TRANSCRIPT
Slava (00:02.156)
Hello and welcome to the latest episode of Smart Humans. I am excited for today's guest. We have an expert in a new way of investing and his company is starting to grow quickly. So we have the founder and CEO of Frec. So Mo Al -Adham, welcome to the show.
Mo (00:18.796)
Hey, it's good to it's good to be here. Thanks for having
Slava (00:21.822)
Absolutely, so let's just start from the beginning. How did you even get into alternative investing? How did you even get into what you're doing?
Mo (00:30.798)
Yeah, good question. mean, you know, alternative investing is means different things to different people. You know, for me, it's investing in maybe private company stock. And for me, part in particular, the way it started through friends, right? I came to the Valley in 2007, immigrated here to start a company basically with my co founder for my first startup
we started networking, meeting people, building relationships, and as those people started companies, we were lucky to get small allocations in those companies. Initially it was tiny, tiny checks, and five, $10 ,000 checks. And then the feedback loops are really long when you're angel investing, so you of learn.
eight years later whether you've made good decisions or bad decisions and kind of just iterated on that, kind of refined my own process.
Slava (01:35.35)
Where did you come from? I'm from Belarus personally, so where did you come from?
Mo (01:38.99)
cool, so I went to school or university in Canada and right after I graduated in 2007, and I met, actually in the last semester I met my ex -co -founder, who I started my first company with, Adil Wallani, and we decided that we're gonna start something together and we tried out the Toronto scene in Canada, it didn't really work out so well for us and we...
wanted to come down to the center of innovation. And so we booked one -way tickets down to San Francisco and literally just walked into random incubation centers and met people and got set up over here.
Slava (02:25.516)
I mean, was a tricky time because then you have the market crash of 2008.
Mo (02:29.102)
Totally, funny enough, we raised our first ever round of funding for our first company, it was called Twitvid. We raised our seed round in May 2008. So was like one of the trickiest times to raise money ever, but we learned a lot from that experience.
Slava (02:48.342)
So you're one of those people they call a serial entrepreneur, right? So how many companies have you started?
Mo (02:53.206)
this is only my second one. Frec is my second company. The first company was back in 2007, but then I had this like interesting experience where I helped with the founding of Instacart as their first advisor. And, you know, there's a sort of like, got, I was lucky to watch that company start from basically an idea or a concept and Apurva's had all the way to like a prototype to like the way he got into YC, you know, then now
a public company. I had the luck to be in the right place at the right time and not only to build my first company, but also to see another company super closely and follow their journey.
Slava (03:38.22)
That's incredible. obviously Instacart is a total household name and you were there right from the beginning. Your first company, was it a huge success or was it still, the reason I'm asking is because how did you get that, the listeners want to know, how did you become Instacart advisor, you know, given the situation?
Mo (03:59.918)
Well, again, back to the investing in friends and supporting your network. When we first came in 2007, was just Adil and I, and we of networked our way through the valley and then convinced a bunch of our Canadian friends to actually move here. And one of our friends who moved here from Canada, his name is Avla Kohli, he's now the CEO of Angelist. He ended up partnering up with Apurva, who later went on to found Instacart.
and experiment with a few ventures together. So through that circle of friends, through Avlock and Apoorva and others, we were able to basically either write checks or offer to help companies connect with investors or help them set up. Apoorva was a friend, but also someone who at the time sort of needed a bit of help and support. so we were there to provide that help.
Slava (04:56.278)
So are these people, Porva and Avlock, are they Canadian? That's how they become friends? Or is it just a friendship network in San Francisco?
Mo (05:03.436)
So Avlock was a good friend. was my roommate in college, actually, at Waterloo. We both went to Waterloo together. That's right. Actually, we've got a few Waterloo interns in our office right now. There's a whole row of Waterloo interns. No, I really like Waterloo talent. think the fact that they go and alternate between work and school all the time makes them, so it gives them a lot of experiences early on in their career.
Slava (05:06.961)
Waterloo, that's where all the best engineers are from Canada, right?
Slava (05:18.427)
They're the best, supposedly, right?
Mo (05:32.174)
Anyway, so just a small plug, Waterloo interns are awesome. yeah, so Avlock was my roommate, basically in college. when I moved to Silicon Valley back in 2007, I called him up one day and I was like, okay, this place is awesome. And he was, I remember this day very clearly, because he was on a treadmill when I called him in Oakville, Ontario. And he was going to his job
the next morning I was like you have to come here just come spend the week with us and just to see and so he came down and and then you know he basically convinces other friends to also come down and kind of that's how the network kind of got kicked
Slava (06:11.5)
That's That's a power dorm room to say the least. obviously you're now running an investing company. But before we get there, we'd love to know how you invest and how you think about it. So separate from what's happening with FREC, how do you think about investing into the 60 -40, like the public equities and the bonds? I mean, what percentage of that now is alternative investments? So obviously, you know a thing or two about alternative investments since you have your private company stock.
Mo (06:14.871)
Yeah.
Slava (06:40.896)
But do you also explore any of the other categories like crypto or real estate, private credit, art or collectibles? The answer could be no, but we'd love to hear how you think about these areas.
Mo (06:50.318)
Yeah, no, absolutely. So maybe I have a slightly different framework that I use. I know the popular frameworks are the 60 40 and such, but mine is a different mental model. It's more of a, you know, the way I picture it's more of a barbell, you know, on one side of the barbell, you've got your public equities. And that's sort of like money that I've made, you know, exits that I've had, or, you know, saved or whatever, but like it's cash that I'm trying to preserve and wealth that I'm trying to basically grow and pass on and be responsible.
with right I'm not trying to take big risks I'm not chasing alpha with that money with that bucket of money I'm just really happy with you know the S&P 500 returns right or like just trying to trying to match the market basically protect against inflation right and with that bucket of money it's not like fully in the S&P 500 there's maybe you know there's a bit of crypto in there there's like a tiny bit of you know know treasuries in there but the bulk of
the vast bulk of it, maybe 90 % of it or so are and that's just a very simple direct index of the S&P 500, right? And we'll get a wide direct index later, but that's sort of like the idea is like you wanna get market returns while keeping your fees low and while maximizing your tax savings. So that's sort of like one side of the barbell, right? On the other side, I'm trying to take the highest risks possible with my time really. And it's sort of like,
And I'm hoping the average of these two sides of the barbell would help get me an above average return on time and effort and investment. And on the other side of the barbell is basically starting companies or helping founders or creating more value with my time. And obviously for that, I think the conduit for that for me is Frec and building this company up and creating a lot of value in...
in that, within that company. So yeah, it's kind of an interesting, I think, model, like a lot of other founders that follow something kind of similar, because a lot of us have, I think, through at least conversations that I've had with friends, have in a way kind of figured out that if you want to try to beat the market with your money with investing,
Mo (09:11.768)
kind of like a full -time job. you might as well just kind of be happy with market returns and just kind of try to create value by building a company which a lot of us are better suited for in a
Slava (09:24.852)
Makes sense. So you're deep into the pre IPO stuff, meaning venture and such, beyond potentially owning your own home. Do you look at any yield oriented assets like real estate investing or private credit or not for
Mo (09:38.72)
No, no, not for me. No, I just stick to public market equities. And, you know, for the most part, you know, I dabble here and there. Like if a friend wants to start a company, I write them a check.
Slava (09:50.604)
Great. You mentioned crypto. was funny because you included it in your wealth preservation bucket as opposed to your high alpha bucket. How do you think about crypto in terms of investing a lot, a little? Do you diversify inside of crypto? you just Bitcoin, Maxi? How do you think about
Mo (10:08.59)
Yeah, so I'm a super tiny investor. So the way I kind of stumbled upon it was, I was checking out Coinbase as a product back in, I think 2013 or something like that. And I've like put in some money there and I kind of just watched it go up and down and so on. And then, I did this interesting project with a friend of mine in 2018 in partnership with a
with a group of friends in Korea where we sort of like tried to take advantage of this, like they call it the kimchi trade where Bitcoin was priced 30 % higher in Korea than it was in the US. And so we did this whole like dance around it and it was just like a fun project. But that's basically the extent of my exposure there. I think it's a promising asset class, but certainly not
tested and tried as as like public equities, for
Slava (11:07.574)
Got it. Okay, great. Switching gears a little bit, high level question. What do you think of the economy? What do you think of the market? This is a very big question, very broad. You could take it wherever you want from interest rates, election, IPOs, jobless rates, wherever you wanna take it, you could take it.
Mo (11:29.358)
Yeah, so I don't pay so much attention to it because my, my, you know, as an index passive investor, at least in the public market side of the world, I have a very long view of things. I'm thinking of things in terms of the next 30 years type of thing, right? And these short term fluctuations don't really bother me. I don't check my portfolio like very often at all. And so, you know, but if I were to like provide an opinion, I think,
Given that I sort of like for the purpose of Frec we kind of watch some of the rates a little bit more closely and we have a Margin loan product that we sometimes market to our customers and so on I do think maybe I'm on the camp that maybe the Fed is about to cut the rates in September I think that's gonna happen. I think we're basically have beaten inflation and And then the economy is very strong like obviously unemployment Rate is is this at a historic low?
Right? And it's 4 .1 % or something like that. you know, pretty positive about the economy. think the S&P 500 is gonna keep going up. Probably, you know, I'm sort of like very, very bullish on the US economy. And I don't know, maybe 6 ,500 by the end of next year. So, you know, if I were to guess in terms of, yeah.
Slava (12:53.932)
6 ,500 by the end of next year. That's significant, right?
Mo (12:57.422)
Well, we're at 50, maybe 55 floating around that number. So potentially, yeah, I think, I think, you know, as, as rates come down, all this money on the sideline may start, start to come back into the public equities market. And anyway, you know, your guess is probably as good as mine, but that's where I would.
Slava (13:01.74)
That's like another 20%.
Slava (13:16.896)
but you're the guest and I love your guests. I love the fact that you put a number out there, that's awesome. It makes it more interesting for everybody.
Mo (13:22.99)
Let's check back in in December 2025.
Slava (13:25.26)
100 % 100 % that's a great transition to Frec. So obviously You've just raised an amazing round and it's a super interesting company. Not everybody's heard of it So I'd love to just start with what is Frec and what are you offering the customers?
Mo (13:42.894)
So we are a direct indexing platform. And for those who aren't familiar with that, let me just quickly talk about what direct indexing is. It's a strategy that actually is sort of like a tested and tried and has been used by large family offices for a long time. And so what happens is instead of buying an ETF, say you want exposure to an index like the NASDAQ 100 or the S&P 500, you may want to buy an ETF. That's kind one way to get exposure to that index. And that's maybe what
you know, the retail market kind of perceives as the way to passive index invest, right? Whereas like, you know, there's a different way to get exposure to the S&P 500 and through this technology called direct indexing. And what it does is instead of buying the ETF, you're buying the underlying components of the S&P 500. So you're buying, putting 6 % in Apple, you know, whatever, 5 % in Microsoft, Nvidia, whatever the percentages are, and you're kind of buying the individual stocks. You're a direct holder of those stocks as opposed to like a
owner in a part of the ETF and what the algorithm does is it continuously is trading and matching the target weights of those companies and it's generating tax losses so the at end of the day you're getting the same performance as an ETF but with tax benefits so put in another way Let's say you only wanted low fees, right? You wanted S&P 500 with just low fees. You should absolutely go and buy Vanguard funds because those are low
You can get the S&P 500 for basically three basis points, right? Or 0 .03 % as an expense ratio. But if you want to optimize for two things, if you want to optimize for low fees and maximum tax savings, then the ETF isn't like a good solution for you. Then for that kind of bucket, what you want is a direct index. And you want a direct index that can get you those tax savings, which could be quite significant. You can basically expect
harvest approximately 40 % of a dollar that you invest in the S&P 500 back in tax losses. And so what a lot of these family offices do is they have obviously a public arm and then a private arm, right? And then in the public arm, they go on tax loss, harvest the S&P 500 or the Russell 3000 or something like that. And they generate these tax savings while tracking the index, right? And then they use these tax savings or tax losses to offset the gains
Mo (16:08.974)
come through from the private side of the world. And so you can apply that same framework to your own personal life as an individual. If you're angel investing, if you're investing in some other assets that produce cap gains all the time, you can put your passive money into a direct index to generate tax losses to offset the gains from your other sources of income.
Slava (16:31.98)
All right, so you just did a lot there. So we're gonna have to digest that. So first, family office for listeners is basically a very wealthy family. And when they're investing these large numbers, sometimes they call it instead of a rich person or high net worth individual, it's called a family office. So these family offices that are usually more sophisticated, they're already using this approach. And now you're trying to bring it to the masses where Mary or Bob can do it in the United States without being a family office themselves, is that right?
Mo (16:33.4)
Yeah.
Mo (17:01.482)
Exactly. Yeah, you can now do it at the same fee that they pay too. Because, know, maybe historically you could have done it yourself as well, but you would have paid a lot for it. Or you had to like go find a wealth manager to like, and you have called them be like, hey, I want to direct index and then they'd know what you're talking about. They put you into a direct indexing strategy. Now you're paying for the wealth manager and you're paying the high fees for the direct index. And what we're trying to do is bring it to you directly to the customer, to the Bob and Mary without the high fees.
And so you can kind of do it yourself.
Slava (17:33.142)
Right, and then the difference between an ETF or direct indexing, they're very similar, but a big difference, which is the ETF is kind of a fixed basket, i .e. a fruit salad that is already constructed with no substitutions and no changes. So you just get it as a whole, right? And as part of that, there's the low fees, which was optimization number one, but you don't get optimization number two, which is the ability to then sell.
or change one of the fruits at a time or sell one of the stocks at a time to get some of that tax loss harvesting, is that correct?
Mo (18:06.286)
Well, you're talking about two things, right? The first thing is the personalization element of direct indexing, which is a nice perk. You can go in and say, well, I want this fruit salad, but I don't like the bananas. Or I want the S&P 500 minus Nvidia. I've already got a lot of Nvidia. I'm vesting stock. I work there. Get me the S &P minus Nvidia, right? The second element of this, I guess, advanced fruit salad is a tax loss harvest for you. So what it does is it generates tax losses for you.
Slava (18:34.252)
And just double click on that, which is, you had a stock, let's call it Apple at 100. And if it goes down to 80, you can actually sell it and get $20 of tax losses, which those losses are valuable, because hopefully you're gonna have gains for the year and you could apply that loss and then just rebuy that stock at some point soon. Is that right?
Mo (18:35.31)
What's the matter with you?
Mo (18:55.758)
So what happens is like, let's take today for example, the market is down as of recording this podcast, is down 10%, right? So let's say, you own Tesla and you had bought it at, I don't know, 250 and now it's trading at 225 or something like that, right? So what the algorithm does is it sells Tesla today and it books $25 per share in loss, right?
Slava (19:00.864)
Perfect.
Mo (19:18.446)
And so now, and by the way, what it does with the cash it doesn't sit on cash. It buys something else that's similar to Tesla. It might put it in other correlated assets to Tesla for 30 days.
Slava (19:28.62)
And that's part of the algorithm, which is what's the connection of what's close to Tesla, but not Tesla. And the reason you're saying 30 days is because according to tax law, you can't just sell something and buy it a second later because that would not qualify for tax laws harvesting. Is that right?
Mo (19:44.27)
Exactly. Yeah, you've got a wash sale rule So you have to like wait the 30 days put it in some other assets that are maybe correlated but not exactly the same and then 30 days later like come back into Tesla, right and
Slava (19:55.116)
So for example, if you're not buying Tesla, what are like three or whatever options of stocks that maybe you would be buying, which is equivalent to Tesla on the risk profile, but not actually Tesla? What's an example of
Mo (20:09.654)
Yeah, so you could buy, example, just as an example, GM and Ford, for example, and NIO. And the risk matrix kind of, this is by the way solved problem. There's big companies that, know, MSCI Barra risk model, for example, is used by most of the hedge funds and hedge funds do this all the time. They're trying to find correlated assets. So you know at any point in time what's most correlated to Tesla and that matrix is always updating, right? So you kind
Slava (20:35.563)
Amazing.
Mo (20:37.966)
can de -risk by, what you wanna do is during the 30 days, you kinda wanna track the movement of Tesla. If Tesla moves up, hopefully you're also moving up. If it moves down, you're also moving down. And then when you come back to Tesla, you kind of have tracked it close enough, right?
Slava (20:52.94)
So if the S &P ETF went up 10 % for the year, this direct investing approach, will it be exactly 10 % or will it be plus minus within a certain area?
Mo (21:03.95)
Yeah, exactly. So you're basically pointing to this popular term in this whole area called tracking error. So with direct indexing, what you do is you get the S&P returns, but you're giving up, I guess, is a bit of tracking error. the tracking error is quantified as plus or minus a maximum of 1 % per year. But on average, it's 0%. So it's kind of a tricky concept to understand.
You're expected to actually not track not have any tracking error, but You know worst case you may be above the index by 1 % or you could be below the index by 1 % And you have an equal chance of both right you could be you know Just as likely to be beating the index by 1 % as you are underperforming about 1 % and and this tracking error transpires because of this some Tesla GM kind of correlation tracking error that happens
Slava (22:01.398)
course. But then the tax harvesting, tax loss harvesting massively out benefits any potential tracking loss issues if there is any.
Mo (22:09.806)
Exactly assuming that you have cap gains from outside of this portfolio, right? Like let's say you've got this S&P 500 allocation It's doing its work. It's it's it's the gears are turning. It's always buying and selling right and it's generating these tax losses you can expect to harvest Approximately 40 % of an investment. So you have a million dollars, right? You put it in the S&P 500 you got four hundred thousand dollars back in capital losses Well, those losses are kind of meaningless to you unless you have gains, right? So let's say you had like
an angel investment that has now matured and it's going public and you're getting a distribution and it's all gains, now you can use the $400 ,000 from the loss, from tax loss harvesting to offset $400 ,000 of gains from your angel
Slava (22:54.156)
And to be clear, it doesn't offset your income. So if you make 200 grand in income, it doesn't offset that. It offsets gains by your losses,
Mo (23:03.886)
Well, there's a bit of an income. Like if you have no gains one year, you can use $3 ,000 of losses to offset $3 ,000 of income. But that's sort of like not, in my opinion, the reason to do this is kind of like the cherry on
Slava (23:13.93)
Meaningful, right?
And if you didn't have the gains this year, do those losses roll over?
Mo (23:22.08)
Exactly. Yeah, they roll over they only expire at death type of thing so they You can roll them over year after year one kind of analogy that I'd like to think about is a it's almost like a You know collecting credit card points or airline points, right? You're going about your your you know investing in your your favorite indices But then you know with an ETF you don't get the points but with a direct index you're collecting these points So then if one day, you know, yeah exactly cash
Slava (23:47.978)
Right, cash in. So this sounds like an obvious thing to do, because if I'm going to do the S &P investment, let's call it the ETF, I kind of should probably do this approach instead, right?
Mo (24:03.918)
Exactly with one caveat like it's it's it's a no -brainer if the fees were low and I think as soon as the fees are high then you're doing some math and you're like wait so I can get the ETF for you can get VU from Vanguard for three bps I can get SPY for ten bps and I'm gonna get the S&P 500 direct index for like 75 bps through my wealth advisor now I gotta do a lot of math in my head like is the incremental you know 65 bps worth it for
Is it gonna be worth the tax savings that I'm gonna get? And so kind of what we did at Frec is we said, well, we're gonna actually drop the fees. We're gonna, through a series of technology and optimizations, run this way more efficiently. So our fees are only 10 basis points, 0 .1 % for the S&P 500 ETF, direct index basically. So what we try to do is we try to match the closest ETF's expense ratio.
Slava (24:48.886)
What are your fees?
Mo (25:02.766)
So SPI is also like approximately 10. They're like 9 .45 bps. So ours is 10, just to make the rounding easier.
Slava (25:10.86)
And are you making revenue through other means or are you just looking to have massive scale and do it at 10 basis points?
Mo (25:16.814)
So it's a combination of things. First of all, not all indices are priced the same. So the S&P 500 is a very commoditized index. So you can get it for 10 basis points. But if you want, for example, we also offer the SMH ETF direct index, which is a semiconductor index. And the ETF for that actually has an expense ratio that's 0 .35%. So our price is also 0 .35 or 35 bps.
You know, there's other indices, you know international small caps mid caps growth, etc They're gonna have different flavors different. Yeah different price
Slava (25:48.614)
great.
but you're always trying to match, let's call it, the lowest possible prices so that it's easy to switch to you guys.
Mo (25:57.198)
Yeah, we're trying to match. We think even if there's like a 10 bp premium on top of the ETF, it's still worth it, right? Because even the extra tax savings are worth something to you. depending on the price of the ETF, we try to match as closely as possible.
Slava (26:11.468)
So my next question might sound like it's belittling what you're doing, but it's actually quite the opposite. I want you to just crush it, which is why isn't this something that everybody's offering and why now? Why is this unique now? What is it that your company is uniquely doing that others aren't doing?
Mo (26:30.158)
Yeah, so the why now question is really interesting. So what happened over the past couple of years is you had this technology that was actually invented by Robin Hood called fractional trading. So I could buy 3 .5 shares of Apple, for example, as opposed to only whole shares. And that enabled the lowering of the minimums of direct indexing. You can imagine trying to buy 500 of the stocks of the S&P 500 without this technology, you would have had
to have quite a large minimum. And so the barrier to try this out, to get comfortable with it was high. And now with fractional trading, you can buy it with as low as $20 ,000, right? And track the index really well. Obviously, tracking is important. So we want to make sure that we deliver on the promise of like same performance as ETF, but with tax savings, right? And so that happened, fractional trading. The second thing is,
that happened was, obviously, these optimizations that run every day on every single account, they're quite expensive on the compute side. Sometimes the optimizer takes tens of seconds to come back with a solution that makes sense to figure out which tax slots to buy and which tax slots to sell. And compute has come down over time. So now it's way more affordable for us to run clusters, to run these optimizations. And then the third thing is no commission trading.
Imagine having to pay X dollars per trade. And we're doing a lot of trading in direct indexing, especially in the first few years, right? And to capture the losses. And so these kind of three things have enabled, I think, this strategy to be more widely available now. so you may ask, the second part of question is like, why isn't everyone doing this then? And I would say it's growing, right?
large number of assets moving into these direct index, SMAs they call them. It's growing faster than the rate that ETFs are growing. There's about $800 billion expected in direct index strategies by the end of 2026. 800 billion.
Slava (28:43.552)
Sorry to say that again, what was that number? Wow, and what is it today?
Mo (28:48.628)
I think it's close to the 400s or something like
Slava (28:53.27)
So a double in two years.
Mo (28:55.382)
Yeah, according to, there's a research by Sorelli Institute that quotes these numbers. yeah, so it's, know, certainly it's growing. know, Fidelity's got a solution. Schwab's got a solution. Wealthfront does some of it, right? But no one has taken this out and done it as like its own thing, right? And focused, you know, the whole product experience around it and centered it around this one thing. And that's kind of what we're doing.
Slava (29:22.208)
love it. if it's me talking on behalf of the listeners, if I want to invest in Frec right now, is there a minimum?
Mo (29:29.518)
There is a $20 ,000 minimum per index, right? So if you want the S&P 500, it's a 20 ,000. We have multiple indices. You can have multiple indices as well. So you can have a small cap index that stacks us harvesting and you can have an S&P 500 and then you can also have the semiconductor index.
Slava (29:45.292)
but the 20 ,000 is per index. So if I want three indexes, it's 60 ,000. And is it the sort of thing that I need to keep it in for a year or three years, or can I go in on Monday and go out on Wednesday?
Mo (29:49.525)
Exactly.
Mo (29:56.854)
Yeah, you can go in Monday, go out Wednesday, you can withdraw. Yeah. Exactly. Yeah.
Slava (30:00.286)
Not that that's advisable.
super interesting and is it the sort of thing where people are typically probably holding here for a long time? Like once you get a customer, it's probably the sort of thing where you really get the benefits year after year after
Mo (30:15.99)
Yeah, exactly. We are seeing like almost nonexistent churn on the Frec. Like people deposit the money, they start seeing the benefits of them. Like on a day like today where the market is red, you know, they got something out of it, right? They got these tax losses that they otherwise wouldn't get, you know, if they had invested in an ETF. And, you know, it keeps them invested. It keeps them kind of, I think there's an element of a psychological barrier.
between them and the sell button, you know, now that you're getting something out of a bad day in the market, if you're a long -term investor, it kind of reinforces you to maybe stay invested and discourages you from selling
Slava (30:56.842)
Let's say I already have a brokerage account, which probably many of our listeners already do. And for simplicity sake, you mentioned Robinhood. Let's say I have a Robinhood account. So do I have to have a separate Frec account? And are they two completely separate logins and views? Or is there any way to consolidate that? is that part of your future?
Mo (31:15.406)
No, you'd have to have a Frec account. You'd open a brokerage account on Frec and you can move your assets over to Frec from Robinhood or wherever else and the process is really easy actually. We built a smooth experience with transfer stocks from anywhere to Frec and you can contribute these stocks to your direct index by the way. So if you have a bunch of Nvidia and Apple already and you're on the S&P 500, you can sort of like seed your direct index with those existing positions.
and then fill in the rest with cash.
Slava (31:46.668)
Will that be, that's a really interesting concept. I didn't even think of that. So let's say I took my Nvidia stock again, for the sake of conversation, and I sent it over to Frec and I just seeded $50 ,000 for S &P. So my Nvidia stock has gone up, right? I got it lower. So as part of turning that into other stocks, do I have to pay capital gains on the sale of Nvidia or is this somehow, is that avoided by going into direct
Mo (32:14.574)
Well, we give you the option to either do you want to fund only the target allocation? Let's say NVIDIA is like, I don't know, 5%, 6 % of the index, right? You can bring 5 % of 50k of NVIDIA stock into the index, or if you want to go overweight, you can. And the algorithm will just slowly get you out of that extra position as it accumulates tax losses and diversify you out of the NVIDIA position, which actually is sort of like a
is a very cool use case for direct indexing, is diversifying out of concentrated positions. You could imagine, for example,
Slava (32:52.544)
That is a very interesting use case where you might be committed into one category, one stock too much or a few. And instead of just, you know, deciding when to sell or not, just allow the tax harvesting to do it for
Mo (33:04.974)
Exactly, exactly. And there's so much more, there's so much new research in this area. You can go and set up a long short direct index, which is basically think of it as a direct index on steroids. gets you like double the tax losses harvested in a way because it's, you know, it's still a hundred percent exposed to the market, but it's like maybe 150, 50. So it's a bit long, a bit short. So it's harvesting on the way up and down. And so it generates a lot more tax losses.
and then can get you out of concentrated positions more quickly and more tax efficiently.
Slava (33:38.038)
Super interesting. You clearly can teach a course on it. Maybe you should start a company. wait, you did start a company about it. There you go. So is there anything else that I or the listener should know about reasons that we should not do it or things that we should look out for or concerns? You did mention the fees and looking at other options, you need to make sure that the fees make sense, whether it's FREC or any other options. Is there anything else that we should think about or look out for?
Mo (34:03.34)
Yeah, I think it's important to think about the reasons not to do it as well. So one reason you probably wouldn't want to do direct indexing and may as well do an ETF is, for example, you have a lot of losses already, and you don't need any more. Then why do this? Just buy an ETF. It's arguably simpler. It's just available in every single brokerage. It's kind of a cleaner setup.
But or if you frankly don't expect any cap gains, know, you're basically earned all your cap gains or your investments went, you know, kind of public or something like that. And so those are kind of the two main things we look out for. You know, luckily for us, there's a lot of customers that expect cap gains or they don't have the losses to offset the gains. and yeah, they kind of prefer the direct index product.
Slava (34:58.048)
Amazing. So you're obviously a smart guy. What is it that you're listening to, watching, reading? What makes Mo Mo?
Mo (35:06.274)
Well, you know, it's interesting because I've got a, you know, I'm married, I've got two kids and between running a company and being a dad, it's just like there's barely any time left. But I sort of like tried to squeeze any time to listen to, like maybe on my commute, listen to podcasts. I like the founders podcast a lot. I learned a lot from other people and sort of like, you know, what they've gone through.
And you know, I try to pick up a book or two here or there whenever I get a
Slava (35:40.128)
Okay, great. And is there anything that helps make you smarter in your space or your industry or not really?
Mo (35:46.728)
In terms of other materials, or...
Slava (35:48.884)
Yeah, any newsletters or things you like to do on the weekly or daily to digest?
Mo (35:54.402)
Well, I kind of enjoy the Bloomberg surveillance podcast quite a bit. think they have very good commentary about the market, but it's arguably more geared towards traders, but they have like really good commentary about the macro as well.
Slava (36:10.193)
Amazing. And our last question that we ask everybody is really one pick that you have for an investment for three years out, one public markets investment and one private markets investment. And obviously the public markets is easy to be specific and the private markets, we'd love for you to be specific as possible, hopefully, you know, a specific name. So what's your public markets first investment suggestion? Obviously this is not investment advice and this is just for the sake of a podcast.
Mo (36:31.822)
Yeah. Yeah, totally. Yeah, this is not definitely not investment advice. you know, I'm not much of a stock picker, but you know, I'm like, definitely, you know, as I kind of mentioned earlier, a big fan of the S and P 500 and think it's going to go on its way up. So if there's like one ticker on say, maybe it's the, know, if you're buying an ETF, it's spy. If you're, know, or you can get it as a direct index, very bullish on the economy in the next 10 years.
so that was
Slava (37:02.228)
Why that one versus like QQQ or the other options? Like, is it because of why that one exactly?
Mo (37:10.574)
Well, think it just has a, again, I think the QQQ will also do well, but I think the S&P 500 has a lower volatility nature to it as well. it probably gets you, it's got more diversification, more sectors, financials, utilities, communications, et cetera.
Slava (37:33.132)
Great. And what would be one private markets investment across any of the categories?
Mo (37:39.564)
Yeah, that's a tough one.
Mo (37:46.754)
It's hard for me to tell. Obviously, I'm very, very excited about Frec. I think this whole space of WealthTech and reinventing or inventing the next generation investment platform is going to be hard. I just can't imagine us using the same features of Fidelity and Vanguard and Schwab like 10 years from now. It's going to have to be some other kind of sort of like experiences that exist. And maybe it's not just Frec. There's probably like three or four other companies in this.
in this space that are trying to reinvent the way people build wealth.
Slava (38:21.938)
any other company that comes to mind. I know I'm putting you on the spot, but obviously, Frec we love since you're on the show, but any other, whether it's a company or any other category of private market.
Mo (38:33.247)
Let's see. So, you know, there's a bunch of them. know, some of them are kind of quasi competitors to us that I respect. Carry is a great company as well. You know, know Anchor is actually an investor in Frec. Yeah. great. Okay.
Slava (38:48.476)
he is? I'm actually an investor in Carry. Maybe we should do the full triangle and I should get involved with you as well. That was a funny way to finish. Okay, you've been a great sport. We put everybody on the spot at the end. So thank you very much. Mo, this has been awesome. We've covered a lot of ground from coming from Canada in 2007, navigating the 2008 crash, right away becoming an Instacart advisor, which is awesome, and having a killer dorm room combo with Avlock.
You're coming from Waterloo, which has great interns, as you say, and obviously background. You try to have a barbell approach in terms of how you invest, which was really interesting. You say you don't focus too much on the economy, but you did give us a great prediction of 6 ,500 by the end of 2025, which I love that you were so clear. FREC is doing just two things, not just one, which is the low fees like ETFs, but it's actually two, being able to do that tax loss harvesting.
which isn't as easy to be done obviously with just ETF. So direct indexing is super interesting. You're really navigating a whole new world of potentially where this is all headed, $800 billion potentially for direct indexing by 2026. And today is the moment because now there's fractional shares, compute costs have come down and there's no commission trading, which if that wasn't happening a few years ago, you couldn't do it. And now it is and now you can. So that's amazing. And you gave us some great predictions for the future and obviously some interesting content that you listened to.
Mo, thank you very much.
Mo (40:15.448)
Thank you. was a pleasure.
