn’t.

Tobias Carlisle: I’m envious. I think that if you were to go to any school, if I was to go to any school in the states, I think I’d want to go to Stanford because you’ve got a really good football team. The way that is spectacular because it’s not San Francisco weather. It’s warmer and it’s pretty clear most of the time. It’s basically … it’s a west cost Ivy, I think.

Sean Brown: Yeah, and I was actually out there. The cool thing for me is I was out there the same two years that Tiger Woods was an undergrad. He went to undergrad two years at Stanford and I was there those two years. So, my friends and I, while we should have been studying, would go sit on a hill with a six pack of beer, sit on a hill and watch him far out drive any drives we could have made on that same golf course.

Tobias Carlisle: Yeah, that’s amazing. And then he just exploded from there. So that was right before he took off.

Sean Brown: Yes. Yeah. So I concur. It was a fantastic time to be out there and a neat place in Silicon Valley to get my career kicked off.

Tobias Carlisle: And is that what made you a software as a service online kind of tech guy do you think?

Sean Brown: Yeah, I got a call. I was doing strategy consulting in some boardrooms, and I got a call from some guys back in Chicago I had met right out of undergrad who said, “Hey, you got an MBA now. Why don’t you …”

Tobias Carlisle: You’re legit.

Sean Brown: Yeah, “You’re legit. Why don’t you come back and help us grow this company called Tolution?” I said, “I don’t really know how to run a company, but I love the idea. What are you paying?” They said …

Tobias Carlisle: Equity.

Sean Brown: Equity. They said, “Equity,” and I went to my then-girlfriend-now-wife and I said, “Honey, got the opportunity to go work at this, my first software startup. We have to leave this high paying consulting job and have a whole lot of student loans, but I want to do it.” She said, “Oh, great. Is it a step forward economically?” I said, “Not in the short term. No, it’s probably not a good move.” I’ve told this story before, but that’s when I knew I was going to marry my wife. Lisa, is … she said, “If you’re passionate about it, let’s go out to the Midwest and let’s give up a paycheck for awhile and let’s see how you do as an entrepreneur.”

Tobias Carlisle: And did it work out?

Sean Brown: It worked out great. It worked out great. We needed up growing that. One of the first SAS software companies in Chicago. It was focused on the telecom industry. We grew it, sold it to a public company, and that was a key step in my journey.

Tobias Carlisle: That’s a great story. What did the business do?

Sean Brown: What did the business do? It was kind of … it was an enterprise application for small telcos. So there was a stage where there was these things called Seelachs. It was a billing customer care, order management, SAS based software package. Mark Benioff was kind of out there, starting salesforce.com, but there weren’t a whole lot of people talking about software as a service, which we then used to call ASP, Application Service Provider. So we got that going in Chicago. It did well and led to a nice outcome for our employees.

Tobias Carlisle: I come from a telecom background. I worked as a general counselor in a telco. It was all infrastructure. So it was all dark fiber, data centers, appearing layer and sub C cable. So I have a little bit of an understanding. That’s a little bit like finance. It’s highly regulated.

Sean Brown: Yes.

Tobias Carlisle: Interesting business.

Sean Brown: Yeah. It was the same value prop for the telecom spaces we now have for the investment research space. There were big, massive solutions available for telecom providers as an enterprise package. We figured it was a better way to put together data and software and make a great user experience in the telco industry. I’m just bringing a few pages of that play book to us in the financial services investment research space.

Tobias Carlisle: I appreciate it. If folks want to get in contact with you, or they want to try out some of YChart’s stuff, how do they do that?

Sean Brown: YCharts.com. Come there. Sign up for a free trial. Explore at your own pace, and you can find us all over social media.

Tobias Carlisle: And what’s your twitter handle? I always try to get the twitter handle out of everybody, give you a bump in the followers.

Sean Brown: Oh, I appreciate that. I’m @Sean_YCharts. Yeah, love people to follow me. I’m not a sales person. I like to, at night, come up with ideas and I post a lot of charts. Everything from what’s the impact of a trump tweet on the market to things like I mentioned earlier, which is corporate crises to, “Hey, what happened to … is it even make any sense to invest in IPO’s anymore given all of these bombs?” I do that regularly. So would love to have people follow me, and I promise I won’t be pitching software.

Tobias Carlisle: Yeah. You’re a good follower. I appreciate it. Sean Brown, President, CEO of YCharts, thank you very much.

Sean Brown: Thanks for having me, Tobias.

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