Portfolio Managers

“This is what makes great PMs. Coherence. Their investment strategy aligns with how they think. Their emotional makeup. That's the most important thing we look for with a manager, is their alignment between their strategy and how they think.”

“When we lose our confidence, we see the market as a place of threat. Everything is dangerous. Landmines everywhere. And so you come off your ability to take any risk, because all you see is danger, and so that's why you have to protect your confidence. Why is …”

“And so step one for anybody in crisis, honestly, whether it's a golfer, PM, people in private markets, venture capital firms, and it's what you said, alluded to earlier, runners, it's like, let's start finding small wins. Things that we know we can, and then c…”

“Sometimes it's the personal comfort level, because at the end of the day, when the numbers are flashing red and the news is bad, I've got to make a decision. That's my job. If I don't have a good feeling about the business, if there's something nagging at me a…”

“There are a lot of portfolio managers who, if a stock breaks deal price, they sell it no matter what. They consider it a promise that was broken.”

“The view of a PM in this industry is, they want autonomy. Especially the people in the next generation don't necessarily want autonomy. They want autonomy of compensation, but they don't necessarily want autonomy of lifestyle. So they want to say, if I make mo…”

“Why are you paying people even that much? You're paying them for a sharp ratio, and you're paying them to manage money in a stop-loss context. In a stop-loss context, it's harder. If you're losing money in something, it's easier. If you could buy more, you buy…”

“In the beginning, it's harder to push people to take risk than it is to stop people from taking risk.”

“What was so interesting to me was the shift in language, the shift in how they talked about the strategy, the degree of care and interest in explaining it to a seventeen-year-old revealed A lot about the nature of the people that I was meeting with, some of wh…”

“When you transition from analyst to portfolio manager, it's a big and often difficult transition, but one of the most important things that you learn is, as an analyst, your job is to know everything there is about an idea, and when your idea is not playing ou…”

“People ask about what reporting do we want to see? And I always turn the question back around to the manager and say, what do you look at? I want to see what's their dashboard, and that's what I want them to share with us, not what they think some consultant w…”

“The pressure of a drawdown often creates the innovation to get better. If you just fire people at that point, someone else gets the benefit.”

“When you start inching towards B, you start behaving differently. Instead of playing to win, you might just be playing not to lose. And as an allocator, when you have a PM that's doing that, you're probably not getting the process that you underwrote.”

“If it takes a portfolio manager more than 30 seconds to understand the story, They will never gonna work, do work on that.”

“The people who are in the portfolio manager seats, they're managing positions for the entire portfolio. These are not carve-outs. It's, hey, you're going to take a two to four percent position for the firm, and you're going to decide when to do that, and you'r…”

“Is that insecurity masquerades as humility. And insecurity is a big issue because it infects the organization. If you're talking to portfolio manager, who at their core is insecure. Then they're not likely to give authority or rope or opportunity to the other …”

“Returns tend to have a Pareto distribution, and I think as a manager, if you immediately start trimming a winner, you're going to have worse returns, just mathematically.”

“In order to be a really effective specialist PM, they typically don't get hurt when there's something in their area of specialty that they're surprised by. Like, they're usually all over that. But they usually get hurt when there's something that's rolling thr…”

“A big difference between a more junior analyst and a more senior analyst and then a PM It's really an understanding the drivers, the story, the sentiment, which will lead to the multiple change. The frequent complaint you get from analysts when they're going t…”

“So typically they'll know stock picking, but they won't know portfolio construction. They might've not had a lot of experience to trading. They probably wouldn't have managed a lot of people before.”

“It's a way to attract people who are very entrepreneurial and who are real business builders, whereas 20 years ago they probably would have just started their own fund, but now the industry has evolved to where there's so many impediments to doing that and so …”

“The final say, a portfolio manager still needs to sit on top of the structure, and it's because we slosh money into and out of areas. So we might have loaded up on corporate credit over the last six months, but if tomorrow there's something better to do in a p…”

“Everybody can be a journalist just taking notes. Most can do good spreadsheets. Most can have an opinion on the quality of businesses, but it's very hard to find analysts or portfolio managers that have the talent to have a opinion on stocks.”

“You shouldn't have In the long run, 15% in one company. You shouldn't, because again, this is a competitive business. We are not managing our own money, and we don't care. No, this is a competitive business. You shouldn't have 15% in one company. Of course, if…”

“That means the reaction function is the most valuable function for analyzing a portfolio manager. If we want to have consistent returns, it's their ability to move their portfolio.”

“And I think the best poker players have that ability of being aware when they're on tilt and then bring it back very quickly before they make a mistake. It's about minimizing mistakes, minimizing drawdowns, which again gets back into less times of being anxiet…”

“Actually, the best I would hope would actually reward analysts who disagree with them. That should be part of the reward system is to disagree and poke holes.”

“That's why I think some of the best managers are not necessarily people who went to the best schools or not necessarily people who are the best educated in terms of like the length of their education. They're all extremely smart, but they're promiscuous intell…”

“We have a long-term conviction that skill is persistent, that if somebody is good, They stay good. Unless, almost invariably, when it goes wrong, it's actually a character thing rather than a skill issue.”

“Company management is biased. The analyst who has a buy rating on the stock is biased if for no other reason than confirmation bias, right? And portfolio managers who own the stock are biased, and so yes, a short seller is biased too, but everyone is.”

“Even there's some evidence if you ask portfolio managers to write down Ex ante, what rules they should follow to size their positions. A, they don't follow those rules, and B, there's evidence that they did follow their own rules, they would do better than the…”

“Another thing I found in my career is that allowing managers to be unconstrained is far better than constraining managers.”

“If the portfolio manager is managing 90% of their assets in fixed fees and 10% of their assets in performance, it doesn't actually achieve that.”

“Oftentimes the managers in the industry are actually not risk takers. They're constructors of an index-like portfolio against an index. They're attempting to build a business. They're more businessmen than they are portfolio managers. And they aren't really co…”

“So you need to be an analyst, an engineer, and a trader. The number of analysts that can become an engineer and a trader is small. The ability to identify an analyst who actually can be successful being the trader and the engineer is very difficult to the poin…”

“And by the way, managers are perennially bad man, people managers. I mean, that's not what they do. They're introverted. They're not very outgoing. They're highly analytical and the people around them are exactly the same.”

“So I think the biggest lesson was how to not backseat drive, because that is, I think the biggest risk to having this model of people from switching from being existing portfolio managers to our side.”

“When we have an asset class, we only have roughly 10 to 12 managers per asset class. And so, each one of those managers, in and of themselves, for the most part, is a concentrated portfolio manager. So in effect, you basically have a hundred stock portfolio, w…”

“In any given year, I meet with probably 80% of the managers in the portfolio, but I am there as a second chair entirely.”

“What it was found was that the funds that delivered the most Alpha were actually funds with three portfolio managers and better than single managers, and by the way, better than two and four.”

“For most stocks, there tend to be two or three sort of key issues. You might call them linchpin issues, perhaps, and the ability to find those things and dwell on them as soon as possible tends to be very helpful”

“Most managers think they understand all the risk in their portfolio, and that's just not possible with 70 positions.”

“For human beings to be able to be more flexible and have behavioral alpha, they need to verbalize things. So one of the things that makes them more aware and more comfortable with this risk is just verbalizing it to someone.”

“So we're looking for them to basically be able to make money on a rolling ten-day basis over 60% of the time, on a rolling five-day basis over about 55% of the time. We want them to be able to make money most years running market neutral with high turnover wit…”

“That gives me a really good data point of how the behavioral alpha of that person is. How emotional were they during there? How much did they know their space and know what was in them? That's kind of what you want to identify how good someone is. If you don't…”

“Everyone right now who's managing money should understand factorists. If they dump this off to their risk team, it's a mistake. You have to embrace it, you have to learn it, and you have to understand it.”

“If you're blaming the market, or you're blaming CEOs, or you're blaming your analyst, or you're blaming your trader, those are the people that I can just tell you have had the hardest time adapting.”

“And the reality is when you're small, no one really wants to talk to anyone except the PM who's driving the strategy.”

“You need someone who is ready to work 80 to a hundred hours a week. If you're not excited about being in your business to build it at that kind of a level, you really shouldn't do it. You're better off being a PM in a bigger shop”

“I think the people part to me is the most important. It's not just who they are, but it's how they work together, how they interact, and sometimes that's more subtle things. Sometimes, sometimes there's a named portfolio manager, but you get a group in the roo…”

“You often see evidence of hurting around entry timing and that sort of, people are often very good at contrarian entry timing, catching it, you know, an inflection point quite well. But when something's been moving their way for a while, Take, say, a three-mon…”

“What we find is that people's behavior changes, so when you do that, people do make a better decision, and it's not because we've told them what decision to make, it's because we've told them to pause and make a decision, whatever that decision is.”

“And what we find is that they are more successful than your normal trades, usually.”

“What's fascinating and sort of unexpected to me, having analyzed a lot of different portfolio managers' data going back long, you know, periods of time in some cases, is that people's behavior is very stable.”

“As a portfolio manager without the system, we're doing the exact same thing. We're already taking that information in, and we're processing it mentally, and it's implicit, and we believe that our mental calculator is better at taking those ambiguities and refi…”

“On average, our clients assume they're going to be right 74% of the time. But guess what? They're only right 51% of the time. So there's a big gap, and we can point out those gaps. We call it probability inflation.”

“Really the question that an allocator could ask is say, hey, what's your sixth best idea? And pause. And wait for them to tell you what their sixth best idea is. Now, if they can turn to a sheet, or a dashboard, or something like that, that says, that's my six…”

“Much of it really centered around the individual portfolio manager, the quality of that portfolio manager, the quality of the team, the quality of the process, the edge, but it often was highly linked to the last 12 months performance. We'd anchor off of that.…”

“And now I'm a complete convert, which is that unless you can pitch this stock, get the portfolio manager, not only buy it, but then scale the position. It just doesn't matter. It's the proverbial tree in the woods.”

“So that first part of it is the scheme, and it ends up that the scheme is shockingly important, and it's important really as we continue to play with it is you're not going to get the portfolio manager to listen unless you match the stated schema.”