What Dennis did? The secret sauce of making and keeping money!

Most investors overlook the power of the overlooked. Just like Dennis Rodman’s crucial rebounds fueled the Chicago Bulls’ titles in the late 90's, a savvy portfolio needs its own unsung heroes — assets that do the dirty work behind the scenes. In this eye-opening episode, we explore how the right "team members"—from gold to bonds—are essential for resilience and success. Using vivid sporting analogies, including Michael Jordan’s championship teams and rugby props, we uncover a new way to think about portfolio construction: it’s not just about the stars, but about the role players that make the whole team thrive. Discover how gold acted as the Dennis Rodman of your investments during the 2008 crash, providing stability when stocks plunged, and why defensive assets are often your best bets against crises. Diego Parrilla, Chief Investment Officer at Quadriga Asset Management, shares his contrarian insights into the anti-bubble and explains how understanding asset roles can safeguard your wealth in turbulent markets. Perfect for investors seeking to demystify portfolio construction, manage risk smarter, and build resilience like top sports teams, this episode is your playbook for outperforming in any market. Tune in and learn why every winning team—and portfolio—needs its Dennis Rodman.

Transcript

SPEAKER_00 0:03

Welcome to the Most Important Thing podcast, where we speak with the best and brightest in finance, economics, investment, and geopolitics to bring you the truth about what's driving the global economy and financial markets. Every week, our chief market sceptic, Dr. Alan O'Sullivan, and former government minister Ivan Yates sit down with a global expert to provide invaluable lessons from a lifetime of markets experience. Economic expansion or recession, market highs or underlying vulnerabilities, AI dystopia or just the next bubble, escalating geopolitical tensions or simply the new global order. These are deep conversations searching for truth and practical investing strategies to improve your chances in this uncertain market environment. To optimize your learning experience, visit our learning hub at the mitpodcast.com where you will find the latest guides, investment ebooks, and a community that focuses solely on expert insights. Enjoy the show.

SPEAKER_01 1:03

That's what it's simple, it's a simple game. But when you leave this this this confine zone, it's hard. It's hard.

SPEAKER_03 1:12

But what has that guy got in common with this guy?

SPEAKER_05 1:15

Semi-final Villa Park sent off for a stamp on Gareth's Southgate. Yeah, and he deserved it.

SPEAKER_03 1:29

Finally in common with this guy. So all is going to be revealed. I received an email this week from a follower of the podcast complimenting us so far on the quality of the guests so forth, but raised a bit of a concern about the technical side of the interviews, like Sebastian Page, Dr. Auntie Ilman, and there is some pretty sophisticated conversation. So has asked, can I explain some of the core concepts around portfolio construction using, let's say, a more layman's approach? I have a very special guest coming up this week. That is Quadriga Asset Management's Chief Investment Officer, Mr. Diego Parilla. So Diego is another contrarian vice, uh, hugely respected, 30 years in financial markets, has his own funds, suite of funds, uh based in Madrid, Spain, and is a real credible vice, author of two books, which I'll put links to. Uh, Diego would be very well known to the institutional investor base. So my conversation with Diego focused on misconceptions in financial markets and his concept of the anti-bubble. But the penny really dropped for me in my conversation with Diego when he started using sporting analogies to explain portfolio construction. In this video today, I'm going to take the advice of the podcast follower who emailed me and use some very well-known sporting figures to explain portfolio construction. So, for the purposes of this experiment, I want you to think every time I mention portfolio, I want you to think of team. Because what is a portfolio? It's a team. It's a team working together to deliver a solid return, a solid outcome for the manager, for the supporters, for the investors. Let's think about some famous teams. What about the Chicago Bulls team of the 90s? Who do you think about instantly? Maybe it's Michael Jordan, Scottie Pippen. What name do you think about when you look at the South African winning World Cup teams? And even if you look at that great Manchester United team with Alex Ferguson as coach, and you think about the top two or three players, what do you tend to focus in on is the strikers, perhaps the likes of Giggs, Beckham. But perhaps when we dig a bit closer, what allowed that team to be successful was perhaps some of the unsung heroes, and maybe two Irishmen involved in that. No prizes for guessing who I'm going to be talking about there. I'm going to start this experiment looking at that great Chicago Bulls basketball team in the 1990s. I'm going to focus on the unsung hero of that team.

SPEAKER_02 4:37

Dennis Rodman has now pulled down 10,000 career rebounds. He needed 14 coming out of this game.

SPEAKER_04 5:00

But uh so let's think of Michael Jordan and again Sean R.H. the Chicago Bulls. So let's say Michael Jordan scored 50 points per game, and uh the Chicago Bulls won games and series and championships. But there are other guys, and you know, this this guy called Dennis Rothman, who was particularly well known. And Dennis Rothman did a bunch of things for the team, right? One of the things he did is he blocked the other guys. So you Alan are going to shoot, maybe he was going in, but his hand is on the way and it's no longer in, right? So think about Markovitz, mean variance, risk return. Having someone like Dennis Rothman reduces your risk because the other team is scoring less points. Okay? So thank you, Dennis. The second thing that Dennis Rothman did is if you manage to shoot, then he might catch the defensive rebound, which means you don't have a second shot. The other thing he did is he caught offensive rebounds, which is hey, here we go, gave it to Michael Jordan, who had a second shot and likely didn't miss. So the difference between chess and basketball is that if we played chess, we'll be ha we'll have 50 moves each. In basketball, we will have 50 moves each, minus 50 shots each, plus minus the effect of blocks defensive and offensive rebounds. So it might well be that you had 50 shots, I had 70. And so it turns out that out of the 50 points scored by Michael Jordan, maybe 10% of those, maybe five points, came from the attribution of Michael Jordan's 50 points, came from situations that would have never taken place had you not had a Dennis Rodman on the team. And in a game like sports, where the difference is so small, maybe one point determines whether you won or lose the game. This is absolutely critical. But the question is who gets the credit? It's always Michael Jordan, right? So in that sense, think about portfolio construction the same way. Who gets the credit? Equities gets the credit. But you want to be in a situation where your defenders, the downside alpha, is not there just to, you know, you need to think about it not in the linear way. You need to understand the non-linearity of defense and how it contributes to incremental returns that you would have not otherwise had, be it because you've been attacking more.

SPEAKER_03 7:09

So I found this absolutely fascinating. And being the statistical nerd I am, I looked at some of the statistics for Dennis Rodnam. Chicago Bulls were going for their second uh three-peat series where they were looking to win three in a row in the late 1990s. So 95 to 96 season, 96, 97, and 97-98. So they won three championships in a row. And if we look at the statistics, so Rodman did a couple of things extremely well, valuable things, like a soccer player making a huge tackle in the center of the field to win back possession. What Rodman was brilliant at was rebounds. Offensive rebounds, which is when, say, a Jordan takes a shot, a Skoppy Pitton takes a three-pointer, getting the ball back off the rim and giving Jordan another shot. Defensive rebounds, so the other team takes a shot. Rodman was amazing at getting the ball back. So that doesn't give the other team a shot. Blocks as well. If we look at some of the stats, what I've done is I've broken down the offensive rebounds and the defensive rebounds and highlighted them here over those three seasons. But what you can see is that he was amazing at rebounds, and that increases the probability of Jordan and Pippen getting other shots off. So next up, what I did is I took the individual seasons. So looking at 1995-96, we can see that Dennis Robbins played much fewer games than the likes of Michael Jordan, 64 games versus 82. He wasn't a big point getter, we know that. So 351, tiny relative to Jordan and Pippen. But look at his percentage, his stats for offensive rebounds, ORB, and defensive rebounds. That tells you something, a particular level of skill, a particular attribute, which is hugely important to increasing the probability of the stars in the team getting another shot. What we want to know though, if we're trying to get to real rigor, we want to see was he consistent. Looking at the 96-97 season, look at Jordan's points. Nearly 2,500 points over 82 games. Total rebounds 482 over those 82 games. What about Dennis Rodman? We look at Rodman's stats for that period. We can see much fewer games again, points not great, 311. But look at the rebounds. Again, points 311, total rebounds 883 versus Jordan's 482. So that again, that was the second winning championship season. Then we come to the final season, the three in a row, 97-98. Again, Michael Jordan, 82 games, very consistent with his points, huge point score. But I am contesting that a lot of those points were as a result of the likes of a Dennis Rodman doing the dirty work, getting the ball back, increasing the probability. Let's look at his statistics. We can see that Bobbin uh played more games in the last in the final season. The points were you know consistently low, but look at the rebound stats. Triple the rebound stats. Okay, Scotty Pippen played less games in the final in the 97-98 season, but total rebounds, Dennis Rodman, 1200, 1201 versus 475 for Michael Jordan. Very interesting in the context of looking at the team and having different players doing different things in the team. Now I want you to keep that in mind when we talk about portfolio construction. I've emphasised this. I've created this dynamic chart, and this dynamic chart is titled Why Every Portfolio Needs a Rodman. Michael Jordan got the glory, but Rodman did the dirty work, okay? And if we look at this chart, this dynamic chart, we can see that Jordan, we got on the left axis total games, points. Jordan is way up big peak. But look at offensive rebounds, look at defensive rebounds, look at that Turkey's line. He's way ahead, way ahead. Perhaps producing the equivalent of what the other team members did. Steele's interestingly enough was quite similar, but it is that key component of rebounds that sets Rodman apart and made him so vital to the success of the Chicago Bulls team. That's a nice nostalgic trip down memory lane with the Chicago Bulls. But what's the point? What's the emphasis of this? So if Michael Jordan's of the world, the Messi's of the world, the Beckham's, they get all the headlines, they get all the glory. But if we have an investment portfolio full of the stars, what are the stars from a portfolio construction perspective? It's the equities, it's the stocks, it's the Bitcoin perhaps, it's the more speculative assets. We need some Dennis Robbins, we need some ballast in the portfolio. The next dynamic chart I produced is looking at gold and the S P 500 over the last 50 years. So I've taken a sample, uh, 1970 to 2020. Actually, if I had extended the 2020, it would have been more impressive. But anyway, I think there's enough here to show you. And I could have picked other defensive assets, hedge funds, rebalancing, equity funds, return, so forth. But to make a point, I want to, I'm just gonna focus on gold at this point. And what I'm gonna show you is that over that 50-year period, we've had multiple episodes of geopolitical crisis, we've had the tech wreck in 2000 to 1999 bubble, we've had the 2008 financial crisis, and we've had COVID, but we don't capture COVID here. So look when I play this chart, look for the periods when the SP 500 collapses during that stressed environment, the two energy shocks in the 1970s, um, 1973 uh and 1979 uh during the Iranian revolution. So I'm gonna play the chart and watch gold. So the 73 gold spikes up as you would expect again in 79, provides that level of uh protection in terms of downturn. Now we had stable returns pretty much 1890s, coming up to the tech rec, we see a big sell-off in gold and peak, and there you see that big sharp drawdown in 2008, and gold acting as that hedge. So I'm gonna play it again. There's this negative correlation where one asset is going up, the other asset is going down. Not all the time, by the way, not all the time, but during the stressed environment is what's key. I want you to focus in 2008. Look at this big drawdown, uh, gold held pretty stable. For me, gold has acted as the Dennis Rodman in the portfolio. Gold has done the dirty work, but this sporting analogy is not just relevant to soccer, football, or basketball. What about rugby? I had a very interesting conversation with Louis Vincent Gav recently. That's available to listen to or watch uh on the podcast as well. So Louis talked about the importance of props and how important props are to the overall success of the rugby team. And so Louis talked about how government bonds were traditionally historically uh the best props. They were strong, turned up if there was a fight, they were always reliable, dependable. So let's listen, let's remind ourselves what Louis had to say about bonds in the portfolio.

SPEAKER_05 15:15

Building a portfolio is like building a rugby team. You build a rugby team, you you need people of different shapes and sizes. You need your props that are gonna be six foot one and and weigh 130 kilos, you need your second rows that are gonna be six foot six, uh, you know, your flankers who can run all day, you need your wings who are small guys who can run really fast. So different guys who do different jobs. Now, the bonds for decades were essentially the best props in the world. They were there, solid, couldn't move them. If there was a crisis, if there was a fight, they'd be the first ones to show up. Dependable, they were the props, and they helped us crumb together, and they were amazing. They were the best props in the world. And now it's like they've gone on summer holiday and they come back and they weigh 80 kilos. And you know, who who needs an 80 kilo prop? And and it's and the answer is is nobody's.

SPEAKER_03 16:06

I'm gonna give the last word to Diego Perea because in fairness it was Diego that provided the analogy to me and enabled me to start thinking more deeply about this. I'm recording this on Friday, the 8th of May, and we have a very interesting event coming up in a couple of weeks where Diego is actually over in Dublin. This is gonna be a client event that I'm hosting, but I am gonna make a couple of seats available for investors that are interested in attending. Listen to the interview with Diego uh coming up uh uh this week. And if you're an investor and you're interested in attending, reach out to me. So it's likely to be a lunchtime event on Thursday, the 21st of May. And Diego's one of the best in the world, has his own fund. We'll be talking about financial markets. Again, we'll be talking about the misconceptions in financial markets. How do you protect your capital while staying invested in these markets? So, really interesting event. Uh, I'm I'm limited on space, but I am willing to open up a few seats. So I really hope you enjoyed the interview. I hope this was useful. Again, I'm open to suggestions, I'm very open-minded, and I appreciate the feedback people reaching out to me. So stay tuned during the week, and thanks for watching and listening.

SPEAKER_04 17:27

If Portfolio was a football team, we would play goalkeeper and a strategy that is focused on the thesis of the anti-bubbles, as you pointed out, evergreen and the role of defenders and goalkeepers in a portfolio team, not just as individuals, but also as team players. And the second strategy that I run is uh assistor strategies, uh long-only equity with an overlay of protection, which we call protective rebalanced equity. And then that effectively provides uh a solution to investors, an alternative to long-only equity, where we add the uh the protection, but not just the what to buy, but also the how much and when. Both of them I think have uh a role to play in portfolio construction. A lot of my work has been dedicated to to that defense and um and teamwork element of portfolio construction.