S2E53 Ivan Zhang From High-Risk to Low-Risk Investing

S2E53 – Ivan Zhang – From High-Risk to Low-Risk Investing

Ivan Zhang – From High-Risk to Low-Risk Investing

Ivan Zhang – From High-Risk to Low-Risk Investing.
Options, Forex, Stocks, Crypto, and Startups. This episode covers it all. My next guest was a professional portfolio manager for most of his career before starting a blockchain company and an investing platform that helps investors earn consistent returns ranging between 4% and 6% per year. In this episode, we talk about his background, biggest losses, biggest gains, and how he’s building a company that allows investors to earn returns with crypto safely. Please welcome Ivan Zhang.

Payback Time Podcast

Payback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.

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Full Episode

Key Timecodes

  • (01:03) – Show intro and background history
  • (02:34) – When did he personally start to invest in the stock market?
  • (03:42) – His investing strategy and challenges
  • (05:23) – When did he transition to more safe strategies?
  • (07:46) – What does he look for when investing in individual stocks?
  • (10:21) – A quick 4M analysis of his preferred factors looking for individual businesses
  • (12:17) – Deeper into his strategy using options to create residual streams
  • (14:22) – How many stocks does he currently hold in his portfolio?
  • (15:56) – When was his last investment?
  • (17:10) – What percentage of his income does he invest in the stock market?
  • (17:42) – Deeper into his returns in the last years
  • (20:35) – What is his biggest investing mistake?
  • (22:18) – What is his biggest investing win?
  • (25:22) – Understanding his company’s business model
  • (29:08) – How does the mobile app work?
  • (29:25) – Any restriction only to accredited investors in the US?
  • (30:20) – What are the individual assets behind the scenes?
  • (31:15) – Is there any algorithm running the platform?
  • (31:39) – What is the minimum investment amount to get in?
  • (32:13) – What are the returns on that platform model?
  • (32:59) – How long has the platform been around?
  • (33:23) – How big is his team?
  • (33:27) – And how is the business funded?
  • (33:43) – How does the platform generate revenue for the company?
  • (38:23) – The worst business or investment advice he ever received
  • (39:42) – The best business or investment advice he ever received
  • (38:34) – How long did he validate his ideas before starting a project?
  • (41:02) – Guest contacts


[00:00:03.390] – Intro
Payback Time is a podcast about building businesses wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s payback time.
[00:00:33.040] – Sean
Options, forex, stocks, crypto, and startups. This episode covers it all. My next guest was a professional portfolio manager for most of his career before starting a blockchain company and an investing platform that helps investors earn consistent returns ranging between four and 6% per year. In this episode, we talk about his background, biggest losses, biggest gains, and how he’s building a company that allows investors to earn returns with crypto safely. Please welcome Ivan Zayn. Ivan, welcome to the show.
[00:01:05.560] – Ivan
Thanks for having me, Sean. Good to be here.
[00:01:07.510] – Sean
Thanks for taking the time to join me. So we’re going to be talking about your retail investing background and then we’re going to dive into your business that serves accredited investors. But first off, why don’t you tell us a little bit about your background?
[00:01:18.780] – Ivan
Sure. So I started my career at a large bank, bank of America. So we were focused on understanding the bank’s balance sheet and how the dynamics of that balance sheet would move over time. So, hey, look, if rates go up, is that good for the bank, is it bad for the bank? So a lot of quantitative analysis there also did a stint in the algae execution services, so that’s like where the machines will automatically trade stocks for you. If you want to buy 10,000 shares, you’ll do like five shares there, ten shares there, and do it throughout the day and get that completed. My main position I’ve been for nearly a decade is a fix income portfolio management. So we were responsible for managing the bank’s own balance sheet simply because it was related to the previous roles I did. So it kind of was a great segue. And so the responsibility was to manage about 20% to 25% of the bank’s balance sheet. We’ll see us fixed income assets, usurgeries mortgage backed securities, and a lot of derivatives. And then after that we had some good opportunities to try to proprietary trading, efficiency trading, and we also did a few businesses where we did a crypto mining facility in 2016.
[00:02:23.310] – Ivan
And all of this kind of experience made it sound like it was leading up to what I’m currently doing, which is Pennywise.com. And we started that company just about a year and a half ago.
[00:02:34.420] – Sean
Gotcha, gotcha. Okay, we’re going to dive into that business, how the business is structured, who it serves, what it does for customers in a little bit, but we love to get some context on your background. So when did you personally start investing in the stock market?
[00:02:48.720] – Ivan
Well, I guess I don’t know if it’s legal to say, but back in 2000 when my dad was doing these brokerages and there was likene zero, I don’t know if you know this, but it was a company when in the dial up days they would show ads and give you free internet. Right? And then my dad was super excited about this is going to be the future and that’s how he started buying stocks and I clearly didn’t do so well and he was kind of got discouraged and was like, well you can try it out, right? So there’s a little bit of money in there. I was kind of his investment manager at a much, much younger than 18 years old. So that kind of got me hooked. And then I kind of just started doing a lot of trading on my own all throughout my career. Everything from affects to stocks to options to obviously crypto and also just starting businesses and just seeing how that works. Because if you think about it, every one of those things are also just investments. So that’s how I got my start.
[00:03:42.400] – Sean
Can you talk about because it sounds like you’ve had a big variety, can you talk about a strategy that did not work so well? We’ll talk about what did work well, but first let’s touch on any pain points or struggle points with investing in.
[00:03:56.400] – Ivan
Yeah, so definitely I think a lot of times the biggest challenge when you start off is to understand that you’re not going to make money every single trade. It’s very difficult, right. If you are making 55 or 60% correctly, you’re already at a godlike status. But when it starts like, oh, I should be making money, like 90% of trades, maybe one out of ten I’ll lose money. So that’s more of a ghost psychological battle and sometimes it takes longer or faster for people to realize and kind of adjust their own mental mindset to overcome that. So that’s one of those things where I had a difficulty with and part of the time, the one most obvious period when I was trading was FX in 2008, FX in 2008, obviously in financial crisis, everything was moving like stocks, right? So I remember one day like Australian dollar dropped like 10% or something like that and I always had this mean reverting strategy because FX don’t really move that much. But clearly I didn’t really understand the microeconomic picture at that time. I was like, Australian dollar drop 10%, I’m just going to buy a dip and it just kept going.
[00:05:03.030] – Ivan
So that really was kind of a pain point there and at the time I didn’t have a lot of capital but it definitely felt like the world was ending when I was doing that.
[00:05:11.080] – Sean
Got you. Okay, so that’s foreign exchange or forex trading, right?
[00:05:15.700] – Ivan
That’s right, like five or ten times leverage.
[00:05:21.040] – Sean
A lot of risk there buddy.
[00:05:22.830] – Ivan
That’s right.
[00:05:23.860] – Sean
Right on. All right, so you learned a lesson from that and what did you transition to that was a little more safe thereafter.
[00:05:31.500] – Ivan
So obviously I just realized I don’t have an edge in effects, right? A lot of this stuff obviously I was young so I didn’t understand most of what the macroeconomic drivers were. Just looking at the charts that looked pretty interesting. I need a little bit about interest rates. Well, higher interest rates better so people would like to hold it more but that was it. And I was looking at charts and just like making stuff up so once I got more understanding of how the financial literature look a lot of the money you’re making, if you just like buying a hold on a broadly diversified basket you do pretty well right? And so I did that for a while and then there’s also other opportunities that came up like a future trading and options and that’s where quantitative analysis really helped out some of these things. It’s hard to evaluate if you just like looking at the charts because some of these are very high dimensional considerations. Right? A lot of the portfolio is how you optimize and it’s really because it’s all in relation to each other. So it’s not just like one single stock because this stock, how does it complement the rest of my portfolio?
[00:06:29.220] – Ivan
Right? And if it’s a diversifier it might be they don’t make money all the time but because it is a diversifier it reduces the risk which allows you to have much more stable returns which is good. Right? So essentially I went from full swing ten times the FX to just broadly diversified basket of indexes and things like that and then over time I just started adding a little bit more stuff like I like single names but in single names I don’t know everything. So I was like let me stick to the things I’m comfortable with. So I knew a lot more about tech, I need a lot more finance. So I just started investing those companies because the other ones were so I could read other people’s reports but there’s really not much insights I have out of that that could be different. So that’s kind of where it was and then the other one was on the financial instruments. So I learned a lot more about financial derivatives and things like that sort of just because of what I study but also my work. So I did an option space that was quite profitable sometimes it was kind of very unintuitive but it worked out well but ironically that part actually had a lot of risk.
[00:07:32.430] – Ivan
So it was really just about making sure that you had this big portfolio that was mostly diversified and you have like a small portion that you can say well, this is going to be my highly experimental pool of money right there.
[00:07:45.580] – Sean
Got you. You hit on a key point, is investing in individual stocks and that’s what Ticker is big on. We analyzes individual businesses finds businesses with really strong financial statements. So what do you look for when you’re investing in individual stocks? You mentioned you invest in what you know, which is tech and finance, which is great. Warren Buffett tells you invest in what you know, but where do you go from there?
[00:08:10.990] – Ivan
So there’s a couple of things. For example, one example that is pretty interesting is that I invested in Amb pretty early on and that worked out pretty well in the last few years. And the reason for that is because when I started my crypto mining business, there’s only two things that you can buy. You can buy AMD graphics cards or you can buy Nvidia graphics cards. And at that time, because of the way that they were designed, the AMD graphics cards had relatively more profitability than the Nvidia one, some of it because of the price, right? The Nvidia were just more expensive. So end up being essentially AMD cornered. The market in cryptocurrency mining, which just didn’t exist in 2016 17 ish right? So I’ll go out and call Best Buy and buy these graphics cards and it’d be like limit two per customer, or something like that. And I’ll call back with a different number or have a different accent and say, hey, is that the same guy? Like, why we can’t sell the wholesalers? I’m like, no, I’m just using it for a crypto mining. So that kind of a huge, complicated discussion as to what is it that you’re doing?
[00:09:12.990] – Ivan
But at least they were happy that I was not a wholesaler. So that gave me the edge. I was like, Well, I understand this market. How big that could that be? And the fact that we were doing this and was profitable and we had difficulty buying graphics cards means that everyone else is in the same situation and we’re not even that big of a player, right? And so that was like, well, look, that’s kind of an edge that you have because you’re exposed to a specific industry that’s not even private information, but it’s definitely more context than you have. So that’s why those advantages. So one investment that, for example, right now, I feel it’s pretty cool. It’s not a very complicated one, but there’s one. It’s a closed end fund called Grayscale Bitcoin Trust and it’s the simplest business in the world. All it does, it just has a legal entity and it just buys bitcoin. So ideally it should just be worth the same as the amount of bitcoins it has, but it’s trading at a negative 36% discount. There’s a lot of reasons why it goes into it, but ideally, if you can resolve that issue in two to three years, first you close that gap, which you get that 36%.
[00:10:08.950] – Ivan
And potentially because of other macroeconomic factors, which now I’m much more in tune with, the actual price of equivalent might go up. So that would be a double whammy. That could give you a decent returns in the next two to three years.
[00:10:20.100] – Sean
Right. So circling back to AMD, I also hold that in my portfolio, we really focus on the forums, which you’ve got the margin of safety, the math part, and then you get the meaning mode and management. Sounds like you do place a lot of emphasis on that large competitive advantage, which AMD certainly has. Any other factors you look for when looking at an individual business.
[00:10:43.910] – Ivan
So a lot of the other individual business, obviously the metrics that you guys have, most of the stuff is like public information. You have it, they have it. Maybe you have a difference opinion, but the data is public. So that’s another one that people are difficult to get from. There another dimension that is interesting is the options market. So a lot of times it might be that you might not necessarily get the degree of safety or marginal safety that you like, but through options, you can actually create an additional layer of safety that would essentially give you potential returns, right? So for example, if the stock has the implied value of 50%, which is probably not too unreasonable for a lot of tech stocks, you can essentially say, hey, look, if it gets to like, if it drops 20%, I’m going to buy. If you can’t make yourself commit to that activity, you can actually sell these puts that would basically articulate that view. And the cool part is if it doesn’t happen, you actually make money. If it happens, you buy at a discount. So at the very least, both you control your psychological state, but you also additionally create an additional marginal safety that you otherwise wouldn’t have.
[00:11:49.440] – Sean
[00:11:49.950] – Ivan
So if you sell at this option, let me be in a half year hence or something like that, 10% of the the money, maybe you could get like three or 5% discount. That’s on top of how much you would drop. Because if you sold the put, let’s say the $50 and you sold like 40 on top of the fact that you buy a 40 as opposed to 50. That’s right. Now, clearly it’s not a free lunch because you missed up on a potential upside. But this is one dimension where you can say, hey, look, I could be wrong and still make money. And that’s kind of a bet that I’m willing to take, right?
[00:12:17.860] – Sean
When we look at options and we talk about options a little bit here on the podcast, we kind of treat it as a strategy to create cash flow. Like if you’re somebody who you have a few options with the stock market, you can continuously build wealth and keep compounding into it and don’t take anything out of the market to pay yourself. Or you can use options to create like, hey, I want a residual stream of cash flow. So we like covered calls. Were you using covered calls or was there another option strategy you specifically used.
[00:12:46.170] – Ivan
Yeah, so covered calls is one of them, the other one is obviously symmetric if you don’t have the option when you buy it but it’s not quite the right time because the price is high, you just sell it put right so those won’t be covered, you just be in a foot. But essentially if you already have the cash to buy at 50, you’ll have the cash to buy at 40. So essentially your fully margin in that sense and the worst thing that happens is the stock goes to zero. So if you wanted to buy and have a fundamental loan position that’s totally consistent with your view right, so that’s one of the strategies. The other one is obviously a lot more aggressive. Right. So if you do uncovered strangles which is kind of the same thing where you sell a call, we don’t own the option and you sell a foot. Sorry? You sell a call, you don’t own the stock nor do you know and you sell a foot, you make income on both sides but the moment gets out of bound to start losing money. Right. So that’s kind of analogous if you are a long short investor and you were able and comfortable with hedging some of these things with a short because that technically would reduce a lot of risk that actually could also give you additional pickup inch but obviously it’s very risky.
[00:13:51.970] – Ivan
I made a lot of money on options but I would say that some of my biggest losses are in options as well. So it’s one of those like play with fire kind of thing.
[00:14:00.780] – Sean
It is to the audience out there. That’s one thing. We’ll be introducing the ticker course specifically on options trading. We will focus on covered calls because in my opinion the lowest risk. That’s right, you’re right. There are other strategies you can use. You can make some big money but you can lose a lot.
[00:14:20.860] – Ivan
That’s right, that’s right.
[00:14:22.660] – Sean
Well, let’s keep going here. We get a few more questions on your investing journey and then we’ll dive into your business. So how many stocks do you currently hold in your portfolio?
[00:14:32.740] – Ivan
So I would say my portfolio right now is split between 50 51 is just a broad basket like index everything and then another basket that is split between the text box and single names I have. So that’s kind of where the stock portfolio comprises of now it’s not that I’m 50 50 invested fully stocks because obviously crypto and all the other assets that I’m involved with is also a portion of my portfolio. So that’s kind of how it’s diversified in terms of the single names there’s like about a dozen. So it’s more just like a barbell strategy. You have like, you know, fully diversified everything and then you have like a few concentrated positions that you have more opinions on. Yes, ideally that shouldn’t be too big of a size of portfolio.
[00:15:20.190] – Sean
Sounds like a nice balance between a conservative play it’s safe with some of the funds and then you’ve got some companies that are more in the line with strong growth. I would consider them if they’re like AMD, I would consider them strong growth stocks.
[00:15:34.110] – Ivan
That’s right.
[00:15:35.170] – Sean
Good for you. When was your last investment? Are you investing every month?
[00:15:40.170] – Ivan
So I used to invest more actively. I think that definitely given just the constraints of running my company now I’m just doing a little bit less. But in the last few months there have been a lot of volatility, a lot of things changed, prices dropped a lot. So for me it makes sense to revisit and invest in some things. Recently I’m looking at besides the one I just talked about, AMD GPDC, also looking at intel. Right. And literally I wanted to get some before last week and it’s popped. And some of that is also driven by nonfinancial issues because of the geopolitical situation. That’s more complicated now than it has ever been before. Right. If you look at the supply chain of how most of semiconductors are manufactured there’s a huge concentration in Taiwan, South Korea. Intel is basically the only shop now that makes their own chips. Right. So it’s kind of like standing out in terms of that characteristics. Micron, which is another one, the same thing, fully US based company. They do have pretty cutting edge technology but they are essentially the one where if you think about additional geopolitical reinforcing of semiconductor flows these stocks could benefit that’s above and beyond that was priced into the markets right now.
[00:16:53.790] – Ivan
[00:16:54.180] – Sean
Right on. Good. And thanks for the context on other stocks you’re looking at too. Our listeners love hearing what people are looking at or investing in. So AMD, Intel, Micron, definitely in that semiconductor space you have a pretty good handle on who’s who. So that’s great. What percentage I know you kind of dial back and investing because your business is the priority but what percentage of your income would you say you invest?
[00:17:22.460] – Ivan
I think that’s pretty volatile at this point for me. So we are starting a company. I’m not paying myself, so technically I don’t have any income. So that would be a question I’m not able to answer.
[00:17:35.060] – Sean
You’re in a very early stages of a startup.
[00:17:37.860] – Ivan
That’s right.
[00:17:39.560] – Sean
Cool. We’ll get into Bootstrapping here in a second. So that’s good to know. Let’s talk about your returns. Not 2022 because the market has been nose diving which from an investment standpoint, that’s what we want. We want to get those on sale stocks at an even better price. But 2021 or 2020. Do you know what your returns were in the market?
[00:18:03.190] – Ivan
2021, they were very positive. The 2020 were actually fairly negative and part of the reason was I was using some of these. I got to tell you, I admit that because of COVID right. People kind of just like got round trips, right? I’ve never seen a bounce so aggressive in my life. So that’s definitely, obviously lack of my experience on some perspective. So some of these things where you have a long short portfolio of things and you have things that are long and you think fundamentally will do well, and you have a portfolio of shorts that potentially well, it’s not going to do well. But unfortunately the correlations were not there. Such that it ends up being that the things that I thought were short and ended up eventually dropping like over 90% in the last few months, they exploded, right? They essentially like 50% or doubled or more in Kobe time because you just had this infinite money printing that kind of supported their equity issuances. So one example would be like carvana, which I thought was on shaky grounds. You can see that it’s already played out, but unfortunately the timing wasn’t right because I was shortened this in 2020.
[00:19:15.810] – Sean
You were shorting stocks. That’s a risk. We do warn our investors about that.
[00:19:21.060] – Ivan
That’s right.
[00:19:23.140] – Sean
Just in case they take off, you’ll run into a short squeeze, which we saw. What was that game Stop? They have a short squeeze.
[00:19:36.040] – Ivan
I’ve done decent amount of shorting before 2020 and I’ve never seen anything like this. So I’ve done very well on certain things. Like, for example, when weed stocks became legal in the United States, like 18 or something. So I basically shorted tilray like in 100 plus range, all the way to zero is almost right. And so that worked out great. So some of these things were but you have to set bounds and I had these bounds were hilarious. Don’t show anything that’s like less than a billion dollars in market cap, because that’s just like not a very safe thing. But the unique thing is that what happened during COVID is that threshold of safety has basically gone out the window, right? 1 billion, 5 billion, 10 billion. All of these stocks now have massive volatility where it’s difficult to kind of have a handle on it. So unfortunately, I would say that in 2020 that did not work out well. But in 2021, all the things that kept being long just did great.
[00:20:34.480] – Sean
Right. I’ve got two more questions here. What is your biggest mistake, biggest investment win? Let’s touch on the mistake. Could you share with us? It could be maybe a trading strategy or an individual stock. What was your biggest mistake?
[00:20:47.280] – Ivan
Well, it’s the same thing, right? I just mentioned some of the stocks that are shorter than last year in 2020. That was definitely a mistake. And part of it is because previous success, the track record of doing short strategies, but because of the monetary conditions, some of this stuff just like ran way ahead of me. And I had like other hedges in there, but those companies were much more conservative and basically the route of value was at the Gabriel stripe. So that’s one of those things where I feel like the biggest mistake, and I think the way you want to think about it now is that you have a series of traffic lights on a variety of factors you’re looking for, right. And there are tons of investment opportunities. Each one will light up certain one of these traffic lights. Right. And the fallacies, oh, I’m never going to find an opportunity that will match all of my criteria. And the irony here is actually that’s not true. If you look long enough, you’ll actually find ones that both fit in terms of maybe your short term dynamics, but also fit the longer mark macro picture, which was the stimulus on first order effect based on both.
[00:21:57.710] – Ivan
So ideally you would have been like, hey, look, if I were much more conservative in that aspect of it, at the very least, I can say, well, look, maybe I did do well in shorting strategies, but it doesn’t fit the macro environment right now, so it’s probably possible. So that’s going to lessen that now I’m much more conservative in that aspect of trading.
[00:22:18.280] – Sean
Got you. And let’s talk about your biggest investment.
[00:22:21.250] – Ivan
When the biggest investment win? Obviously, I think we were involved in crypto mining since 2015 and Ethereum, so that’s just one of those assets went from like eight dollars to ten dollars to one thousand, four thousand dollars to four thousand dollars or something like that, right. So we were at the intersection of finance, technology, and it was clear, even 2013, that this would be a paradigm ship. So, you know, we didn’t put a lot into it. But it’s one of those things where I’ve always been keeping track of the ecosystem and we’ve been always both investing in terms of understanding the technology, in terms of why we built that business. That was actually one of the main factors not just about making money, but it was actually just understanding how the thing worked.
[00:23:02.640] – Sean
[00:23:03.210] – Ivan
And instead of doing that as a hobby and just learning about it, well, why don’t I build a mining facility? So that’s kind of what I think what worked out very well and definitely one of the biggest ones.
[00:23:13.510] – Sean
Yeah, good for you. We had another guest on, actually, the previous guest talked about their biggest win was also a theorem. I think they got in at like ten to $20 or something and rode that up to a thousand some. And we did set expectations with our audience. Finding investments like that is very hard. It’s very speculative. You don’t have an algorithm or a cheat sheet that says, yes, here’s a checklist and here’s your investment. It doesn’t work right away, right. Every once in a while.
[00:23:43.290] – Ivan
But it’s also put in context. But it was both at the intersection of tech and finance. So it wasn’t like, oh, I just got lucky because I found something random. I really am just swimming in my lane here. Right. And so when we saw this, because of the context of what we’re working at, it’s a little bit more clear than, what if you were, like, not initiated in this field?
[00:24:06.940] – Sean
Good. Well, thanks for sharing your background a little bit. Let’s take a quick commercial break. Do you wish you would have bought some stocks earlier? Imagine you had $5,000 to invest. Let’s say you bought Amazon stock in 2010. That $5,000 would now be worth over $95,000 today. Let’s say you bought Tesla stock in 2013. That $5,000 would now be worth over $220,000 today. And let’s say you bought Netflix stock back in 2012. That $5,000 would now be worth over $245,000 today. Do you feel like you find out about opportunities like this? Way too late. What if you could find great stocks before they become mainstream news? And what if a software found those stocks for you? With Ticker, you can find great stocks before what feels like the rest of the world finds out. No matter if you’re a beginner or experienced investor, ticker will help you find great buying opportunities and get a head start on your wealth building journey. Get started today with a free trial. Visit Ticker.com. That’s tykr.com again. Ticker.com. Let’s transition to Pennyworms. Tell us about this business. What does it do? Who does it serve?
[00:25:29.170] – Ivan
This is very straightforward. It’s a cash management account, so it’s almost like a savings account or a checking account. It earns 46% yield and it’s daily liquid. So essentially replicates what the bank would do for you if they were willing to give you interest. They just don’t. Right. So if you look at the national average right now that’s paid on deposits, it’s like 400 of 1%. And the next week, when the Fed was actually this week when the Fed will raise rates, we’re going to be close to 4%. So basically the cut that the bank is taking is we’re going to get 99 out of 100. You’re going to get one out of 100 of that income pie, so to speak. Right. And so what we’re doing with Pennywise is we don’t think that’s right. And so the idea here is that we’re replicating the same business. We’re using blockchain technology to reduce risk, to manage market risk, reduce overheads because there’s like, no middleman, and essentially giving back all that income to the investor. The way that is structured, where it can go a little bit more in depth, but there’s definitely a lot of to learn in this space.
[00:26:36.820] – Ivan
Clara’s lending one of the safest form of lending, it’s kind of like if you borrow against to buy a house, the bank will lend you every $100 of house. Right. And the worst case, if you don’t pay back while they take the house, they sell it. As long as they get more than $0.80, they make their principal and interest back. Right. So it’s a fairly safe business. Except that houses and cars, all those things actually take a long time to liquidate, right? First of somebody in there that victim, you get caught orders and things, and then eventually you have to sell. It goes to auction. So there’s a huge amount of risk there because obviously house prices don’t move that much. But that’s actually not true anymore, even for that market, right? So you could be in a situation where you’re trying to sell a house in six months and the price goes up. It goes down like ten to 20%, which has happened in the last few months. So that’s actually just a huge amount of risk. And that’s because of the overhead. In terms of dealing with traditional real assets and things like that.
[00:27:34.990] – Ivan
Analogous one in traditional finances, more close to what we’re doing is stock margin lending, right? So you have a big portfolio of stocks. You want to use some of the asset value to either buy more stocks or maybe to do some home renovations or something like that. So the banks will lend you against the portfolio because they can always take the stocks and sell it. Now, unfortunately, even for stocks, they’re not that liquid in the sense that stocks are only trading 18% of the time. They’re not trading Saturday, Sundays, not trading in the middle of the night, right. You’re out of all the time, only 18% of the time. You can actually liquidate something. If there was an issue. A lot of times what are the biggest news events happen, like over the weekend, right? And that’s the time where you keep the worst time to do something in the markets. So to take that analogy further, when we’re doing collaborative lending, when we’re doing it on digital assets, they trade twenty four, seven, it never stops. And because the computing is also on the blockchain, it’s processing in real time whenever somebody gets close to the threshold, liquidation.
[00:28:38.550] – Ivan
So it’s actually on the market risk perspective, much lower than traditional financial products. And there’s no overhead because there’s no bank to take care of it. It’s just a smart contract. You pay five cents, it runs, and then there you go. So we’re trying to say, hey, look, this is a fairly safe product and you have very low overhead. And when you do this collar with lending, it’s data liquid because it’s on the blockchain. Loans are extremely short term, so you can essentially replicate the features of the same account.
[00:29:07.770] – Sean
Got you. Now, I’m on your site here. You’ve got like a screenshot of a mobile app. This is for iOS and Android, is that correct?
[00:29:15.060] – Ivan
So right now it’s a web app that’s mobile responsive. So if you just use the got it on the phone. It looks the same as the app, but it’s not a native app at this point.
[00:29:24.330] – Sean
Got you. That’s fine. And you mentioned before the podcast, this is accredited investors only in the US. Is that right?
[00:29:31.860] – Ivan
That’s right. So unfortunately, in the United States, there’s a lot of regulations that are just moving much slower than we would like. And so to be a fully compliant company, we had to limit it to credit investors. But we’re working towards the date that we’ll be able to offer this to everybody. Because I think once the caps out of the bag, people will not accept the fact that the bank is not giving the main interest.
[00:29:53.200] – Sean
[00:29:54.060] – Ivan
And so that was largely an artifact of 2008 and how some of the financial architecture has changed and people are just not used to anymore getting any interest from their accounts. And the banks like, shh, don’t tell them.
[00:30:06.940] – Sean
Exactly. Like I’m with Chase and I love Chase, JPMorgan Chase, but I don’t keep much in savings because it’s at, I think zero 5%. You know, I try to keep everything in my broker, which is TD Ameritrade. Now in your case to get four to 6%. What are the individual assets behind the scenes? Are these stocks? Is it crypto coins?
[00:30:29.400] – Ivan
Yes, it’s exactly assets. So it’d be like bitcoin or ethereum. So these are like hundred billion dollar market cap, not securities, but commodities or digital assets or whatever, right. Depending on the jurisdiction. And they trade 24/7 because they are exchanges on the blockchain as well. So there are centralized exchanges like a TD Ameritrade or, or some other Robin Hood that lets you trade them. Right. But there’s also ones that just run on the blockchain. There’s nobody operating them. It’s just like your code that kind of releases the price. And so that makes it actually quite liquid. Anybody can trade in and out of it, just finding time. The daily volumes are in the tens of billions of dollars, which makes it so that it’s relatively easy for us to liquidate assets, which is the theory with Bitcoin or some assets and listed at and get cash.
[00:31:15.710] – Sean
Now is this like an algorithm that you wrote behind the scenes that does the buying and selling, or are you leveraging another third party to do that?
[00:31:24.840] – Ivan
Right, so there’s really no buying or selling per se. It’s really just in case the collateral drops in value, then you can call it. All that stuff is already preset into the marketplace. So we’re just like a participant in these decentralized lending profile marketplaces.
[00:31:38.440] – Sean
Got you. Okay, and then with your minimum investment size, do you have a minimum for people to get in?
[00:31:46.570] – Ivan
Yeah, it’s actually just $500, $500 minimum for retail investor.
[00:31:50.650] – Sean
It’s pretty low burial entry.
[00:31:52.560] – Ivan
Well, I mean, unfortunately, you have to be in a credit investor, but then at the margin, if you’re in a credit manager and you want to just manage your assets, maybe sometimes you just want to take the money out because you have a project to do. And then maybe after the project, you get the money back and then you just put in. So we didn’t want to create any artificial barriers that were kind of not really adding value to the user experience, so we just dropped it.
[00:32:13.960] – Sean
Now is the four to six, is that expected or is that guaranteed return.
[00:32:19.630] – Ivan
You can think of as a money market fund. Right. So when we see four to six means that every day you’re earning approximately four divided by 65 times however much.
[00:32:27.490] – Sean
Of course.
[00:32:28.110] – Ivan
And then we can change anytime. We can take your money out any time because you’re not committed to any period of time.
[00:32:33.300] – Sean
Got you. Okay. So they can pretty much I like the liquidity aspect, especially 24 7365. They can just log in with all their funds and they’re back in their bank account.
[00:32:46.420] – Ivan
Yeah. And actually is the slowest part. Right. We can get the money back into our bank account faster than we can actually spend it. From bank A to bank B, that’s the slowest part.
[00:32:57.660] – Sean
Sure. Now you mentioned you’re bootstrapping this. You’re not taking a salary. How long has this business or this site or platform been live?
[00:33:07.390] – Ivan
So we launched the business in April of this year. We started like the incorporation of a year and a half ago. So that’s kind of how long we’ve been involved.
[00:33:16.800] – Sean
Got it. So it took about a year plus to build the platform.
[00:33:20.700] – Ivan
A little bit under a year. And so we’ve been operational about half year.
[00:33:24.010] – Sean
Got you. Okay. How big is your team?
[00:33:26.380] – Ivan
Seven people.
[00:33:27.420] – Sean
Seven people, all right. Do you have venture capital?
[00:33:31.390] – Ivan
No, we are mostly angel fund at this point. We are also a meaningful amount of self funding. But as we’re growing since we’ve launched platform, now we are looking for some capital.
[00:33:42.420] – Sean
Got you. Okay. And how do you generate revenue? Transaction fee model or you take no fees?
[00:33:49.260] – Ivan
On our platform, we just take we set the rates and if the rates are attractive for you, obviously place funds onto the platform. If the rates are not attractive, then don’t we target basically like an 80 20 idea but don’t change them that often. So maybe every couple of months or so where we revisit the rates and make sure that it’s in line with market.
[00:34:12.520] – Sean
Is it in line? Like hedge funds will have a two and 20 model, like 2% AUM and then 20%.
[00:34:20.890] – Ivan
Yeah. So we’re not doing that. So this is actually just debt securities. You’re actually providing us a loan. Right. And so we just set those rates and they expire basically on a daily basis, which is why you can take your money out whenever you want. And so we just set the rate. If it works for you, that’s great. Sometimes rates will pick up a little bit, sometimes it down. So we manage that volatility just to improve the user experience, but we’re not taking an explicit management fee, so to speak.
[00:34:49.360] – Sean
Got it.
[00:34:49.920] – Ivan
[00:34:50.160] – Sean
So what I’m trying to get at is our investors some investors are in mutual funds which can be closer to that 2%. And then of course, index funds and ETFs are about the same returns, but you’re going to pay a fraction of the percent and management fees. So it’s not like, hey, 1% is going to pennymarks or 2% is going it’s nothing like that.
[00:35:13.360] – Ivan
Yeah, it’s exactly like what you see is what you get.
[00:35:16.180] – Sean
Okay, so walk me through this real quick. How do you guys make money?
[00:35:22.570] – Ivan
So we take the funds and actually we have a big how it works tab on the site. But we take the funds, convert them into stable coins, and they’re just basically dollar representations. Like with your software engineering background, it’s just like an object that represents a dollar but on the blockchain. Right. And so then the blockchain is aware of that construct and then it’s also aware of bitcoin and ethereum. And so the last thing is missing like a price feed. And then you just write a little smart contract that says, hey, look, if the price goes to certain level based on how much you place with us, then we can just take your funds and liquidate it so that we can make sure they get back the amount of stable coins to pay back the lender. Right. And we essentially are just participants. These are very large platforms. Some of them have tens of billions of dollars already on them. And we are just like the lender side of that marketplace.
[00:36:10.200] – Sean
Got it. So some kind of small percentage you’re taking, is that right?
[00:36:14.830] – Ivan
That’s right.
[00:36:16.020] – Sean
Okay, got you. All right, well, thank you for talking about the business a little bit. At the end of episode, we’ll have you promote it and where people can reach out to you. But first what I like to do is jump into a rapid firearm.
[00:36:29.080] – Ivan
[00:36:29.800] – Sean
This is part of the episode where we could find out who Ivan really is. If you can try to answer each question in 15 seconds or less. You ready?
[00:36:38.700] – Ivan
[00:36:39.280] – Sean
Alright. What is your favorite podcast?
[00:36:41.890] – Ivan
I like Planet Money from NPR. I think they have some good content. Some of them are very fun. Recently they started like building these little businesses just to understand how that works. And that’s been a tremendous, tremendously interesting set of episodes. Nice.
[00:36:58.180] – Sean
I’ve heard of it. All right, what is a recent book you read and would recommend?
[00:37:03.110] – Ivan
So I recently read a whole series of kind of like fantasy book. It’s called off to be the wizard, which I absolutely love. But the idea is kind of from yourself engineering back maybe familiar with they find this file that apparently controls the entire world and these are these geeks and then what they do while they go back in time and they use those powers to become wizards and the whole complexity and calamity. That’s kind of what the series about. That’s cool.
[00:37:36.190] – Sean
Sounds like a lot of fun. Alright, you touched on there’s. A little bit of Sci-Fi here. We’ll see where we go. What is your favorite movie?
[00:37:45.340] – Ivan
Shawshank Redemption.
[00:37:46.990] – Sean
Really? Okay, Sci-Fi. But one of the best movies ever made.
[00:37:52.560] – Ivan
Yeah, but like, it’s a story about, like, an accountant, right? Like, I’m smarting people. I’m like, wow, that’s the story of our time. Right.
[00:38:00.560] – Sean
That is a very unique way to roll up that movie because there’s a lot of, like it’s about redemption and pursuing your dreams and being persistent, but you arrive on it as an accountant outsmarting a system.
[00:38:18.040] – Ivan
Well, I think that’s the modern think about it. Yeah, that’s the way it is. That’s great. I love it.
[00:38:23.490] – Sean
All right, what is the worst business or investment advice you ever received?
[00:38:29.360] – Ivan
So this outside of investing stocks and financial investments, I invested in a play. You know, like the thing, like, on Broadway. Right? Yeah. It’s like a play and it’s actually, like one of the pre Qual, the story of how the Tin Man came to be. And I actually love the place. It’s a great play, but I just did not know anything about the economics of it. So I was like, hey, look, this could be like Wicked, which is like, Wicked famous. And so I kind of just invest in it. And it didn’t work out well, but at least I got to see the play a few times. So that’s great.
[00:39:00.690] – Sean
Sure. I haven’t thought about plays, but I’m a big movie nerd and I thought about investing in movies. And I’ve talked to people in that industry. They’re like your chances of making money after everybody’s paid and all the red tape. It’s very low chance to make money, run for the hills.
[00:39:19.650] – Ivan
That’s right. Nobody told me that. I was like, oh, man. But the glamor was there.
[00:39:25.150] – Sean
Yeah. When you think about wicked. And then I was thinking about movies. Like, for example, Deadpool had a really small budget, 2016, and it just blew it out of the water by almost ten x.
[00:39:36.640] – Ivan
Very rare.
[00:39:37.890] – Sean
But yeah. So no movie investing for me.
[00:39:41.380] – Ivan
Yeah. Off limits.
[00:39:43.230] – Sean
Let’s flip the equation here. What is the best business or investment advice you ever received?
[00:39:50.590] – Ivan
The best one is basically the fact that I don’t get too invested into any investment emotions is the biggest one. It doesn’t matter what you do because you can have all these fantasy rules. Don’t follow the rules. It doesn’t matter. Right?
[00:40:06.840] – Sean
Exactly. All right, the last business question here is the time machine question. If you could go back in time to give your younger self advice, what age were you visiting? What would you say?
[00:40:17.960] – Ivan
So the irony is that I’m taking a lot of financial risk, but like, in terms of, like, a personal risk, I’m actually fairly risk averse. I don’t even like driving because I think that the risk there is pretty decently high. So for me, I would say the device would go back maybe go back to like 15 or 16 or something like that. It’s just be more daring. Be more daring, right? Because you’re young. The more you try, the more you learn. And that’s one thing I didn’t understand. So end up being that, like, you know, I’m just afraid to do a lot of things before it took me. So, like, you know, when I started my crypto minded business over a decade plus later. So be more daring, try more things, and if you can, it’s so fast.
[00:41:00.860] – Sean
Great advice, right? I’ll turn it over to you. Where can audience reach you?
[00:41:05.800] – Ivan
You can reach us, pennyworks.com. We’re very present on social media as well. Pennyworks company LinkedIn. I post our weekly market commentary every week. So if you want to learn the latest about what’s going on, both in the financial markets, microeconomics and crypto, we have a little bit of everything there. Please take a look at the works.com to subscribe. We’re also president on Twitter and Instagram.
[00:41:31.170] – Sean
Awesome. All right, Ivan, thank you so much for your time.
[00:41:34.000] – Ivan
I appreciate it. Thanks, Sean.
[00:41:35.350] – Sean
All right, we’ll see you.
[00:41:36.480] – Ivan
[00:41:42.040] – Sean
I just want to say thanks for checking out this podcast. I know your time is valuable, and there’s a lot of other podcasts out there you could be listening to. So thanks for taking the time to listen to my guest story. If you did enjoy this podcast episode, could you head over to itunes and leave a five star review? That would be much appreciated. Thank you. And last but not least on this podcast, some episodes we do talk about stocks. And please keep in mind, this podcast is for entertainment purposes only. So if you did hear any buy or sell recommendations, please don’t make those decisions based solely on what you hear. All right, thanks a lot. See ya. You.