Insight
Algorithms eliminated value investing alpha because computers do not feel embarrassment
“I do think this is why a lot of fundamentally based value strategies have struggled for a long time, because the alpha in those strategies Was being willing to own these stocks that other people were embarrassed to own because they were so out of favor. And yo…”
Opinion
Baker: VC operational value-add is wildly overstated and unappreciated by founders
“The short answer is a lot of the operational value add from a lot of these firms is wildly overstated. The wise advice is super not appreciated.”
Insight
Baker: Evaluated analysts on clear factual arguments, not hit rate
“I didn't care whether the analysts at Fidelity got their stocks right or wrong. It was utterly immaterial to how I evaluated analysts. There's an analyst, he consistently had some of the worst stock picking metrics in the department. But I made a vast amount o…”
Insight
Baker: Investors must choose to panic early or double down late
“As an investor, you have to either panic early or double down late, and you have to be one of the two. It's hard to be both.”
Insight
Baker: Process-driven alpha in fundamental investing is quickly competed away
“By the way, you have to have a process, and you have to have the process that works for you, but any process that's repeatable that generates significant alpha, it's a very competitive world. It's going to quickly be armed away. In fundamental investing, any p…”
Insight
Top fund returns are driven by just two to ten key people
“I would just submit that any investment organization, no matter how big, there's somewhere between two and 10 people, and if you took those people out, and the organization had the exact same process, the results would be very different.”
Insight
Baker: Portfolio turnover is driven by volatility, not time horizon
“Turnover should be a function of how often you change your mind, and part of that in any discipline valuation-based process should be about how the stocks move. For me, turnover is mostly a function of volatility.”
Opinion
Baker: Multi-manager hedge funds are driven by a few star pods
“At a lot of these multi-managers, there are a couple of pods, and maybe I am out of date, who are running a disproportionate amount of money with really good returns. The reason they have a disproportionate amount of money is because they have a long history o…”
Insight
Baker: Public companies targeted by short sellers should never publicly respond
“This is what you do the first time you get a short seller, write a report about you. Do not respond. I know it feels so personal. I know how personal it is, but just don't respond. Let the numbers do the talking. If you get in a public fight with them, it's ju…”
Opinion
Baker: Private Markets Suffer Far More Bad Behavior Than Realized
“There is more bad behavior in private markets than I think people realize. FTX, it's very public, but these companies, they're not filing always audited financials. They don't have the controls. Particularly when something starts to go bad, there's a lot of ba…”
Prediction Not checkable as stated
Baker: AI Is in Year Three of a 20- to 30-Year Cycle
“We're, I think, in the very early days of AI. If ChatGPT is to AI as Netscape Navigator was, we're in year three of what should be a 20, 25, thirty-year really exciting cycle or trend.”
Insight
Gavin Baker: Price determines returns only for a given business outcome
“Warren Buffett's famous statement is the price you pay determines your return. I would modify that and say the price you pay determines your return for a given business outcome.”
Insight
Experienced investors must calculate DCF models instantly in their heads
“If you've been doing this more than five years and you can't instantly do a DCF in your head, this is the wrong business for you.”
Disclosure
Baker: Fidelity led three Roku rounds when VCs feared Big Tech
“There's this company, Roku, no VCs would fund it, because every venture capitalist was worried about competition from Amazon, Google, and Apple. I was like, well, I'm really familiar with those companies. Competing with Roku, it is not on their top 50 list of …”
Insight
Baker: Competitive sports experience is essential for hiring resilient analysts
“In today's world, actually having played sports is an advantage or done anything where there's objective outcomes. For a lot of children, they've lived in a world of participation trophies and great inflation. They haven't been confronted with losing, with an …”
Insight
Baker: Effective crossover investors should never encounter genuinely new ideas
“Because, particularly as a crossover investor, there should be no new ideas if I'm doing my job well. You should have a defined universe where we have a very high knowledge level.”
Insight
Baker: Good stock pickers will be good at shorting stocks
“There's no difference except for the risk, but the same principles apply. If you're good at buying stocks, you're going to be good at shorting stocks.”
Insight
Baker: Long growth and short value pairs create levered factor risk
“You can't be long a stock like GM and be short Tesla. From a quantitative perspective, that makes no sense. If you're long growth and short value, that's equally painful. If you're long value and short growth, that means you're just levered value. If you're lo…”
Insight
Baker: For an unlevered long book under 100%, short alpha is irrelevant
“If you're going to run with an unlevered long book under a hundred, then short alpha is irrelevant. All that matters is your shorts must make money. Full stop.”
Insight
Baker: Extreme single-stock concentration turns a fund into a single stock
“If you have a 35% position in one stock, and then your second position is three or five percent, you're not a fund, you're a stock.”
Insight
Understanding a business takes years, not 90 days of due diligence
“It's funny that some investors have an idea that you can do 90 days of work on a business and really understand it. I don't think it's possible. For me, to really understand a business, I need years of history, in some case decades, to see how the business and…”
Insight
Baker: AI Uniquely Features Public and Private Rivals Across Every Layer
“I have never seen a new technological trend where at every level of the stack, the competitors are both public and private.”
Insight
Baker: Scale and business resilience provide an essential advantage for hedge fund performance
“Hedge funds are fragile, and the smaller they are, the more fragile they are. I do think it's becoming a scale game, and that was very important advice from Mike. So if you have a diversified business, it makes it a lot easier to be rational when you're wrong.…”
Insight
Baker: Ages 50 Through 70 Are Peak Performance Years for Investors
“Point number one, something I profoundly believe is that 50 through 70 are peak performance years for professional investors.”
Gavin Baker