The Exchanges

Q this, you sent out a tweet and had a bit of a rabid response of like questions we might ask. And there are a couple of good ones. So maybe we do this in pseudo rapid fire, but I'm going to ask you a couple of questions that people posed that I thought were pretty good ones. So what's the process for getting up to speed on a new industry?

A So I think the, the most important thing is to understand the financial statements as quickly as you can without reading a sell side report and try to contextualize it too, right? Think about the seven powers or Porter's competitive advantage, right? Think about it as you're going through it. Okay. I got it. These guys are a network effect business. They're looking to acquire subscribers. This is the modernization mechanism. When you're going through it, got it. And that's step one, get up to speed as quick as you can on the economics, then distill it down into the unit economics if you can. Okay. I understand what the whole P&L looks like, but what would the unit economics look like if I could figure that out? Okay, great. And then from there, it depends on how old the industry is and how young the industry is. I think that if it's a really old industry, grab a book and learn about the history of it. There's nothing better. So when I wanted to learn Formula One, there's a great book that Ross Braun wrote, like it was an oral history of Formula One. There was no better way to get up to speed on Formula One than to read that book, period. There's the single best thing I did. So then when I was thinking about, oh, they're adding new races, like, oh, this is why, because there's always been this legacy of this, because I heard, and I heard the whole story behind it. And there's ge…

AI assessment note: “most important thing is to understand the financial statements as quickly as you can”

Q You were at Viking for a long time, and Viking's had a long series of people that it's trained, spun out, that have done well. Not a lot of firms are like that. What was your training like over that period of time?

A I think about my Viking experience in two chapters, right? Chapter one is I go, I work for Brian. Brian's only there for like nine months. The whole team was orphaned inside Viking for a little while, and then I worked for David Ott. Directly for a little while, for maybe six months. And David is, I think, the secret weapon inside Viking, right? David is, if you took all of the aspects of Michael Mobison that everybody thinks is amazing, and then all the aspects of Steve Mandel, and you put them together, that's David Ott. And so I had that one-on-one with Brian, the one-on-one with David, and then ultimately David was the CIO, so I couldn't work for him directly. So then I got really lucky, and Tom Purcell took me on his team. I don't know why he did it. I still to this day don't know why, but he changed my life. And I think There's no real formal training program there, so I got to see three different styles within a year, working with three different folks, and people talk about Tiger Cubs and Tiger Grand Cubs. I've always joked that there's the tree of Tom Purcell. Every single big successful person in the first 15 or so years of Viking came from Tom. Everything emanated from Tom for a really period of time, and it wasn't formal. Tom was just this amazing combination of like a great human being really Thoughtful and a great investor. And he was also really patient, right? L…

AI assessment note: “There's no real formal training program there, so I got to see three different styles”

Q What's been your investment model as a single family office?

A A lot of experimentation for the first two years and then settled. So then by that, I mean, sat on the board of a startup software company and was really involved and was like, this is just the wrong founder and the wrong situation, but I get it. And then I, with a friend made a loan to a CPG company and sat on and was an observer on that board and watched how different that was. Right. So things like that, very small experimentation to also, um, Taking a GP stake in a emerging manager, Ricky Walters, Stoney Point, and really helping him Learn a lot of the things that we were just talking about, right? He's an excellent stock picker, but he had no idea how to be a portfolio manager and trying to help him do that. And what I've settled into on a day to day basis, I probably spend about 20% of my time talking to and working with a handful to a dozen real estate developers trying to find amazing multifamily opportunities where I can be an LP With a group of folks that I'm closely affiliated with in parts of the country where the basis in the land is really cheap. And the rest of the time I spend in two buckets. One is I mentioned I'm a LP in a lot of different stage private vehicles with people that I know pretty well. And there's somewhere between frequently and from time to time, there's a steady flow of opportunities to do co-invest. And I like that because I'm lazy, right? Lik…

AI assessment note: “what I've settled into on a day to day basis”

Q Why don't we start with your background? We'll just go from there.

A I think the thing that stands out to me is that I grew up in Brooklyn, middle-class background, never thought about a stock ever. Didn't have family that talked about the market. Wasn't in a neighborhood that talked about the market. Everyone talked about the Giants and the Mets back then in the eighties, right? That's all I remember talking about. But the other thing I remember is that I think it was a community that grew up in the shadow of World War II, where the country was moving from a manufacturing base to a services base. And so the, what was beat into my mind as a kid was get a diploma on the wall that they can't ever take away from you, a pedigree. So lawyer, doctor, accountant, those are the three things that I was pushed towards. And so I was kind of felt like those were my options and I never thought about anything else. And I think in some ways, the path of least resistance was to be a lawyer. I was Jesuit educated for eight years, and it was a very broad liberal arts education. It wasn't pointing me in any one direction. The range of things that I studied, subject matter, as well as the Jesuit way of solving problems through discernment is something that sticks with me now, and discernment is just Ignatian way of awareness in modern terms. Just sit with something and notice The emotions that it makes you feel and discern to disaggregate the thoughts to respond ra…

AI assessment note: “I grew up in Brooklyn, middle-class background, never thought about a stock ever.”

Q Let's turn to the stock picking aspect of it. So let's say you've figured out the theses you want to invest in. You mentioned a bunch of things to assess for a stock compared to the business. Certain factors, liquidity. Why don't you walk through some of those and how you think about it?

A Yeah. We'll distinguish between stock selection, longs and shorts. And when I talk about longs, I'm mostly talking about my experience in a long short context, but I do think some of this has universal applications to just all long picking in general. And I think the starting point has to be valuation. How you make money is not the quality of the business you buy, but the price you pay for the quality of the business period. And that often gets lost in the, I want to own great businesses forever concept. And I think there are two ways to think about that. One is this idea of time horizon. Time horizon to me is in isolation and a relevant concept. Time horizon has to be mixed with price. And oftentimes when I hear people talk about, well, I just have a longer time horizon. I think the idea is, well, I'm buying something where the downside is really limited and I don't know what's going to work. But I'm going to own it, and perhaps over three years, something good should happen because it's so cheap, and if it doesn't, I don't lose any money. That's how I used to think about Time Horizon. But when you have this crazy bull market that's gone on for all this time, Time Horizon's turned into, well, I bought it pretty well. It's up 300%. I know it's stupid expensive, and I'm going to take a 50% drawdown because I have a long-term horizon. What? I don't understand that. Right? So I th…

AI assessment note: “the starting point has to be valuation. How you make money is not the quality”

Q How can a young portfolio manager adapt and evolve portfolio management skill over time?

A I think a lot would probably depend on where you are and what the rules are of engagement, where you are and what you're doing it. Are you neutral? Do you have freedom around your net? I guess this is the best way I can explain it. If you are a sole proprietor portfolio manager, you're both wearing your analyst hat and your PM hat. And I think the first thing to do to transition is to consciously Make the decision in the moment to decide, am I wearing an analyst hat right now, or am I wearing a PM hat right now? And this was one of my observations from last fall was the analysts seemed like they were still in charge when the PM should have taken over. And what I mean by that is it's the analyst job to fall in love. It's the analyst job to get this idea, to pitch it, to have passion, to know that they are going to be so invested in this That they're gonna stay on top of every signal. You've gotta believe that. If that person is you, you have to have that, and then you've gotta have the ability to step away, look at the portfolio, and objectively decide how it fits with everything else. And I think that self-awareness is the first step, and then fitting that into whatever risk model you happen to be a part of. And then through reps, you'll figure out how to do it, and you'll learn, and you'll understand. And I think these are Understand where your sources of alpha are and underst…

AI assessment note: “the first thing to do to transition is to consciously Make the decision in the moment”

Q So what was the path from that first job to finding yourself in the seat that you wanted to be in?

A People will come to me and ask for advice and the advice can take two forms. The one form is, can you help me figure out what I want to do? And I'm like, no, no, you have to find that for yourself, right? You have to sit, you have to be aware, think about it, decide what you want, and then ask people to help you get what you want. And this goes back to that discernment. I think I sat with it and I always knew what I wanted and what I was leaving something for to go to the next thing. So I When I was on the sell side, and I was sitting there, and the days were going by, and the idea of, I see what this person, the stage they're at, and then the next person's at, I started then looking outward to buy side firms and saying, who is operating, who's calling me and asking me questions in a way that I find really impressive. And that zeroed me in on Viking and Maverick. Brian Olson was the co-founder and PM at Viking, and I targeted Brian, and I just kept cold calling Brian and saying, I think I could be helpful. I think I'd be helpful. And Brian pushed me off, pushed me off. And I, but I zero it in on the way he thought, the way he asked questions, the way he carried himself in meetings that we sponsored and just made it clear that I wanted to work for him.

AI assessment note: “I started then looking outward to buy side firms... targeted Brian, and I just kept cold calling”

Q I'd love to go through some of your thoughts on, let's just start with stock picking. You mentioned variant perception. You mentioned thinking about earnings. There's business analysis, and then there's being a good stock picker. How do you think about both of those things?

A I don't know why it's a controversial topic, but it is. And I think this is in some way related to the Fed in that With interest rates being so low and all risk assets being anchored to a zero bound, everybody just assumed that you could just think about business quality because everything went up. Like stocks were missing numbers and going up because the most important input was what was the risk-free rate doing for a really long period of time. And I think people got a little bit confused and got away from that. And so I find it ironic that today everybody's like, oh, there's no dispersion. There was no dispersion on the way up either. Like, stop pretending like this is something new. Everybody benefited from this, and I think that led people to think picking a stock and picking a business are the same thing. And I think that they're very, very, very different things, and I think that you have to Start with understanding the underlying business if you want to be a fundamental analyst, and that is its own set of analysis, and it's talked about all the time, but then separate and apart from that, you have to understand the dynamics of the stock. At a minimum, the table stakes there is valuation, and then increasingly, you have to understand liquidity, technicals, factors, exposure, and then you need to understand those stocks, how they interact with one another. If you underwri…

AI assessment note: “picking a stock and picking a business are the same thing. And I think that they're very, very, very different”

Q All right. Last one from the crowd. And this is from the other side. What are the best questions to ask a manager in the due diligence process for looking at investing in a hedge fund?

A I think every single question has to come down to the model. I think more and more people think they're paying for a model, but they're really just paying for a story. And the story changes as things change, as the market changes, performance changes. Like it drives me insane to hear people take credit for their performance in twenty-twenty as great stock picking and then blame 21 and 22 for On a lack of dispersion, a lack of spread. So the strategy that's going to work is the strategy that's true to the model. So much of what has become true over the last five years, all this is about is marketing and telling your story. It's gotten away from the purity of executing to what you say you're going to execute against, because most of it's just about collecting assets and chasing beta.

AI assessment note: “I think every single question has to come down to the model.”

Q How do you think about liquidity's impact on the framework of whether it's valuation, time horizon?

A Mobuson did a study where he showed that when large caps outperform, alpha's harder to find because they crowd everything out. And so if funds get bigger and large caps outperform, there's even less alpha to find. And so liquidity becomes even more important. And so I think about liquidity in those terms to some extent, and in terms of And I thought about liquidity much differently and, you know, suffocatingly is sometimes where you'd be like, if I'm going to do a thesis driven idea, I can't own 20 days volume of it because eventually I might have to change my mind. That's one side of it. And then on the short side, which is a totally different, complicated set of parameters around stock selection on the short side, I think you have to have rules. I'm not shorting a stock that has greater than 10% of the market cap shorted. I'm not shorting more than a day's volume of a stock that I think could double in a day, right? There's gotta be certain parameters around what you're doing To make sure that you don't get caught in a liquidity trap, especially when you're talking about callable debt on the long short model, where everybody always forgets that in a drawdown, your gross exposure goes up because your capital base goes down. And I think that that is at least every hedge fund manager forgets that at least once a year.

AI assessment note: “if I'm going to do a thesis driven idea, I can't own 20 days volume”

Q What are some of the other differences in shorting?

A On shorts, I think that The business quality is important because I do think the business quality determines the underlying beta and underlying riskiness of the stock to a large extent. And I think that in the same way, you can't have a hundred percent of your portfolio all in high quality momentum stocks because you're just in one trade. If your whole entire mantra is I just short bad businesses. Eventually you're going to get caught in a real bad bear trap. So I always thought about the difference between short ideas and short books. Pick an example, right? Like if you're picking a basket of SPACs, there's got to be a bound for how big you want to be in SPACs. And then you have to manage that risk together. So if you decide I'm going to put A hundred basis points of each, but I'm comfortable with that because that's not more than one day's volume in any one of these. So if things started to go against me, I could shift around and I'm never going to let it get above 12% exposure and every time it goes up. And then I think where you get down to the stock selection, business selection versus portfolio manager decision is that if they work, go against you and they start to grow, you have a choice. You can either say, this is the worst one. I need to get out of this. Or you can say, I'm going to evenly reduce each of them. And that's a portfolio risk Decision. It's not an individu…

AI assessment note: “I always thought about the difference between short ideas and short books.”

Q Love to talk on the portfolio management side of dynamically managing a portfolio. So what we've talked about is sort of how you construct it. As markets move, one of the things you hear a lot about is management of net, management of gross in a hedge fund portfolio. How do you think about both of those?

A So the starting point is having good ideas and the analogy I would, you and I are both baseball fans, both Yankee fans, right? So the Yankees aren't on a pace to win a 120 games because they have no talent and they're great managed, right? There's talent there, but analytics have come into baseball in a way that help Aaron Boone understand how to put that talent better together in a way that makes that lineup more effective, that makes the pitchers more effective. And so, for example, historically, your best hitter batted third or fourth. You wouldn't bat him ninth. That would be stupid. Nobody ever did that. But analytics raised the question of, well, why don't you move them up to one so that they get the most possible at bats? This idea of a table setter, a contact guy, best hitter in the whole cleanup. Maybe that's wrong. Analytically, maybe we're just telling ourselves a story that isn't supported by numbers. And I think about This stock selection to portfolio management in the same way. I've got to have great stock ideas. They're probably going to be mostly in great businesses, but at different times, they may not be in great business. They may be in just really cheap stocks that are really great ideas. And that takes a constitution to be able to think about that. And then the question is, well, how do I put them all together? I don't want my best idea batting 10th. Why? A…

AI assessment note: “the starting point for me on building gross leverage to begin with is”