Show Us Your Portfolio: Wes Gray

Episode Summary

Executive Summary: Wes Gray lays out a personal portfolio built around first principles: evidence-based investing, long-term discipline, robustness to chaos, and strong skin in the game. His portfolio is heavily tilted toward trend-following/managed futures and tail-risk assets, with minimal real estate and little to no buy-and-hold bonds or equities. He also explains how moving to Puerto Rico dramatically improved his tax efficiency and why he views taxes as a bigger drag than fees.

Main Topics: Investment first principles (Priority: 5/5): Gray frames his portfolio around evidence, long-term thinking, chaos robustness, and personal alignment with his own advice to clients. Portfolio construction and asset buckets (Priority: 5/5): He walks through the main sleeves in his wealth: cash, Puerto Rico residence, tail risk, private short-term lending, trend equity, managed futures, private long-term deals, and his business. Trend following and managed futures as core diversifiers (Priority: 5/5): Gray argues that bonds, commodities, and equities should generally be owned tactically with trend-following rather than buy-and-hold, especially because his own business has market-sensitive revenue. Tax minimization and Puerto Rico residency (Priority: 5/5): A major theme is that taxes are the largest fee investors pay; he says Puerto Rico’s Act 60 creates massive benefits through zero capital gains tax and low income tax. Private investments and edge-based opportunism (Priority: 4/5): He dislikes private equity in general but makes selective private bets where he has information advantage, especially ETF-related operators and short-term local lending in Puerto Rico. Behavioral discipline and investor suitability (Priority: 4/5): Gray emphasizes that trend following works only for investors who can tolerate pain, whipsaws, and long periods of underperformance versus the S&P 500. Lifestyle, work, and retirement philosophy (Priority: 3/5): He does not see retirement as stopping work; he wants to stay involved as long as he adds value and his life remains flexible and low-stress.

Key Arguments: His portfolio is designed to be evidence-based, long-term, and robust to chaos rather than benchmark-aware or optimized for short-term relative performance. He believes 60/40 buy-and-hold is a historically unique, likely non-repeatable strategy that benefited from falling rates and may not work going forward. Trend following is, in his view, the best way to own bonds, commodities, and equities because these assets are tactical and should be held only when trending. He keeps around 50% of his non-business portfolio in managed futures/long-volatility-like exposures to offset equity downside and crisis risk. He thinks taxes are a larger cost than management fees and that minimizing taxes through structure or geography is essential for wealth compounding. Puerto Rico’s Act 60 is central to his personal retirement plan because it offers 0% capital gains tax and 4% tax on certain sourced income. He discourages most investors from private equity because fees, illiquidity, complexity, and taxes usually overwhelm any advantage. He believes most investors would benefit from trend following if they truly understood the evidence and could endure underperformance, but many cannot. He argues that knowing what you own and keeping fees and taxes low are the two most important practical rules for investors.

Data Points: Puerto Rico capital gains tax: 0% - Gray says PR residents pay no capital gains tax on future appreciation after becoming residents. Puerto Rico income tax on sourced income: 4% - He describes Act 60 as taxing eligible Puerto Rico-sourced income at 4% instead of U.S. federal/state rates. Tax drag avoided by Puerto Rico move: ~50% to 4% - He characterizes the move as reducing a roughly 50% marginal tax burden to 4%. Managed futures portfolio weight: ~50% - He says about half of his personal portfolio is in managed futures / bond-commodity trend-following on a notional basis. Equity exposure: ~50% - He says the other half of his personal portfolio is in trend-followed equity exposure. Recent 60/40 performance: down 15% to 20% - He cites this year’s pain for long S&P 500 / long Treasuries portfolios as evidence that the regime is changing. Long-term 60/40 Sharpe period: last 25 years - He says the classic 60/40 mix had an exceptionally strong run over roughly the past 25 years. Short-term lending yields: 10% to 15% - He mentions asset-backed short-term deals in Puerto Rico offering roughly 10-15% annual returns. Example residential cap rate in Puerto Rico: 10% - He says hitting a 10% cap rate on residential real estate is much easier in Puerto Rico than in the U.S. Fishing day cost: $400 per person - He gives an example of paying about $400 each for a guided fishing trip where everything is handled. Golf dues: ~$5,000 per year - He says this is his main recurring leisure expense and provides unlimited golf. Private equity comparison: $2 and 20 - He rejects the classic 2/20 fee model as unattractive relative to public market alternatives. Retirement account risk threshold: over $3 million - He speculates governments may someday target large traditional IRAs above this size.

Pivotal Quotes: "Evidence-based, long-term, robust to chaos, right? And then for me in particular, I gotta have skin in the game." — Wes Gray: His core investing philosophy and why his personal portfolio mirrors what he recommends to others. "Why would I want to own, like, especially high-duration bonds if they're not in a positive trend? Like, to me, that's just crazy." — Wes Gray: His rationale for treating bonds and other macro assets as tactical rather than buy-and-hold holdings. "Know what you own, even if it's like delegated through an investment advisor. ... keep the fees and the taxes to a minimum." — Wes Gray: Final advice to the average investor on portfolio ownership and cost control.

Implications: Listeners should expect a portfolio philosophy built on process, tax efficiency, and true diversification via trend and convexity. The episode argues that long-only 60/40 may be less reliable ahead, while disciplined, tax-aware, chaos-resistant investing is more durable.