Patrick O'Shaughnessy's Blog, page 19
June 27, 2017
Seek to Learn That Which Cannot be Taught, with Scott Norton – [Invest Like the Best, EP.43]
If you told me a year ago that I’d be learning critical life and business lessons from the founder of a ketchup company, and that thirty to fifty thousand people would listen to our conversation, well, I’d have told you that’s impossible. But the fact that it is true proves many of the points laid out by this week’s guest Scott Norton, co-founder of Sir Kensington’s which was recently acquired by Uni-Lever. Sir Kensington’s, which makes “condiments with character” is no ordinary Ketchup company, and Scott is no ordinary founder.
We talk about the most elemental aspects of business: product, relationships, sales, marketing, and culture. I love that we can do so through the lens of such a seemingly simple product, something that we use all the time with our families at a BBQ. Scott’s observations on culture, the importance of relationships in sales, and competitive edge are all memorable. But above all, I’ll remember his line: seek to learn that which cannot be taught. And I will continually return to the mental image of the Temple of Poseidon.
Oh, and as a bonus we also talk about biking around Asia, which like all of Scott’s stories comes complete with thought provoking lessons.
Enjoy this unique conversation with one of the most interesting people I’ve met on this journey. We begin with the history of ketchup.
Links Referenced
They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Movie)
Books Referenced
Getting to Yes: Negotiating Agreement Without Giving In
How to Win Friends & Influence People
They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book)
Show Notes
2:40 – (First question) – A look at the history of ketchup
5:16 – The milestones of ketchup’s history in the US
10:26 – What were the early days like to compete in a market where the leaders have such a stronghold on the consumer
13:03 – A ketchup party to survey users
14:41 – Effective ways to negotiate
14:57 – Getting to Yes: Negotiating Agreement Without Giving In
16:32 – How may stages were there in the early products
19:04 – A look at kaizen and what it means to Scott
20:38 – Scandinavian business principles that they bring to the company
23:40 – As the company has grown, has Scott seen downsides to the stakeholder model especially when competing against larger companies that use the shareholder model
28:19 – How did they use outside capital in getting started
31:07 – What was the most memorable story from the early days of disrupting this legacy industry, especially as it relates to the sales of this product
33:30 – How to Win Friends & Influence People
33:58 – How do you create trust and show the benefits of your product in sales
37:48 – How culture started for the company, how it’s shifted since then and what competitive advantage the right culture creates
41:47 – Some of the best outcomes are the result of mindset and culture
43:28 – What new frontiers is Scott and the company looking at today
46:53 – How often has Scott had to course correct and continue down the path of the unknown
49:28 – Kindest thing anyone has done for Scott outside of the company
51:41 – The power of giving and how it will bring large returns, especially when you don’t expect them as part of the giving
53:04 – They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book and Movie)
55:37 – Look at Scott’s decision to bike around Asia and what he experienced during that time
1:02:49 – Best advice for someone in their early 20’s
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
June 20, 2017
Building Something People Want to Buy, with Andy Rachleff [Invest Like the Best, EP.42]
My guest this week is Andy Rachleff, who is the CEO of the automated investing platform Wealthfront. Andy was also a co-founder and long-time partner at Benchmark Capital–one of the most interesting and successful venture capital firms in the world.
We spend most of our conversation discussing venture capital investing and entrepreneurship. Andy coined the now ubiquitous term “product/market fit,” and has great insight into how investors and entrepreneurs should think about business. In that vein, we discuss both what we refer to as the value hypothesis: building a product or service that customers love, and the growth hypothesis: scaling that product or service to a large market.
We finish our conversation by talking about Andy and his teams mission at Wealthfront, and this conversation is perfectly timed, as Wealthfront just released a new feature that allows investors to buy factor portfolios, similar to Smart Beta ETFs.
Above all, I’ll remember Andy’s advice to “put the gun in the other person’s hand,” a strategy that we explore in the middle of our talk.
For comprehensive show notes on this episode go to http://investorfieldguide.com/andy
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Books Referenced
The Four Steps to the Epiphany
Millennial Money: How Young Investors Can Build a Fortune
Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers
Show Notes
2:36 – (First question) – The partnership setup and how they came to be 5 equal partners
7:57 – Why benchmark would not take on the chairman role in companies they invested in
9:28 – What made John Doerr the greatest capitalist investor ever
11:59 – Looking at the venture process and what made it an attractive investment for Benchmark, using eBay as an example.
18:06 – If you are willing to help other people, without an expectation of return, it can create other opportunities
20:08 – Andy is asked to explain the idea of Product Market Fit, a term that he coined
22:18 – How does one go about finding a Product Market Fit
23:05 – The Four Steps to the Epiphany
25:55 – What are the components of the Growth hypothesis
26:51 – Why you can learn more professionally from success vs failure
28:13 – What it’s like to shift from venture capitalist to operator/CEO
30:24 – The rate at which technology gets adopted and what will help Wealthfront
30:53 – Millennial Money: How Young Investors Can Build a Fortune
31:26 – Diffusion of Innovations
31:38 – Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers
32:38 – What does it look like to innovate on top of current platforms
41:07 – Will platforms like Wealthfront help to democratize access to private markets
44:23 – Kindest thing anyone has done for Andy
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
June 13, 2017
Quant vs Traditional Investors, and How Alphas Become Betas, with Leigh Drogen [Invest Like the Best, EP.41]
I’ve often joked that this show should be called “this is who you are up against,” because I am so often having conversations with brilliant people across the investment landscape who are effectively my competition and yours. This week’s conversation fits that description because it gives you an inside view into how things work among some of Wall Street’s most competitive investment firms. My guest is Leigh Drogen, who has worked as a statistical arbitrage portfolio manager and who founded and now runs Estimize, a data company which works with some of the world’s largest hedge funds.
Our conversation centers on the massive shift from what we call discretionary portfolio management—basically stock picking—to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder.
There are so many great stories in this episode, told by someone with the perfect career experience to know how the system actually works. After many episodes where I’ve been learning on the fly about topics like venture capital, permanent equity, or health, this episode marks a return to my world of quantitative investing. I think you’ll learn a lot, and that you’ll likely finish with an even deeper appreciation of just the type of investors that we are all up against.
Books Referenced
Revenge of the Humans: How Discretionary Managers Can Crush Systematics
Links Referenced
The Undoing Project: A Friendship That Changed Our Minds
Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research
Show Notes
2:45 – (First question) – A look at Leigh’s early career and how he got started in investing
3:13 – Revenge of the Humans: How Discretionary Managers Can Crush Systematics
5:39 – Leigh is asked to describe the inefficiency in sell-side analysts’ estimate set
8:04 – What happened when things stopped working towards the end of 2007.
9:35 – The proper dimensions to separate any sort of potential Alpha edge
11:15 – The traits that help a fund perform well
11:42 – The Undoing Project: A Friendship That Changed Our Minds
14:05 – Force Rank (App)
14:49 – How the scientific process plays into Leigh’s research strategies
19:18 – Explain what Estimize is and what it does
20:55 – How people are compensated for the estimates
23:33 – The scale of how many estimates they get per company
24:57 – Why you need to be part of this informational arms race if you hope to survive
28:30 – What happens if everyone buys Estimize data and the Alpha built into it goes away
31:04 – What has been the evolution in these hedge fund platform type companies
35:00 – If Leigh was designing a firm from scratch, what would it look like
37:25 – Understanding Numerai and crowdsourcing in funds
41:41 – What is an example of interesting data set that Leigh as come across
45:38 – What is the potential for a hybrid model between a quant only with a discretionary picker.
51:35 – How do you know when something is busted or broken?
55:33 – Exploring his most memorable individual day in his career – Flash Crash
58:16 – With all the algorithms and automation, will we continue to see more of these unforeseeable dislocations like the flash crash?
1:01:00 – Bloomberg article about passive investing rates
1:07:50 – What is Leigh most excited about the future
1:13:15 – Kindest thing anyone has ever done for Leigh
1:13:41 – Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research
June 6, 2017
Ira Judelson – Bail Street, with NYC’s Leading Bail Bondsman – [Invest Like the Best, EP.40]
This week’s episode is very unique. It is the first episode devoted to bonds, just not the kind of bonds you are used to. My guest is Ira Judelson, who is the leading bail bondsman in New York City. I met Ira through my friend and former podcast guest Danny Moses, who is also a part of this conversation. I have always had a passion for understanding how different businesses work. In this case, this week we are exploring a different business, but also a different world. Ira’s story is larger than life. He is as authentic and hard working as they come. In both his book and this conversation, there is a lot about family, loyalty, and hard work—principles which really resonate with me. You’ll emerge from this hour with an appreciation of hustle and what it takes to get ahead. I can’t stop thinking about our discussion on how sources of power in any career morph through time, a framework that can help anyone think about their work and where to apply effort. The conversation goes all over the place, but suffice it to say we discuss bond collateral, Dominique Strauss-Kahn, and DMX—and that is but one small fraction. Please enjoy my conversation with Ira Judelson and Danny Moses.
May 30, 2017
The Human Blitzkrieg, with Dave Chilton – [Invest Like the Best, EP.39]
This week’s conversation was especially fun. I have a long history with my guest, Dave Chilton, but this was the first time we’d met in person. I’d heard stories about him from people I work with for twenty years, so getting to finally spend time with him was a real treat. I’ll let him reveal the connection.
This episode will also be fun for listeners in the US, as Dave is one of the best-known people in Canada because of his famous book the wealthy barber and his more recent stint as a dragon on Dragon’s Den, which is Canada’s version of Shark Tank.
I called this episode the human blitzkrieg because of Dave’s relentlessly positive style and curiosity. He has dabbled in many parts of the business and investing worlds. He is one of the most successful authors in history, has invested in dozens of interesting businesses, and is a Jedi master in the long-lost art of the phone conversation.
We discuss business, investing, and writing. If you enjoy this conversation and have any aspirations as a writer, I highly recommend you check out the series of videos Dave and his son recently released called the Chilton method, which I will link in the show notes. I have no financial interest in this recommendation, and neither does Dave! He put it together in large part to stop people from calling him for advice. We discuss a few of the hundred plus lessons from his course in this conversation.
As you’ll be able to tell early and often, it is hard not to have a good time with Dave.
Books Referenced
The Wealthy Barber: Everyone’s Commonsense Guide to Becoming Financially Independent
The Looneyspoons Collection: Good Food, Good Health, Good Fun!
The Accounting Game: Basic Accounting Fresh from the Lemonade Stand
Millennial Money: How Young Investors Can Build a Fortune
Zero to One: Notes on Startups, or How to Build the Future
Modern Monopolies: What It Takes to Dominate the 21st Century Economy
Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
Boyd: The Fighter Pilot Who Changed the Art of War
Links Referenced
Show Notes
2:54 – (First question) – A quick introduction and why David is so well known throughout Canada
3:31 – The Wealthy Barber: Everyone’s Commonsense Guide to Becoming Financially Independent
3:41 – Dragon’s Den
4:38 – David is asked to explain how he got involved with Jim O’Shaughnessy at the Royal Bank
6:40 – Genesis of the Wealthy Barber and how David got interested in finance and investing
11:26 – The Looneyspoons Collection: Good Food, Good Health, Good Fun!
12:04 – A look at his video course on how to write and market content
13:30 – How do you know when to stick with a product
15:18 – What was the decision to self-publish
18:20 – Why you need to pay more attention to the dedication page in a book and move it to the back
19:44 – Why forewords in a book are a waste
22:01 – The importance of listening to your readers to create a product they want
23:00 – How the combination of human instinct with data can help to create more successful products
23:59 – Why did he choose to write on financial planning
25:26 – How did David transition his thinking once he started to make real money
29:01 – It seems like boring investments tend to do well over time
30:23 – David’s investing philosophy over his lifetime
31:44 – Exploring the due diligence of investing in a stock
36:16 – Most interesting things David learned about Mongolian gold exploration
39:09 – How David got involved in Dragon Den’s
42:17 – The process behind picking a company to invest in from the show
44:44 – Looking at permanent investing and how David continues to invest in small businesses outside of the show and what he looks for in making those decisions
47:14 – What were the negative screens when checking out a business
38:34 – The Accounting Game: Basic Accounting Fresh from the Lemonade Stand
50:04 – The importance of smart marketing when selling a product or service
53:54 – The practice of writing a good intro for everything you do as an exercise in determining if an idea has potential
56:37 – Millennial Money: How Young Investors Can Build a Fortune
58:25 – Zero to One: Notes on Startups, or How to Build the Future
58:41 – What does David do with a bad book
1:00:22 – How Patrick discovers new books to read
1:01:56 – People are paying less attention to Amazon reviews
1:03:20 – The power of brand as credibility in media suggestions
1:04:45 – Alex Moazed Podcast
1:04:52 – Modern Monopolies: What It Takes to Dominate the 21st Century Economy
1:06:54 – How publishers are impacting the length of books
1:07:52 – Exploring the impact of books all being the same price
1:09:39 – Shifting to fintech and where David fits into that space
1:15:46 – The shift to passive investing
1:19:26 – David gets Patrick to clarify his investing process and strategy
1:25:22 – Michael Mauboussin Podcast
1:25:32 – Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
1:25:54 – Philosophical Economics
1:25:56 – Has David ever thought about operating a business as a founder
1:28:35 – David’s most memorable day in his career
1:31:38 – Boyd: The Fighter Pilot Who Changed the Art of War
1:33:43 – Kindest thing anyone has ever done for David
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
FOR ITUNES
May 23, 2017
The Art of Asset Allocation, with David Salem – [Invest Like the Best, EP.38]
My guest this week is David Salem. David was the founding president and CIO for The Investment Fund for Foundations, which served 800 endowed charities under David’s 18-year tenure. He’s now the CIO of the Windhorse Group, which focuses on long-term, value-oriented investing.
This conversation wanders into and explores many different areas of investing and life. The theme is how to think about asset allocation and investing holistically–from first principles–but we talk a lot about motivation, incentives, human behavior, and the fear of missing out as key variables in money management.
We discuss the history of the Yale and Harvard endowment models and how their success has affected the asset management world for better or worse.
I also can’t stop thinking about David’s “Mt. Everest” question, which we explore early in our conversation. I’d love to hear your answers to that question, so email me or message me with your thoughts.
Books Referenced
Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment
Into Thin Air: A Personal Account of the Mt. Everest Disaster
The Path Between the Seas: The Creation of the Panama Canal
Triumph of the Optimists: 101 Years of Global Investment Returns
Devil Take the Hindmost: A History of Financial Speculation
Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor
Links Referenced
Barrons Review of ‘Pioneering Portfolio Management’
Former Harvard Money Whiz Jack Meyer Tries to Regain His Edge (WSJ)
Economic and Portfolio Strategy (Peter Bernstein)
May 16, 2017
Man + Machine, Moats, and Power of the Outside View, w/ Michael Mauboussin [Invest Like the Best, EP.37]
My guest today is Michael Mauboussin, who is the head of global financial strategies at Credit Suisse and is on my short list of must-read writers on all things investing. If you read his entire catalog, Howard Marks’s memos, and Buffett’s shareholder letters, you be sitting pretty. Michael was also a big reason for the early success of this show appearing as my second guest and now my 37th. He and his team have been prolific in the last six months, publishing several long research reports on the most interesting aspects of the investing landscape. In this conversation, we talk about business moats, industry analysis, and how to combine man and machine when building an investment strategy and portfolio. As I tell Michael at the end, you won’t be able to listen to this episode at two times speed, because we go deep quickly.
Books Referenced
Narrative and Numbers: The Value of Stories in Business
Deep Work: Rules for Focused Success in a Distracted World
The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins
Links Referenced
Since the end of 2006, investors have withdrawn nearly $1.2 trillion from active
Assessing The Magnitude And Sustainability Of Value Creation
On the Impossibility of Informationally Efficient Markets
Adaptive Markets: Financial Evolution at the Speed of Thought
Wealth Transfers via Equity Transactions
Buyout Firm Buys $800 Million of Assets From Itself (WSJ)
Stock Market Prices Do Not Follow Random Walks
Show Notes
2:15 – (first question) – Where is the point for equilibrium between active and passive, starting with a look at the Berkin Green model.
2:31 – Since the end of 2006, investors have withdrawn nearly $1.2 trillion from active
2:44 – The Base Rate Book
2:45 – Assessing The Magnitude And Sustainability Of Value Creation
4:31 – On the Impossibility of Informationally Efficient Markets
8:13 – A look at how four factors; technology, regulation, market environment, and the balance between informed and uninformed sellers.
10:49 – What do you think of the distortions that are created by active
17:54 – Adaptive Markets: Financial Evolution at the Speed of Thought
19:50 – Back to exploring the behavioral gap
21:53 – Wealth Transfers via Equity Transactions
23:26 – What about companies that are less prone to list and their value is captured in the private markets.
30:34 – What are the negatives that are keeping companies from going public and can we fix those issues?
36:02 – Is there a way for main street investors to get access to venture capital action?
37:22 – Buyout Firm Buys $800 Million of Assets From Itself (WSJ)
40:47 – What is a base rate
42:13 – Regression towards the mean
44:30– Amazon’s Empire (Economist)
48:46 – Narrative and Numbers: The Value of Stories in Business
49:21 – What’s the formula for plugging inside views vs outsides views because it appears the combination of both is probably stronger than either alone
53:01 – Where are the best opportunities to getting an edge using some of this data
59:33 – What are some examples of people buying for non-fundamental reasons
1:02:53 – Taking a deep dive into moats and the components that make them up.
1:04:31 – Michael Porter books
1:16:20 – One example of a conscious tradeoff for competitive position
1:18:28 – The competitive pressures in the asset management industry
1:22:35 – A look at harvest strategies and what that means
1:24:58 – Some of the recent resources that Michael finds fascinating
1:25:28 – Deep Work: Rules for Focused Success in a Distracted World
1:25:57 – The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
1:26:03 – A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
1:27:02 – Stock Market Prices Do Not Follow Random Walks
1:27:59 – Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
FOR ITUNES
For comprehensive show notes on this episode go to http://investorfieldguide.com/michael
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
May 9, 2017
How Skilled Capital Allocators Compound Capital, with Will Thorndike – [Invest Like the Best, EP.36]
This week’s guest is Will Thorndike, an author and investor whose book The Outsiders is an all-time favorite of mine. Our conversation is in two parts. First, we dive deep into the lessons of his 8-year research project studying CEOs who were master capital allocators. These CEOs include Henry Singleton, John Malone, Tom Murphy, Katherine Graham, and Warren Buffett. We discuss how these CEOs tended to be contrarians on topics like dividends, buybacks, acquisitions, and the use of debt. As we go through each of the tools in the capital allocators toolkit, you’ll hear several useful lessons for running or evaluating a business.
In the second part, we cover Will’s career in private equity. Will founded and continues to run Housatonic Partners, investing in buyouts, recaps, and search funds. Will has been one of the most active search fund investors for decades, and given how much time I’ve spent in past episodes on the searchers or operators in the micro-cap, permanent equity space, it was great to get the perspective of an experienced LP. As always, we also take time to survey the dangers and opportunities in today’s private equity market.
Books Referenced
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
Double Your Profits: In Six Months or Less
Show Notes
2:40 – (first question) – The first moment when Will realized he was interested in investing as a job
3:32 – The Money Masters
4:07 – What was the journey like that led Will into the private equity space
4:08 – The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
5:19 – How the book started as research projects
9:53 – The ways to spend capital
10:21 – What did Will find as far as the way the CEO’s outlined in his book viewed dividends and how they were best used
11:56 – Will’s take on the future of dividends
15:10 – Moving to buybacks as a way as a strategy
19:01 – What did the 8 CEO’s think of capex and reinvesting in the business as a strategy
23:19 – Why it’s so important to set hurdle rates and stick with them
25:27 – The CEO’s in the book were flexible and opportunistic. How is that different from CEO’s like an Elon Musk who has a huge grand vision
26:56 – How did the CEO’s use acquisitions as a strategy
30:39 – Double Your Profits: In Six Months or Less
30:49 – The importance of rationalizing your expenditures
32:02 – The right and wrong way to use debt as a public company
34:34 – If Will could pick one of the 8 outsider CEO’s and a business, which ones would he choose
40:41 – Touching on the importance of partnerships to make sure the cash flows are coming and allocated in a productive way
43:54 – Will is asked to talk about the experience of this book and what is like to see it grow into a best seller.
45:02 – If Will had to write another book, what would it be about
47:09 – Shifting to Will’s day job in private equity and how he got involved in search funds
52:50 – Any new investing categories that are on worth exploring
54:13 – What is the state of recaps and buyouts as strategies today
58:33 – Are there particular industries that have economic characteristics Will screens for or ignores
1:01:23 – Exploring Will’s most memorable day
1:03:01 – The strength of an investment firm is often found in the quality of their investors
1:04:07 – What is and what is Will’s process for evaluating a business
1:07:55 – Kindest thing anyone has ever done for Will.
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
FOR ITUNES
For comprehensive show notes on this episode go to http://investorfieldguide.com/xxxxx
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
May 2, 2017
The Bet with Buffett – Hedge Funds vs. The S&P 500, w/ Ted Seides
This coming weekend is the annual Berkshire Hathaway shareholder meeting in Omaha. That means this week is the perfect opportunity to discuss a topic which will likely figure prominently at Berkshire this weekend: Ted Seides’s famous bet with Buffett. Ted and I discuss the origins of the bet, the nuances beneath the headlines, and whether he’d make the bet again for the next ten years. Along the way, we cover many hot topics like hedge funds, alternatives, fees, and indexing. Please enjoy!
Books Referenced
Unconventional Success (David Swenson)
Cable Cowboy: John Malone and the Rise of the Modern Cable Business
Links Referenced
Carol Loomis article on the bet (2008)
Berkshire Hathaway Shareholder Letter with Bet
Ted’s most recent piece on the bet/fees (2015)
Hard Times Come Hedge Funds (Carol Loomis, 1971)
Show Notes
2:08 – (first question) – Ted describes his first trip to a Berkshire Hathaway meeting
3:20 – What is Ted most excited for when it comes to this year’s trip
4:44 – How this now famous bet first came about
5:48 – Had rocks, got rocks, fees in financial services
7:16 – structure and funding of the bet
9:48 – How was PR handled from both sides of the bet
11:07 – Carol Loomis article on the bet (2008)
12:55 – Berkshire Hathaway Shareholder Letter with Bet
13:10 – Why was Ted willing to make this bet
14:22 – Ted’s most recent piece on the bet/fees
16:19 – Looking at the difference of exposures between the S&P 500 vs Fund of Funds
19:08 – Exploring pricing of the S&P 500 over a long period of time
22:04 – What should people take away from the bet
23:32 – Unconventional Success (David Swenson)
27:12 – Can the more expensive, more exclusive investing strategies be replicated in a public market cheap alternative.
27:18 – Warren Buffett’s Alpha
32:10 – At what level does it make sense to start looking at alternative level investment ideas
35:03 – Are hedge funds an asset class or contractual arrangement, and what metric would Ted use if the bet were to be repeated.
40:13 – Knowing what he knows now, what are some of the changes Ted would make to this bet
45:18 – The S&P is touted as a representation of the global economy but it only covers a fraction of it
49:17 – Would Ted use fund of funds in a new bet
52:52 – What was the most and least enjoyable part of this bet
53:52 – Hard Times Come Hedge Funds (Carol Loomis, 1971)
54:10 – What is another field of investing opportunities that Ted might not know as well that he is excited to explore.
56:54 – A closer look at deploying capital to buy smaller businesses
1:00:42 – Resources for folks interested in deplying private capital
1:01:24 – Cable Cowboy: John Malone and the Rise of the Modern Cable Business
1:03:02 – Bonus question about the S&P 500’s time weighted return vs how volatility effects people’s holding in the index
1:06:10 – How paper returns vs real returns in markets effect this equation of the bet.
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
April 25, 2017
The Big Short and Beyond, with Danny Moses – [Invest Like the Best, EP.34]
My guest this week is Danny Moses, who was directly in the middle of the biggest trades in market history, chronicled by Michael Lewis in his book the Big Short. Danny was the head trader on the Frontpoint team led by Steve Eisman, which was one of a small group of firms that figured out, in real time, the dire situation with mortgage-backed securities during the financial crisis, and how to build a portfolio to bet against the U.S. housing market. We cover his part in the Big Short story, but also lots of other interesting ground, including the state of sell-side research and financial markets. I love conversations with traders because they live and breathe market risk. You’ll be able to see why quickly in this great conversation with Danny Moses.
Books Referenced
Flash Boys: A Wall Street Revolt
When Genius Failed: The Rise and Fall of Long-Term Capital Management
Show Notes
2:57 – (first question) – The four traits that would give someone the best odds to succeed as an analyst
7:40 – Danny’s take on his role during the financial crises, which was highlighted in ‘The Big Short.’
14:47 – Looking at the first moment that there was something wrong but that there was a way to trade against it during the crisis
17:13 – Exploring the moment when Danny had to reconcile an amazing trade against a dangerous scenario for the US economy
20:17 – What was the relationship with the other people that discovered parts of this unraveling
22:19 – Danny recounts working with Michael Lewis
24:16 – Flash Boys: A Wall Street Revolt
24:40 – Going back to the auto lending crisis in the 1990’s
28:22 – The evolution of the sell side, what’s good about it today and what was bad about in the early 2000’s.
34:55 – Why the markets appear to be broken right now
37:20 – How markets were much different back in the 1990’s and what made them more interesting.
40:16 – Has the information provided by the sell-side to the buy side gone down since the financial crisis because the quality of research is lower
43:24 – What was about financial services that Danny found attractive for an active strategy?
47:14 – What was the first idea where Danny was applying his filter and realized the market had it wrong.
48:11 – When Genius Failed: The Rise and Fall of Long-Term Capital Management
49:01 – How did Danny think about valuation as part of the bottom up framework?
55:30 – Danny tells the story of how his friend Ira had to run and help bail out Dominque Strauss Kahn, the head of the IMF at the time.
58:30 – The Fixer
58:40 – How do you become the bail bondsmen to the stars
1:01:02 – Open: An Autobiography
1:01:25 – What is next for Danny Moses?
1:02:33 –The root of Danny’s interest in doing media.
1:04:52 – Kindest thing anyone has ever done for Danny
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
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