Insight
Sandler: In late 2019, short-term stock movements detached from fundamentals
“What we began to notice in 2019 was stocks were behaving unpredictably, even if you really knew the fundamentals. It was as if the things that we were doing in the short run Didn't matter at all.”
Opinion
Sandler: Classic long/short equity hedge funds no longer fit allocator portfolios
“And I realized, and talking to allocators, that the classic long short equity hedge fund had not a really big place in allocators portfolios anymore. That allocators were barbelling their portfolio.”
Insight
Sandler: Business-and-Investor Hedge Fund Partnerships Fail Over Perceived Value
“Either two stock pickers like us, who maybe didn't always see eye to eye on investments, or the kind that maybe lasted a little bit longer, but ultimately broke up also, which was the business guy and the stock guy, or gal in this case. And those also didn't e…”
Insight
Sandler: One-week to three-month stock price action is now mostly meaningless
“Implication number one was price action is much more meaningless than we used to think. Call that the one week to two, three month price action was stocks were Acting weirdly, and it meant nothing.”
Opinion
Sandler: Collaborative funds beat joining platforms or launching solo firms
“They have to realize that they're good investors, but they could be great inside of this system, and therefore, a solid piece of this pie is better than signing up to live and die by every other own decision, let's say if you went to a platform, or having to b…”
Insight
Sandler: Co-equal hedge fund partnerships fail due to strong investor egos
“Co-equal partnerships in this business are really hard. I think that this business attracts very strong personalities, people that have strong opinions, willing to debate them, but probably not willing to compromise on them a lot, and so we battled a bunch on …”
Insight
Sandler: Emotional stress makes investors incapable of making unemotional decisions
“Ultimately, the thing we want to try to do is remove emotion from investing, and so if you put somebody under emotional stress for making a bad stock pick, or for the way a stock is behaving, What's the likelihood that that person's going to be able to make an…”
Assertion Not checkable as stated
Sandler: Eminence gained early edge by screening accounting pressures
“And this was still the early days before people were ripping through 10 queues, before accounting services were out there, before CFRA, and I think that we identified an ability to screen for pressures in accounting that provided an early window into doing som…”
Insight
Sandler: Post-GFC stocks disconnect from fundamental value much longer
“What I noticed after the GFC was that stocks would trade at bigger disconnects to fundamental value for much longer than they used to, and we couldn't just count on the market to Correct things.”
Insight
Sandler: Stock multiples expand due to shifting marginal buyers, not personal valuations
“The stock isn't going to go from 12 times earnings to 18 times earnings because you think it's worth 18 times earnings. It's going to go from 12 to 18 because the next investor believes something different.”
Insight
Sandler: Multi-Year Reviews Are Necessary to Accurately Diagnose Investment Mistakes
“And at the end of the year, everybody goes back and looks at their winners and losers and tries to learn from them. And what I started to do is look at the last three years. Because oftentimes, in the moment, you bought a stock, it disappointed, it went down, …”
Assertion Not checkable as stated
Sandler: In late 2022, growth stocks traded below their historic 50-year premium
“So in late, twenty-twenty-two, as an example, we did a fifty-year analysis on the premium for growth. When analysts came to me in the middle of twenty-twenty-two and said, hey, this stock is cheap, it's back at pre-COVID multiples. I instinctively knew pre-COV…”
Insight
Sandler: Tracking real-time alternative data is table stakes against pod shops
“We are also tracking the real-time KPIs, because that's what everybody's using. So I would call that today table stakes, to know what the pods and the short-term investors are seeing in the data, and so sometimes it's helpful to say, oh, they're going to miss …”
Insight
Sandler: Quantitative models create mispricings because they cannot look forward
“What quants can't do is look forward, and how things will change over time, and so you learn the power of it, but also the blind spots, and so they can't see what next two, three quarters are gonna be, and so that led me to a conclusion where Zillow and Uber, …”
Disclosure
Sandler: Eminence doubled its compensation weighting for generating short alpha
“I changed our compensation structure to add double weight for short alpha, and preached to the team.”
Assertion Supported
Sandler: Passive equity market share has risen to 60%
“We just went from 25% passive, I think at that time it was probably 50. Now it's 60.”
Disclosure
Sandler: Eminence portfolio turnover spiked up to 80% on shorts since 2019
“What I noticed when I look back over the last four years is that our turnover since the end of 2019 is 40% higher on the long side, and 70 or 80% higher on the short side.”
Disclosure
Sandler: Eminence spends 20% to 30% of research time on market setup
“We're still doing the deep research on the business, but we're probably spending 20, 30% of our time understanding that and hopefully taking advantage of it.”
Insight
Sandler: High volatility benefits long investors but compounds short-seller risk
“High stock volatility is good for the long investor. Stock goes down. You have less risk on the table. More upside. It's easy to buy. Stock goes up. You have less upside and a bigger position. It's easy to sell. The opposite happens in the short side. When it …”
Assertion Supported
Sandler: Single-stock to index volatility ratio is at historically high levels
“The ratio of stock vol to index vol is at very high levels relative to history, and so that creates this challenge on the short side where these movements are not necessarily based on bottoms up fundamentals.”
Insight
Sandler: Portfolios cannot be structured to beat markets and never lose money
“And I realized then that hedge fund investors want you to beat the market, and they want you not to lose money. And you cannot structure a portfolio to do both of those things at the same time.”
Insight
Sandler: Fund managers must be 'long-term greedy' and err on generous pay
“I think you have to compensate people. You have to err on the generous side. I don't think you have to dramatically overpay them, but you can't be cheap, and you can't be greedy. You gotta be long-term greedy.”
Assertion Not checkable as stated
Sandler: Viking promotes investors to PMs at relatively inexperienced levels
“Something that I know Viking does is they make folks PMs at relatively inexperienced levels and a little bit of trial by fire.”
Insight
Sandler: Investors Are Backward-Looking and Fit Narratives to Past Numbers
“It is incredible how investors are backward looking at numbers, and they create a narrative around what's existed versus actually being independent, but I've just come to accept that.”
