The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
why aren't all 38 resolved? a statement only gets an assessment when the public record can support or contradict it. opinions and what-ifs never can, and 1 checkable ones are still open, waiting for their date. predictions held up or didn't; assertions are supported or contradicted. on every card: ▮▮▮▮▮ certainty · ▮▮▮▮▮ debate potential. speakers are clickable
Liow: Averaging down in low-predictability environments is bravado, not skill
“Because if it's a low prediction environment where you're doubling down, in my view, that's bravado. That's not skill. You're not basing that on fact and you're not thinking probabilistically. You're actually, that's a price signal that has no effective messag…”
Liow: Aravt Global spends under a third of research time generating short alpha
“Us as an institution, we would spend less than a third of our time short selling less than a third. And we can sustain five to 800 basis points a short alpha by doing that because we've built up seven years of inventory.”
Liow: Short positions are the most dangerous portfolio risk in a drawdown
“In a massive drawdown, your shorts have been eviscerated. You have to cover them. They're extremely dangerous. In fact, they're the most dangerous thing in your portfolio.”
Liow in 2021: S&P 500 will struggle to exceed mid-single digit returns
“In fact, I think it's challenging to do even higher than mid-single digits this next decade.”
Liow: Hedge funds love turnaround plays, but they resist risk management
“The quality transition is usually got some M&A component to this. By the way, hedge funds love this. Why? Because it's highly idiosyncratic. It's a But it's very, very low prediction environment, and what I mean by that is there's lots of variables to get this…”
Liow: Holding cash is a mathematical drag on 20% compounders
“Always love to hold a little bit of dry powder. It's very expensive when you're compounding at 20 plus percent. And history will tell you the math is severely against you.”
Liow: Managing upside volatility is the true test of compounder investing
“And I believe for compounders, upside volatility is the true show of skill.”
Aravt Global trades on T+1; Liow does not use a Bloomberg terminal
“In fact, we don't even trade day off. I don't even have a Bloomberg, right? We trade on a T plus one basis to remove the adrenal elements of decision making.”
Liow: Daily portfolio re-underwriting is a false paradigm and tax-inefficient
“We do not think every day if we bought our portfolio what we do. I think that's a false paradigm. And by the way, Antithetical to tax effective investing. I just, I believe it's false precision.”
Liow: Six of the top 10 performing index stocks annually are low-quality
“So if you study Any index in any year in the world, six of the top 10 are really low quality businesses.”
Liow: Mandating fixed short gross exposure drives short book underperformance
“I think another material source of short underperformance is if you have to run at a certain level of short gross, you will jam it.”
Liow: Post-GFC short rebate collapse raised required break-even alpha to 800 bps
“At 500 basis points, you needed about three to 400 basis points of alpha to break even through cycle. That lets you lever for long short spread through cycle. Now it's closer to 800 basis points. That's a very heavy lift to break even.”
Liow: Institutions struggle against individuals in microcaps, leaving the market inefficient
“It's very difficult for institutions to compete against individuals in microcap. Henceforth, it's systematically Inefficient.”
Liow: A book on Genghis Khan is a top-five investment book ever
“Genghis Khan and the Making of the Modern World. Changed my life. I think it's a top five investment book of all time, written by Professor Jack Weatherford.”
Liow: Four edges in investing are informational, analytical, behavioral, structural
“So the pursuit of compounded returns over long periods of time, the four edges were informational, analytical, behavioral, and then structural.”
Liow: Only 3% of $1B+ stocks compound at 20%+ over rolling decades
“And what I found is about 14% of securities above a billion dollars in market cap could do it. This was in the prior 26 years. And only three percent of securities could do it for 10 year rolling periods.”
Liow: Three distinct frameworks drive right-tail equity returns
“So the three are built up of one is compounders at large. There's lots of different variants in there dependent upon the growth rates and evaluation paradigms. The second is called secular within cyclical. It's a commodity framework where there's a demand shoc…”
Liow: Valuation multiples matter little for 10-year equity returns
“In the short term, multiple is a very large driver. By the time year three through five, it's almost exclusively earnings power that's driving total return, and by year 10, multiple almost has nothing to do with it.”
Liow: Secular-within-cyclical setups create 10-baggers via multiple and earnings growth
“You have an entire demand shock shift in the demand curve. Into a fixed or delayed supply response. So what happens is you have a lower quality industry and margins explode and stay high for multiple years. And that drives a rerating from usually a mid single …”
Liow: Detailed spreadsheets with exact decimal points create false precision
“If it requires a five page spreadsheet and third decimal point, Hey, it's BSE and BS out and it's complete false precision.”
Liow: First-quartile shorts are dangerous; target the second quartile instead
“The left side, we're focused on the second quartile consistently because the first quartile is extremely dangerous and very hard to replicate.”
Liow: Aravt sizes top 10 positions by downside risk, not upside
“We're pretty concentrated in our top 10, but we do it facing downwards, not upwards, where how much money can you lose in the big positions, not how much money that can you make. That's the only way you navigate for duration.”
Liow: 20% equity market drawdowns occur about 5% of the time
“The base rate of a 20% drawdown in markets is about five percent of time.”
Liow: Aravt uses scaling management fees and a hard hurdle with no catch-up
“And so I believe, and that's what we've done too, is a scaling management fee, a fixed hurdle, right? Hard hurdle, no catch up, and then a fixed component of the carry above it.”
Liow: The worst-quality levered businesses fly the highest in cyclical recoveries
“And actually a cyclical recovery, yet alone one of this size, the worst quality businesses fly the most. In fact, the worst quality businesses that are levered fly the most.”
Liow: US government transferred $630B in excess payments before Biden stimulus
“The government transferred six hundred and thirty billion dollars of excess payments To cover off lost wages. It covered it by an extra six hundred and thirty billion before the Biden 1.9 trillion dollar stimulus.”
Liow: Launching Aravt Global in a conventional Tiger construct was a mistake
“Authenticity, I made a huge mistake when I started R of Art Global in that I was failing conventionally. I went into a classic tiger construct, and it's terrifying being fully authentic.”
Liow: Ziff Brothers' early team had no public market experience
“So I started there in the summer of 2000, and there was about six of us inside there. And interestingly enough, they love training from the bottom up. So not one of us, including the portfolio manager Ian McKinnon had professional Public market experience at t…”
Liow: Top investors Mandel, Griffin, Chanos, and Lampert visited ZBI to teach
“So, you know, at a fairly early stage of my career, Steve Mandel, John Griffin, Jim Chanos, Eddie Lampert, they would all come through and would share with us some of their wisdom and we would get a chance to pepper them with questions.”
Liow made his first $100M shorting the dot-com bust
“Actually the first hundred million dollars I made was on the short side. This was coming out of the dot-com bust.”
Liow: Aravt Global exclusively targets monopolies with 20-30% earnings growth
“So what we've landed on in Compounders actually is a version of exclusively focusing on monopolies and oligopolies, finding growth rates of earnings power that is in the twenties to thirties, multiples of the underlying market, And then finding them with reaso…”
Aravt Global bought only one stock over a 17-month period in 2017
“So in 2017, spanning 2017, we had enormous performance, but we bought one stock for 17 months.”
Liow: Top 10 positions comprise 80% to 90% of Aravt's portfolio
“If you own a position, a very concentrated portfolio, which ours is 80 to 90% for the top 10”
Liow: Aravt targets 500 to 800 bps of consistent short alpha
“Our mission on the short side is to deliver five to 800 basis points of alpha consistently.”
Liow: Aravt targets 15% to 30% gains on shorts versus multiples on longs
“Like on the long side, we're playing for multiples of our capital. On the short side, we're playing for between 15 and 30%.”
Liow: Aravt covered almost all short positions by late March 2020
“We only had three shorts left by the end of March, right? We covered everything. And that dramatically increased our net exposure”