Beyond the Uniform

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BTU #134 - Founding Alpha Architect (Wes Gray)

Justin Nassiri

"“I remember in Barwanah, in that base camp there, there’s this huge mortar shell that had smashed the side of a wall out. And under it in red letters, it said, “Complacency Kills”. The idea was to remind you that every time you went outside the wire, the minute you think you’ve won, you’re dead. I think that’s a good attitude to have in business as well. We’re just lucky, and quite frankly blessed, that the #1 competitor in our entire industry, is in our backyard. So every day, I’m looking down a Bazooka and I know if we think we’ve won anything, we’re going to get destroyed.”- Wes Gray

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Wes Gray is the CEO and CIO of Alpha Architect which is a research intensive asset management firm. He started out at Wharton where earned a Bachelor’s degree in Economics after which he served as a Marine Corps Ground Intelligence Officer for 4 years. After his military service, he earned both his MBA and his Ph.D. from the Chicago Booth School of Business. After which, he started Alpha Architect. I was introduced to Wes through a Wall Street Journal article which started out, “Wesley Gray’s value-focused fund is beating all of its rivals over the past year. For him, it’s almost beside the point.” He is also the author of the book Embedded: a Marine Corps Advisor Inside the Iraqi Army.

Why to Listen: 

There are so many reasons to listen to today’s episode. First, finance. Wes was introduced to me by a Wall Street Journal article that my brother-in-law Matt Dankner sent me and said basically, ‘Check this guy out, you need to get a hold of this guy’. I’m still blown away that Wes has taken the time to speak with me. The Wall Street Journal article talked about how successful Wes has been in starting and growing his own asset management firm, which is extremely difficult to do. We talk about so much in the episode. We talk about how when Wes was in the midst of his Ph. D. he joined the Marines. We talk about how that experience has helped him get this far. We talk about why vets are well-suited for fundraising. We talk about how to sell with a passion and how to find a mission you’re excited about. And most importantly we talk about the very simple secret to create success which is to grind every day. I think you’ll find Wes’ experience motivating and inspiring.

Our Sponsor: 

  • StoryBox - People trust each other more than advertising. StoryBox provides the tools and supports businesses need to take the best things customers say about them, and use them to drive more sales and referrals. StoryBox offers a 10% discount to companies employing veterans of the US Armed Forces.
  • Audible is offering one FREE audio book to Beyond the Uniform listeners. You can claim this offer here, and see a list of books recommended by my guests at BeyondTheUniform.io/books

Selected Resources: 

Transcript & Time Stamps: 

Today is Episode #133 with Wes Gray.

“I remember in Barwanah, in that base camp there, there’s this huge mortar shell that had smashed the side of a wall out. And under it in red letters, it said, “Complacency Kills”. The idea was to remind you that every time you went outside the wire, the minute you think you’ve won, you’re dead. I think that’s a good attitude to have in business as well. We’re just lucky, and quite frankly blessed, that the #1 competitor in our entire industry, is in our backyard. So every day, I’m looking down a Bazooka and I know if we think we’ve won anything, we’re going to get destroyed.”  -Wes Gray

(0:58)

There are so many reasons to listen to today’s episode. First, finance. Wes was introduced to me by a Wall Street Journal article that my brother-in-law Matt Dankner sent me and said basically, ‘Check this guy out, you need to get a hold of this guy’. I’m still blown away that Wes has taken the time to speak with me. The Wall Street Journal article talked about how successful Wes has been in starting and growing his own asset management firm, which is extremely difficult to do. We talk about so much in the episode. We talk about how when Wes was in the midst of his Ph. D. he joined the Marines. We talk about how that experience has helped him get this far. We talk about why vets are well-suited for fundraising. We talk about how to sell with a passion and how to find a mission you’re excited about. And most importantly we talk about the very simple secret to create success which is to grind every day. I think you’ll find Wes’ experience motivating and inspiring.

(2:18)

A couple quick admin items. First of all, mid-way through, there’s a little bit of sound distortion in the audio. Power through it - it’s very temporary and definitely worth hearing the rest of the episode.

(2:32)

Secondly, at the events section at www.beyondtheuniform.io, you’ll find two events that I’m launching in January. I just locked in second speaker for the Veterans in Consulting seminar. In that seminar, we’re going to talk about everything you could want to know about the field of management consulting. How to interview, what life is like, what work is like, etc. Sign up in the events section if you haven’t already.

(3:20)

If you haven’t had a chance to give us a review on iTunes yet, please do. It will take 30 seconds of your time. It helps us get the word out. I want to be able to share these incredible stories with as many veterans as possible.

(3:37)

Finally, after the episode, there’s a little stinger that you want to hear. Wes talks about an event he is organizing for next year called March for the Fallen. The New York Times has written about this. I’ll have links in the show notes to all the different articles talking about this. It is an incredible event, I plan on being there. It will be an incredible time and I hope to see many of you there as well. And with that let’s dive into the episode.

(4:15)

Joining me today from Broomall, PA is Wes Gray. Wes, welcome to Beyond the Uniform.

For listeners, I wanted to give a brief background. Wes is the CEO and CIO of Alpha Architect which is a research intensive asset management firm. He started out at Wharton where earned a Bachelor’s degree in Economics after which he served as a Marine Corps Ground Intelligence Officer for 4 years. After his military service, he earned both his MBA and his Ph.D. from the Chicago Booth School of Business. After which, he started Alpha Architect. I was introduced to Wes through a Wall Street Journal article which started out, “Wesley Gray’s value-focused fund is beating all of its rivals over the past year. For him, it’s almost beside the point.” He is also the author of the book Embedded: a Marine Corps Advisor Inside the Iraqi Army.

(5:46)

How did you go from the Marine Corps to starting Alpha Architect?

Just to take a little bit of a step back, I was in a Ph. D. program before I joined the Marine Corps. I started the program at the University of Chicago in 2002 and started by doing two years there doing finance and math 15 or 16 hours a day. I had passed all the tests and for me, I wanted to try something different. So I joined the Marine Corps for 4 years and then came back to the program after that.

(7:00)

What kind of a response did you receive from your advisors and from your family when you made that decision?

You’d be surprised - there’s actually a lot of a military personnel in the program. The Ph. D. program attracts a lot of very disciplined people. So when I was thinking about joining the Marine Corps, half of the other people in the program were very on board with the idea. And I think the other half might of thought it was a little weird or different.

(7:50)

My mom was pissed off because nobody wants their baby to go into the service but I think she understood. My girlfriend, who ended up being my wife, thought I was insane but she also knew me so she wasn’t too surprised. Then I talked to my advisors who were both Nobel Prize winners. One was immediately supportive and the other initially thought I was insane but then came around to the idea.

(9:36)

So then you took a break from the Ph.D. program and went into the Marines from there?

Yes so basically you are allowed a one year sabbatical but I had received approval to do a four year sabbatical. The husband of the Ph.D. director at the time was a former member of the Navy so she was very open to the idea. So I did my four years and then basically showed back up to the program. I re-enrolled and picked back up with the program. I started doing research and started grinding every day and eventually graduated.

(10:37)

When you started your Ph.D. program, did you have an idea you wanted to start your own fund one day?

Yes, I had always wanted to start an asset management fund since I was a little kid. My late grandmother had me reading Warren Buffett and Ben Graham at age 12. I just always liked finance and was interested in the idea of starting an asset management fund. So I tried to just get as smart on the subject as possible and hoped that luck and circumstance would come together for me.

(11:50)

My original plan was to have Warren Buffett call me up at age 18 and give me a billion dollars and retire at age 20 but that idea didn’t pan out.

(12:12)

How would you explain what an asset management fund is?

It’s kind of like in the Marines how we had various processes to accomplish a mission. With Alpha Architect, our mission is to try to build an algorithm, system, or standard operating procedure that will allow us to buy stock that will hopefully generate returns. In the securities market we identify through various means stocks that meet a certain desire. For example, we have a value algorithm and using it, we buy cheap stock that has a good indication of a future positive return.

(14:15)

What was your focus in your Ph. D.?

In my program, I wrote a paper focused on why smart investors share information. I was wondering why a really smart stock picker would share information with other people. So I wrote a paper basically proposing that smart people like to share good ideas with other smart people because sometimes that other person might give you an insight that you hadn’t even thought about.

(15:35)

There is an organization called Value Investors Club. It’s basically a fancy message board for hedge fund managers and stock pickers. People would submit really complex pitches on different stock ideas. It was like an awesome research lab. I thought it was really interesting that within these message boards people were open about sharing good information with each other.

(17:26)

How did you then go from your Ph.D. to starting a fund?

Typically you have to be born into a lot of money but unfortunately that wasn’t me. So I had to do it the old fashioned way which is to get lucky. I had always been into reading source journal literature. I used to have a blog and still do that I used to share my thoughts on what I was reading in various finance journals. I had plans to become a professor but at the exact time I was becoming a professor, I got cold called by this billionaire named Eddie Stern. They were getting rid of a lot of their hedge fund managers and were looking to bring into some new people. He had been reading my blog and approached me to provide consulting services to his real estate firm. So I did that while I started my career as a professor at Drexel. A guy named Jack Vogel was assigned as my research assistant. We got along really well and were doing a kind of consulting thing on the side.

(20:16)

I told Eddie Stern, ‘Hey if we work really hard and do a good job for you, do you think you could give us a shot at the asset management business’. In 2012, they ended up giving us a $20 million account to manage and that was quickly ramped up to $50 million. And then we just kept doing what we had always done - did research, did blogs, did education. Somehow, someway, people would just find us. From there, we built the business.

(21:45)

I love that you started the blog as a way to continue doing research and sharing your thoughts with other people. You used it as a way to sharpen your skills but it was an also a way to build a reader base that ultimately lead to some incredible opportunities.

Yes, absolutely, It was good timing too because we were doing it at a time that blogs weren’t that cool but we were doing it anyway. Normally, you can’t get into asset management or finance without previous work on Wall Street. But the internet has really disrupted that. People can now find you on Google. Just writing a blog where you’re being authentic, being genuine, trying to add value, that can make the difference. So we just got lucky that we were able to scale without any salespeople.

(23:33)

What does your day-to-day usually look like?

My schedule is very odd and not normal. I am anal retentive when it comes to productivity. So I built an office, a compound, at my house because I hate commuting. I’ve tried to maximize my opportunity to both spend time with my family and focus on my work. I’m literally here all the time.

(24:40)

I get up early, usually at 6:00, and start grinding. It’s the time of day when I just like to focus and write and think about stuff. Once the day starts, I’m usually getting pulled here and there putting fires out. We grind until about 4 or 4:30. We do PT, do laps around the block, kettlebells. Then I’ll come back and keep working until 6:30. Then my wife yells at me to come eat dinner. Then I hang out with my kids, put them to bed and then use from 8:30-10:00 to finish up whatever needs to get done. And then I just basically do that everyday.

(26:00)

Do you work during the weekends?

Usually I work during the weekends. I try to be able to mindful of giving myself a break from time to time. But honestly if something needs to get done, then I need to get it done.

(26:30)

I’m trying to wrap my head around the compound. Can you describe that a little bit more?

It’s difficult to explain unless you’ve been here. There’s a grizzly bear here in the office. When you come here, I take a picture of you in front of the grizzly bear and post it on Twitter. Essentially I got this place from a guy who had terminal cancer. He was a former big game hunter. He had this house and then a separate trophy room which was about 1500 square feet. And then he also built a man cave. So when I bought it, we turned the man cave into an office, we turned the trophy room into a conference area. And then there’s our actual house here too. And then we have another structure in the backyard that we use as a gym.

(29:11)

During the morning before everyone else shows up, what does that time look like for you?

Usually in the morning I’m reading through academic papers. I dig a little bit deeper into what seems interesting to me. And then if it seems like something that would be helpful to other people, I’ll write a quick blog post on it. I’m also doing a lot of editing because we have so many guest writers from my team that a lot of times I’m doing more editing than writing my own content.

(30:30)

What are some indications that a veteran would either really like or really dislike a job in this field?

If you like challenges and you’re good at just grinding it out until you reach success, this would be a good field for you. One downside is that nobody is telling you what to do. You have to figure out what needs to get done each day. For some people that’s extremely nerve wracking but if that’s something you like, this could be a good fit for you.

(32:07)

Not to be a Debbie Downer but the finance industry is changing very dramatically. If you don’t have a niche or specialized skill, it’s going to be tough for you. The days of throwing up a plaque and saying ‘I’m going to start a hedge fund’ are over. Unless you have a niche skillset, going into finance can be challenging. As a veteran, tread lightly getting into the asset management business unless you really know what you’re getting yourself into.

(33:30)

What was that like to see that Wall Street Journal article? That had to be great getting such that recognition?

At this point I’ve done every podcast, been on the cover of Barron’s, had an article in the New York Times. I don’t let it go to my head, I don’t feel like I’m that special. I’ve got a story but everyone has a story.

(34:30)

How is life different now from when you were just first getting started with this?

It really hasn’t changed. We’re still in the same office. We have newer computers now. We’re better at making money now. So that’s nice. But we have a cockroach philosophy. There’s a firm called Vanguard in our business and they’re the 800 pound gorilla. They happen to be 10 minutes up the road from here. So I know where the 800 gorilla lives and I what I need to do to survive. So we try to be a cockroach - live way under our means, grinding everyday.  We don’t do anything different from when we first got started, we just have a few more people and nicer equipment.

(36:45)

I love that idea of not stepping back and coasting but continuing to push with everything you’ve got.

I’ll never forget when I was deployed to Barwanah. I remember in Barwanah, in that base camp there, there’s this huge mortar shell that had smashed the side of a wall out. And under it in red letters, it said, “Complacency Kills”. The idea was to remind you that every time you went outside the wire, the minute you think you’ve won, you’re dead. I think that’s a good attitude to have in business as well. We’re just lucky, and quite frankly blessed, that the #1 competitor in our entire industry, is in our backyard. So every day, I’m looking down a Bazooka and I know if we think we’ve won anything, we’re going to get destroyed.

(38:10)

Do you have any advice for veterans that are interested in this sort of thing but don’t want to start their own firm?

The problem with the business is that it’s getting so computerized and automated. You just don’t need as many humans anymore. You need humans that know how to program computers in this business. More and more, you have to be really careful about that path you pick. Because you don’t want to put time and money into learning a job only to realize it’s being phased out.

(39:10)

If you want to get into asset management on a bigger scale, you’ve got to be extremely tech savvy. You need programming and technical skills. Another route that veterans are well suited for is the fundraising side because they are usually extremely good at dealing with people from all walks of life. All asset managers will always pay huge dollars to hire a good fundraiser.

(41:40)

I hate selling unless it’s something that I’m extremely passionate about. Because then it’s not selling, it’s spreading the gospel. So I think that you can find a firm and culture that you are excited about, you’ll have that passion to sell that product to people.

(43:40)

Are there any resources you would recommend?

Blogs and podcast are probably the best.

Blogs -

A Wealth of Common Sense

Alpha Architect

Podcasts -

The Investor’s Field Guide

Meb Faber Research

The Investors

Also just get on Twitter. There is a great community of young, up and coming folks that are looking to help people.

(45:25)

Do you have any final words of wisdom?

I don’t have any special advice except grind every day and work hard. The one thing I would say after being around people in this business is that if you’re not eating right, sleeping right, making time to exercise, then you’re not going to feel well and you’re life is going to suck. Always find time to eat right, workout, get a good night’s sleep. That will keep you efficient and keep your mind clear. Focus on the fundamentals and the rest will be all right.  

(46:00)

There’s a 28 mile ruck march hosted by the Pennsylvania National Guard every year called Honor the Fallen. The idea is that you’re out there working hard and being thankful that you can still feel pain. It’s a great event and only about $30 to be involved. What I did last year and what I’m going to do next year is to get a bunch of barracks during the event and host some movers and shakers in the world take part in the march too. We’re all in to to win it regardless of our background. It’s a great event, it’s next September. It’s a great opportunity for vets to reconnect to your roots and honor the fallen.

(48:50)

It’s a great event and a lot of fun. Especially if you’re not from a military culture, it’s a very eye opening experience because there are gold star families out there too. It’s just a bunch of people looking to do right.