AMA on Training Materials, Hiring, and Portfolio Management

Summary

In a recent AMA session, Alix Pasquet III dives deep into the intricacies of training materials, hiring practices, and portfolio management within the investment field. He discusses the importance of adapting training materials to suit modern market conditions and emphasizes the significance of understanding different learning styles to effectively train investment teams. Pasquet also shares insights on the challenges of hiring, highlighting the value of maintaining a 'virtual bench' of potential hires. He explores portfolio management strategies, advocating for personality-aligned approaches and cautioning against over-reliance on traditional methods. Throughout the session, Pasquet emphasizes the role of continual learning, adaptability, and strategic networking in achieving success in investing.

Highlights

• Training materials should be updated to reflect post-2008 market conditions 📈.
• A 'virtual bench' of candidates can save time and ensure quality hires 💼.
• Equal weight portfolio positions for beginners aid in gaining experience without high risk ⚖️.
• Generalists often outperform specialists due to broader insights and flexibility 🔍.
• Reading and learning should be part of a daily routine for a competitive advantage 🕵️.
• Understanding AI's role in investing and its history can guide effective usage 💡.
• Networking strategically by adding value to others amplifies growth opportunities 🤝.

Key Takeaways

• Embrace diverse learning styles when training investment teams to ensure everyone benefits 🎯.
• Hire smart by maintaining a 'virtual bench' to have pre-vetted candidates ready 🌟.
• Incorporate personality into your portfolio management for optimal results 👤.
• Read and continuously learn to sharpen your competitive edge 📚.
• Use AI with caution, understanding its strengths and limitations 🤖.
• Networking and building mentor relationships is key to growth in the field 🌐.
• Avoid over-relying on options unless very experienced as they present high risks ⚠️.

Overview

Alix Pasquet III's AMA sheds light on the evolving landscape of investment training materials. He underscores the necessity of tailoring training approaches to suit contemporary market dynamics, particularly highlighting shifts since 2008. Pasquet's insights reveal how adapting training to cater to various learning styles not only maximizes team potential but also streamlines the path to successful investing.

The session also covers the complex realm of hiring, where Pasquet introduces the concept of a 'virtual bench'. This proactive strategy involves keeping a list of vetted potential hires ready, streamlining the hiring process when the need arises. The discussion highlights the high stakes of making hiring mistakes and the value of having pre-evaluated candidates on standby.

In terms of portfolio management, Pasquet advocates for aligning management styles with individual personalities, emphasizing the need for adaptability and continuous learning. He stresses the importance of understanding both historical and current market conditions, as well as leveraging technological tools like AI with a cautious approach. Pasquet’s advice is rooted in fostering a robust network and maintaining an inquisitive, learning-focused mindset.

Chapters

• 00:00 - 00:30: Introduction and Learning Styles The chapter 'Introduction and Learning Styles' delves into the nuances of teaching and the challenges educators face. It emphasizes that teachers often instruct based on their own learning experiences, which may not align with the diverse learning styles of students. The need for understanding various learning styles in educational settings is highlighted, suggesting a more personalized approach to teaching.
• 09:00 - 18:30: Training Materials for Investors The chapter on 'Training Materials for Investors' addresses the issue of diverse learning styles among people. It highlights that traditional training methods often fail to engage the entire audience, reaching only around 25%. This is attributed to the presence of four distinct learning styles, starting with the 'why' learners, who require understanding the purpose and motivation behind the material before engaging with it.
• 18:30 - 31:00: Hiring in Investment Firms In the chapter titled 'Hiring in Investment Firms,' the focus is on different types of people within an organization, particularly in investment businesses. It categorizes people into 'why people,' 'what people,' and 'how people.' 'Why people' already understand the purpose and are self-motivated, and therefore don't require further explanation of why tasks need to be done. 'What people' need clarity on what exactly needs to be done, without the necessity of knowing the underlying reasons. Meanwhile, 'how people' form the majority in investment firms, needing structured procedures, processes, and checklists to guide their tasks.
• 31:00 - 44:00: Portfolio Management Strategies The chapter 'Portfolio Management Strategies' explores different learning styles and how they affect one's understanding of portfolio management. It emphasizes the importance of asking questions to clarify uncertainties and addresses the 'what-if' scenarios people might encounter while managing portfolios. The speaker encourages participants to engage actively and assures them that asking questions is a crucial part of the learning process.
• 41:00 - 49:00: Use of AI in Investment Management The chapter titled 'Use of AI in Investment Management' begins with an acknowledgment of influential mentors in the field of investment and teaching, including Wyatt Woods, Evan Pagan, Michael Moesson, and Peter Kaufman. The emphasis is on the powerful impact of teaching and training, particularly within the context of investment management.
• 57:00 - 61:00: Role of Specialists vs Generalists in Investment The chapter begins with an anecdote where the author discusses sending out an investment memo. Unexpectedly, a friend forwarded this memo to many others without informing the author. This incident becomes the catalyst for a new connection when a recipient of the memo contacts the author for assistance regarding an issue discussed in the memo. This story sets up the discussion on the roles of specialists and generalists in investment, potentially highlighting how unexpected outreach or sharing of expertise can lead to new opportunities and collaborations.
• 55:30 - 75:00: Q&A Session In this chapter titled 'Q&A Session', the speaker shares an anecdote about being approached for consulting work. Initially, the speaker declines the offer, stating, 'I don't do consulting.' The person making the offer then reveals the payment, prompting the speaker to humorously change their stance to, 'Oh uh I do do consulting.' The speaker comments on the intelligence of the person proposing the work. Furthermore, the discussion touches on the topic of training materials, implying a conversation about what resources are provided to clients or trainees.

AMA on Training Materials, Hiring, and Portfolio Management Transcription

• 00:00 - 00:30 okay 11:01 Let's get going If there's a problem uh somebody put in a message if you can't hear me or anything like that So before I start I kind of I've been learning a lot about uh training learning and teaching recently And um one of the problems you have to solve for when you're teaching is most teachers they teach the way they learn something right
• 00:30 - 01:00 and that's a big problem um because guess what not everybody has the same learning style Um so instead of reaching you know everybody in the audience you're actually only reaching 25% Now there are four learning styles Okay you have the why people They always need to know why am I learning this you know so you have to spend time actually almost motivating convincing
• 01:00 - 01:30 them this is why you need to do this You have the what people The what people are like who gives a [ __ ] about the why i know about the why already I know why I'm doing this I just need to know what Okay Then you have the how people And these are the people usually the majority of people in the investment business Actually they're the procedures Give me a process I need to know a procedure a process uh uh a checklist of doing things And
• 01:30 - 02:00 then you have the what if people These people are like look I know the why I know the what I know the how but if this shows up what do I do uh then so if ever I say something and you don't understand what the hell I'm talking about you might just be a different learning style So just ask the question okay um and by the way I I I'm thankful for
• 02:00 - 02:30 my mentors for having taught me how to teach Um you know teaching and training is one of the most powerful things that you can do and guys like Wyatt Woods Evan Pagan Michael Moesson uh are are are people that are some of the best investment teachers Uh Peter Kaufman of course my god uh perhaps the best business mentor alive uh and people that
• 02:30 - 03:00 know him are lucky to know him Okay so this morning uh well actually let me give some context So a few weeks ago I sent out one of my investment memos and uh uh a friend of mine sent it to a whole bunch of people without telling me it's okay It happens And a guy reached out and said "Hey um we're actually dealing with one of the problems you write about the memo You know can you do
• 03:00 - 03:30 some consulting work with us to actually uh help us with this?" And I'm like "I don't do consulting." He's like "Well this is how much we pay." And I was like "Oh uh I do do consulting." And um amazing guy by the way very very smart Um and one of the things that came up was training materials right um so what training materials do you actually give to your
• 03:30 - 04:00 team so that they can actually get better at investing and make your partners themselves and you a lot of money that there's not enough time spent on curating and having a internal process where you actually invest the time with your team on training them Um Andy Grove wrote an amazing book
• 04:00 - 04:30 called actually he wrote two amazing books excuse me One of them is uh only the paranoid survives which everybody thinks about paranoia It's actually not It's about strategic inflection points must readad Um and the second is high output management which is basically on how to be a leader manager And one of the things he says is that as a business owner one hour spent training your people can have if you improve them
• 04:30 - 05:00 1% across the organization can have a massive return on on time right and there's a few things about training materials today that you have to solve for Um one of them is young guys don't [ __ ] read anymore Okay i don't know what the hell has happened to you guys but you guys don't read Um and it's a
• 05:00 - 05:30 shame It's a real shame because there are milliondoll mistakes in a $10 book or sometimes a book that you get for free on the internet that can either make you a fortune or prevent you from losing a fortune So you have to actually spend the time reading It's very important The second thing is
• 05:30 - 06:00 um a lot of the training materials were actually designed for pre8 markets So what does that mean he says as well the market actually changed after 2008 Before 2008 the market was a certain way Post 2008 the market has changed in ways that that a lot of people have not adapted to because the training materials that they use were
• 06:00 - 06:30 all pre8 training materials that it was suitable for the environment before 2008 Okay Okay The third problem uh uh well actually hold on let me spend a little bit of time So before 2008 um quad funds were smaller index funds were smaller the pods were smaller Post 2008 these are
• 06:30 - 07:00 all materially bigger and more levered Before 2008 the research at the investment banks were actually pretty good And part of the reason is commission dollars were really big so they could afford to pay these guys Post 2008 there's some really good stuff but it's actually gone down in terms of quality Uh there you know the the if you're lucky enough to read Bernstein stuff yes phenomenal Uh some
• 07:00 - 07:30 of the guys and some of the other shops are also very very good but most of it is it's not that good Okay Before 2008 the internet and social media uh uh were non-existent you know or very very small Uh post 2008 it's ubiquitous So you have these narratives that can start online and spread like wildf uh uh
• 07:30 - 08:00 fire Uh you actually have to adapt to that right so so there are other differences but understanding pre8 markets and post08 markets is very very valuable and your training material has to solve for that Okay Um and then the third thing is um a lot of people they may use external
• 08:00 - 08:30 things in their training materials Okay But it's actually very useful as a as a investor to actually diagnose what your team needs and then pick external material that helps solve for that or build it yourself Okay But here's also why you need to have training materials Um so you actually see when you're training your people like who actually is improving
• 08:30 - 09:00 with it who actually is is getting better over time because you teach somebody something and then you watch how they evolve for the weeks or months after that is have they actually taken what they've learned and the training materials and improved you know so so Jeff Bezos does this Bezos memo uh reading process and one of the sneaky
• 09:00 - 09:30 advantages of that process is that so the process is simple Okay at the beginning of a meeting uh everybody in the room reads a five to six page memo They have half an hour to read it and then they have couple hours discussions about it and you actually get to learn a lot right because somebody spent the time to put into narrative not a PowerPoint because these guys don't like PowerPoints And I agree with that Actually we're big We're we're memo culture Um and you read the memo you
• 09:30 - 10:00 have discussion with it But the sneaky part about it as a leader is weeks after your team has read the memo you actually get to see who learned from it and better yet who changed their minds weeks later So somebody will come to to to Jeff after and be like "Hey remember that thing we were discussing i changed my mind on that and here's what I think now." And often it's a way better point of view after than what they had during
• 10:00 - 10:30 the meeting Well guess what that's the guy that you pick to lead your uh your business unit because he's able to change his mind right so having a training process helps you with that It helps you find the power zone of the analyst Often it's in training right it's in practice that you see wow this kid is really good at shorts He's really good at turnarounds He's really good at
• 10:30 - 11:00 growth stories He's really good at bare battles He's really you know and you're like he's actually really good Or one kid uh and I actually like guys like that a lot is like he's not good at anything but he's really good at helping others get better I actually know an analyst like that who's terrible analysts but he's really really good at getting other people to be better That's very valuable Okay Uh um Okay Uh and by
• 11:00 - 11:30 the way the while you're doing the training that's actually um uh where you also see who the teachers and the leaders of your team are Because if there's one guy he he's not getting it Who's the guy that's actually going to go to him afterwards and help him get it okay Training process that you have to do with the young guys today Okay The same as the bezos mean memo writing process If you give let's say a fivepage
• 11:30 - 12:00 memo everybody sits in the room for 30 minutes they read it and then have discussion Why do you actually have them read it in the room because the young guys today are all these ADD freaks including this guy by the way because I'm talking a big game right now but I have [ __ ] ADD just like you young guys do and you wouldn't believe the [ __ ] I have to do to to get myself to focus Okay So you have them do it and then you have a discussion about
• 12:00 - 12:30 it Okay Actually uh we actually have changed our minds about having interns do any work If we have interns uh today all we have them do is read because they're never going to get another chance to actually do the kind of reading uh uh that you do because today there's too much stuff stealing uh your attention Okay But let's say you know so that that's the process uh uh and then
• 12:30 - 13:00 you observe uh over time okay if you're doing it by yourself I really suggest you use these guys earplugs okay take your phone preferably in the morning put it away put earplugs on a timer for for an hour 90 minutes even If you do 25 minutes read the memo Okay Now when you after you've read the
• 13:00 - 13:30 memo it's very important that you adapt it to today's markets Okay says "What what about this that I'm reading is applicable to today's market?" Usually if you're reading something that is evergreen it's always going to be applicable to today's market Um uh the second thing is what can I use in this that makes me a better investor and the way that you do that is
• 13:30 - 14:00 if you learn something let's say from a memo how can you take that and turn it into a checklist and a procedure always always use checklists Um uh we're huge fans of it you know we we have them uh uh here Um most investors personalitywise are called structural creatives They're not artists that can create from a blank canvas They're
• 14:00 - 14:30 actually people that create within a structure of achievement like a checklist It's like while you're reading a question that you get creative and then you go and and and it draws out your creativity So always use checklists And then next is how can you have a differentiated insight about what you just read Okay All right So uh by the way you could write a whole memo on this but now let me give you the what Okay What should
• 14:30 - 15:00 you read here are a few pieces Anything by Michael Moes Read it all Literally if I were you I would spend the next 90 days Every day you wake up you read one of his five to six page memos They're online They're free I still can't believe that kind of stuff is free out there which is unbelievable Uh read it take notes internalize it Often at the end he has
• 15:00 - 15:30 these uh notations If you're really interested in a topic dig in Um uh two um anything by Warren and Charlie of course Um three there's a piece by Zeke Hower called Investing in the Unknown and Unknowable Must read Uh Charlie Ellis wrote a piece called The Losers Game Must read Okay In fact there's if
• 15:30 - 16:00 you read the losers game there's very you know I don't want to like g give uh give the the punchline but there's an insight in there that the it's such a simple insight that if you actually think about how to incorporate that insight it can actually improve uh your competitive advantage Okay Um Okay So so that's about uh training materials
• 16:00 - 16:30 If you have any more questions on that uh uh please please ask and then I'll pick that up in a little bit Okay I want to talk about hiring Um now it's unbelievable to me I spend a lot of time at certain business schools uh not only for learning but for recruiting and it's just like it's a great hub of talent and knowledge So and
• 16:30 - 17:00 I've spoken at a bunch um you can find that stuff online and uh there's no classes on hiring at business schools Isn't that incredible it's literally one of the best investment skills ever but yet no one really teaches And I was uh at a family office I used to work for an
• 17:00 - 17:30 investor in um Tiger Tech it was called at the time And I asked Chase Coleman a young Chase Coleman I said "Hey how do you allocate your time?" And he said "I spend 50% of my time on hiring." Okay and at the time it was such an insightful uh uh statement especially coming from a very young investor it was qualitatively excellent Um and if you think about
• 17:30 - 18:00 it the secret sauce of an investment team is the talent Stepping back a second dynamic range between an average analyst and really really good analysts isn't 2x You know I've stolen this analogy from uh is it an analogy in Allegory you know what I mean from Steve Jobs He says "Look the average cab
• 18:00 - 18:30 driver and the best cab driver in the world maybe you're 2x better Um uh you get there 30% faster He makes double the money He's a great conversationalist so he makes more tips Blah blah blah The average software engineer and the best software engineers isn't 2x it's 50x The average investment analyst and the great investment analysts it's it's actually close to 50x in some cases if not 100x And guess what the drivers of
• 18:30 - 19:00 dynamic range have nothing to do with IQ Yeah it helps to be smart but you can lose a lot of money with a very smart analyst okay like seriously especially if they're very convincing Holy [ __ ] you can incinerate capital Okay so what are the drivers of dynamic range very important to figure that out Okay the second thing is hiring has four
• 19:00 - 19:30 problems It's expensive it's time consuming it's competitive and it's reflexive And actually it's changed across pre8 markets and post08 markets Um uh today a lot of the pods go and literally interview from undergrad Now we have a problem with hiring from undergrad I think it's very
• 19:30 - 20:00 rare that you have somebody I'm uh I'm in the process of interviewing somebody who's undergrad right now who's very rare because despite not having a lot of reps he's actually really good at handicapping uh businesses but it's rare We tend to want to hire from people that have seen reps And part of the reason is our hiring tools are actually useful to picking up on the reps are not Okay
• 20:00 - 20:30 So so part of of hiring is actually sourcing talent that though is really good isn't actually being sourced by other hedge fund guys out there Because again you remember the four problems One of them is it's expensive to hire today It's kind of nuts what somebody will pay an
• 20:30 - 21:00 investment analyst Um uh and by the way when you add the resources I mean it's incredible but it in in my opinion those are actually perceived barriers to entry because the best analysts all they need is a 10K and a [ __ ] pencil Seriously some of the best analysts I know you give them a 10K and a pencil that's it They don't need anything else Yahoo Finance to maybe check quotes okay but sit them in a room couple hours 10K in a pencil And again that's who I want you
• 21:00 - 21:30 to be okay and I'll get to AI and to resources and all that stuff uh uh after Um okay But I'll teach you guys one of the best hiring tools if you're a manager And again none of the stuff that I like to talk about is a pill okay it's not like you take a pill and then it's a hack No it's a process It takes work The
• 21:30 - 22:00 returns on that process are really big But you know it's much better to give a procedure that is that diff that you have to execute and takes time because most people even if they they were like "Wow that's the best thing I've ever heard." Almost no one's going to execute on it And uh that's why you can share it uh because again it boils down to the execution And what it is is if you're a good hireer uh if you're good at hiring is the virtual bench Okay The virtual
• 22:00 - 22:30 bench is a list of people like you're an athletic team instead of having a bench that you can call immediately and put them on the field if you're in the NFL It's a list of people that don't work for you that have been prevetted that you've tracked over time and when you are ready and you think they are ready you hire them It's a tool that helps you solve for the four
• 22:30 - 23:00 problems Hiring is expensive It's time consuming It's competitive And it's uh [ __ ] excuse me it's expensive it's time consuming it's competitive and it's reflexive right by solving these four the virtual bench helps you solve these four problems because when you really need it you're scrambling to hire
• 23:00 - 23:30 somebody You know you're the the the mistakes that you can make are actually very expensive By the way what I mean by reflexive uh is that a good hire can multiply your business and a bad hire can destroy your business way beyond the cost of what you paid him Um I the guys that came up with this virtual bench process are the Smart family uh Bradford and Jeffrey Smart And they I think they say in one of their
• 23:30 - 24:00 books that a higher a hire can destroy value to the tune of two million of 20x the salary in some cases I've seen that actually I I I watched an analyst once uh lose $120 million for a PM in a year period Um and the PM was like "Well you know," he told me this and I think he realized he's like "Well thank God I only paid him 80 grand." I'm like "No
• 24:00 - 24:30 you paid him $120 million." Uh uh very very different Okay So uh the virtual bench here's how you do it There's some people they're just not ready to be to be uh hired Okay and what you do is you interview them They go through your process And then you put them on a list and then you and your team whoever is really good at hiring in your team you track them over time I recommend weekly some people
• 24:30 - 25:00 do monthly but it's like how's he doing okay what's he working on can we collaborate with him on an idea what can we send him that will add value to him okay and then you track him say say come bonus time is how do you do last year you know and then over time once you've tracked that talent you're actually able to be like wow he's gotten really good and then you need him it's like okay it's time to actually uh let's
• 25:00 - 25:30 work together very important to have a virtual bench uh process okay another thing I would recommend about hiring by the way is if you take uh the way that we cracked hiring because I was busting ing my head against a wall all the time is we literally on a wall set up the hiring process and we put in every step of the process So for example the
• 25:30 - 26:00 request for a proposal uh the request excuse me the request for candidates you know that's the first step You get a resume that's the second step You reply back to the resume that's the third step On and on and on And then we literally put in how do we do it how do we know other teams do it and then we started interviewing people and be like hey how do you hire and we and we started placing it And then we we have a principle called the Astrotella
• 26:00 - 26:30 principle where we said okay if you're trying to make anything 10x better You have to use differentiated tools differentiated assumptions and differentiated questions And we started asking different questions like hey everybody does this step almost towards the end What if we did it at the beginning and then boom we saw leverage Okay But one of the things that came up is that the hiring process doesn't end
• 26:30 - 27:00 when you make the an offer to the kid It actually ends 3 months after you've made the offer It's very important to actually understand that Um and and and a lot of mistakes are made because of the assumption that the hiring ended when you made the kid the offer So so I would leave with that Okay Third thing I would discuss uh portfolio
• 27:00 - 27:30 management Okay It amazes me still that there are no good books on portfolio management out there Uh not that I want to write it I have written extensively about it uh mostly for internal um and my friends that have read it all think maybe you should publish this Uh no uh I see the torture that my writer friends go
• 27:30 - 28:00 through even though I enjoy having written I think writing is torture for me Uh uh uh and you wouldn't believe the stuff I have to get myself to do to write Okay but I'll make a few comments Do you know that most PMs destroy value position sizing most PMs destroy value with exposure management and most PMs destroy value with trading Okay they actually add more value stock selection wise Okay
• 28:00 - 28:30 except when it comes to shorts I I would say that short selling a lot of PMs destroy value on the short side I think shorting is for boomers like me Uh we actually enjoy it but also it takes time to become good at the short side Uh and you have to study it But I would make a few comments If most PMs are short value position sizing and you're a rookie
• 28:30 - 29:00 PM equal weight all your positions If you have let's say 20 positions 5% each do that to get your sea legs okay don't don't try to to say "Okay here are my top 10." Because most PMs don't don't actually know what drives stock prices okay they usually use valuation and IR based irrased measure That's fine
• 29:00 - 29:30 but there are other things that drive stock prices So how do you what are the inputs that you use to know when you should size up or average down or get out totally and IRRa isn't necessarily the best It's it's it's good don't get me wrong but there are other things that you can use as inputs The second thing is uh portfolio management is personality driven The kind of portfolio management style
• 29:30 - 30:00 that you use is actually should be suited to your personality When you actually see the guys that do factor neutral or beta neutral that are really good at it it's like wow he actually has that personality that would be good at that Some of it is also IQ by the way because I actually do believe you have to be a brainiac on the nerd patrol to be good at uh factor neutral and beta neutral Um
• 30:00 - 30:30 uh but you know the the model I would recommend that you read about is the Jones model Um and that's the model that AW Jones came up with It was then perfected by by Julian Robertson and and a bunch of the tiger cubs and the tiger seeds and everybody has their own style to it but Lee Aninsley has written extensively about about it That should be part of your training materials By
• 30:30 - 31:00 the way I recommend in your training materials to read the Maverick case It's a very important case You can get it for 11 bucks at Harvard Business School uh uh at uh in their case uh department Um okay So so the Jones model you know basically says you know and the this is pre8 You run 150 long 100 short 50 net 250 gross with a long short ratio
• 31:00 - 31:30 of 1.5 And a measure of hedging is your long short ratio A lot of people think that if you run let's say 150 that you're hedged because you have 50 net but you're actually not because you you have a long short ratio of two right so so it's helpful the other thing that I recommend in portfolio manage oh sorry let me go uh and talk about the Jones
• 31:30 - 32:00 model um even though you use leverage The shortselling takes down your market exposure So if the market tanks you're usually hedged right and and what what AW Jones used to say is that even though leverage is speculative in this case you're using it for conservative ends Right the
• 32:00 - 32:30 second thing about the Jones model is that really amplifies stock picking because you're using leverage If you're a bad stock picker you're going to find out really quickly Okay so so if you're a good stock picker you should find out The other thing about it is it generally behaves in bare markets much better because what happens is if you're really good at stock picking as the market's going down the fundamentals of your longs is better So it your longs are not
• 32:30 - 33:00 going down as much as the market Whereas if your stock picking on the short side is really good your shorts are going down more than the market So your long short spread is actually uh uh tight and the Jones model also emphasizes certain uh aspects So for example it captures really really well business improvement I think one of the geniuses of Julian
• 33:00 - 33:30 Robertson if you studied him was the simplicity of his approach He was long good companies and short bad companies That's it So what would happen if a company was really really a good company but he wanted to short it okay that's the barrier to do that should be really really high Right so he didn't say "I want to be long cheap companies short expensive companies." If you're a rookie and you try that approach good
• 33:30 - 34:00 luck because you're going to be faced with with what's called the beta mismatch because guess what the the beta is usually driven by your holders The holders of a cheap company are very different than the holders of an expensive company and they behave totally differently around events or during the day-to-day and you can be beta mismatch and your your net exposure can can and your gross exposure can really murder you So you have to be very very careful about that The one thing I
• 34:00 - 34:30 would recommend if you're going to be using the Jones model is not only to be long good companies and short bad companies but you want to be long good companies that are getting better actually improving and you want to be short bad companies that are actually getting worse Of course it's better if the good companies are cheap and get deer over time Of course it's better if the bad companies are
• 34:30 - 35:00 expensive and getting cheaper over time You know of course uh uh this is to prevent all the value guys from having uh aneurysms um over what I'm saying Okay So we've touched upon three things Um hiring portfolio management and training materials I think um you know you can go very deeply in these things Remember that our approach
• 35:00 - 35:30 to our content strategy is to actually share things that improve the setup of investing of an individual You know everybody's like this is how you pick stocks H that's not useful What is this way that you set up structures conditions a network around you that will actually make you a better investor okay hope that was helpful Let's answer some questions
• 35:30 - 36:00 Okay All right Best books on selling conservative options fund management Um okay I don't recommend uh anyone using options Um options can be very much the path to the poor house for the
• 36:00 - 36:30 uninitiated Uh and even for people that are highly initiated Okay this it takes experience You have to study it And when you're doing options you're competing against Jeff Yas at Saskuana It's very bad for your self-esteem to compete against Jeff Uh because not only is he smarter than you he's richer than you and better looking Okay you don't want to compete
• 36:30 - 37:00 against guys like that Okay i recommend as part of your training materials to read the Jeff Yas chapter in market wizards and see what he says there and you're like that's the guy that if I buy or sell an option is literally out there picking me off you know by the way having said that there are times when options get cheap okay and the way to think about an option is not by using
• 37:00 - 37:30 the Greeks is think of them like a bookie would what are the pot odds and what are the implied odds okay you have to understand options the history of them to be able to use them well so I don't recommend using options okay the the the the is not uh something that you ever want to be like yeah you got to get long no no no no learn how to pick stocks better you know then later on you can improve on
• 37:30 - 38:00 the options Okay best books on fund management The market wizards book Must read Uh start with the originals The Draken Miller chapter the Cover chapter the Steinhard chapter the Jeff Yas chapter Um uh read reread them Um second uh More money than God by Sebastian Malib It's on the historical context of the of the hedge fund business
• 38:00 - 38:30 Sebastian spends years researching something In fact his research was so good that other fund managers were finding out that he was researching them So they were reaching out to him to make sure that what he was going to write had their perspective the end of the book you have I recommend you read it on physical and I recommend you read it on
• 38:30 - 39:00 Kindle Uh I'm a nerd okay so I I often have a physical copy of a book and a Kindle copy of a book And the reason why you want to read it on Kindle is he has these notations You press it and it goes towards the end of the book and he gives you context on the conversation that he was having Very valuable And in fact a lot of the secret to competitive advantage in the investment business are in that book Okay Now let me step back
• 39:00 - 39:30 Competitive advantage in the investment business is three things Analytical informational behavioral Okay so whenever you're reading anything and somebody says something you're like wait if I did this this would probably give me an edge Is it analytical is it informational is it behavioral and by behavioral I don't mean by my behavior or your behavior I mean by like how do you exploit the behavioral emotional psychological
• 39:30 - 40:00 incentive uh or like structural things that happen in marketplace that create bargains Okay A lot of competitive advantage is in more money than God I also recommend you read uh Reminiscence of a Stock Operator and you reread it Um every book has a secret every book has a flaw If I were you I would read the annotated
• 40:00 - 40:30 version of reminisence of a stock operator where uh there's a interview by Paul to the Jones in the book where Paul actually talks about what he gets from that book Every time I read it I learn but also in the annotation it actually tells you hey here is what we think he was talking about So you get a lot of historical context So books on fund management are powerful if they give you historical context Uh part of being a great analyst
• 40:30 - 41:00 is always knowing the historical context of the field you're in the historical context of a management team that you're analyzing and the historical context of a business and the competitive landscape and ecosystem that it's in You have to know that stuff Uh that's what I would start with Okay All right Am I routinely using AI and can you describe how good question Let me show you guys something and let
• 41:00 - 41:30 me know if you can see it Okay you might be able to hear it too and I'll be able to see if you can All right watch this
• 41:30 - 42:00 20 or going a little fast in school Okay 25 milesPH 135
• 42:00 - 42:30 All right So what did we just
• 42:30 - 43:00 see so police officers have a camera It takes a video takes recording and at the end of the day this AI program takes the video and the recording and actually writes a
• 43:00 - 43:30 report on it Now this is already here for investment management Um and it's very very important to not only learn how to use these tools but to learn the strengths and the weaknesses of them And stepping back a second the dirty secret of AI is that it's been in
• 43:30 - 44:00 the investment business already since the '9s In fact uh uh probably Renaissance Technologies was the first to use artificial intelligence and the investment business you know probably along with DE Shaw and then their ilk spread throughout the investment banks and so on So but also in the intelligence business so CIA MOSAD all
• 44:00 - 44:30 that stuff AI has been in there also probably since the late 1980s Okay Now what's interesting about about it though is that the original AI tool was actually designed to play back which is a game that I happen to love Um and one of my mentors wrote a book uh that is somewhere called uh learning from the machine where he was a professional back player and went and
• 44:30 - 45:00 played against uh Gerard Tosoro's TD Gam at IBM It was actually IBM that built it Did I get that right i think it's IBM Anyways and my mentor was amazed because the machine actually had huge advantages But guess what td Gam uh somebody came out with something better called Jellyfish then something
• 45:00 - 45:30 even better called Snowing then something even better called XG And as of now I believe XG hasn't been dethroned You can literally get it for your phone But to watch what AI did to backmon and in many ways it wrecked the game because a lot of the romantic guys in back that thought it was some mystical game that it was like luck and feeling and intuition and we throw the dice very softly We throw the dice very
• 45:30 - 46:00 hard A lot of those guys realize wow I'm actually a [ __ ] idiot This is actually a game of skill Okay And then it did something to chess AI Then it did something to to poker Then it did something to go And now it's doing something to investing And guess what the same mistakes that people made using AI for all these different fields they're making them with the investment
• 46:00 - 46:30 business and AI too Okay So it's important to actually understand that If you guys are trying to understand what's going to happen with AI and investing you have to read Tyler Cowan's Averages over I mean I recommend you read the whole thing but read I believe chapter five It's called our freestyle future where he discusses uh the insights that you can get from
• 46:30 - 47:00 freestyle chess where it's a chess tournament where there are human-only teams machineonly teams and machine and human teams and who has the advantages Okay Very important uh that you do that in terms of speaking about how we use it A lot of that stuff is proprietary Um um uh that's we could only share that
• 47:00 - 47:30 with partners But something that I think could add value uh if you're younger train yourself how to do analog first before you use the AI tools you know because using the AI tools take away a lot of the powers of a really good analyst Excuse me A really good analyst usually can read something
• 47:30 - 48:00 and then he makes leaps of judgment and logic and he also can read between the lines He also can visualize a business just by thinking about it and he usually has very very sick recall where he's like you know that reminds me of when I read this I believe that these AI tools take away a lot of that Okay And I'll share with you an anecdote Um the other day a
• 48:00 - 48:30 friend of mine sends me a 40-page report And that's usually what his firm does by the way These these amazing reports like reading them as like sex This time I didn't have time to read it And I've been testing ODR uh uh OpenAI deep research and I put in the report in ODR and it gave me 12 points my buddy calls me we end up having an amazing 30 40 minute uh
• 48:30 - 49:00 pow-wow on the idea We dialed it up okay meaning we found the field research plan We figured out the qualitative aspects We we we we found the bull bear points and then we kind of already had a plan uh and a workflow of what to do to to really jack up the idea and figure it out I don't tell him that I put in ODR though But hold on He's like "Hey by the way that report you read I use OD.R to
• 49:00 - 49:30 write it." I'm like "Mikey what do you mean?" Like say "Well I used I gave ODR all our reports and I told it here's a ticker Write me a report according to this." And it went and did it Like Michael hold on You use OD.R to write this I use OD.R are to read this Who's doing the work you know and now take that interaction and
• 49:30 - 50:00 multiply it There's going to be a lot of mistakes made because dudes are not doing the work properly Okay there's a lot of value and slowness and sitting there with a 10K thinking about things Uh very important Anyways I hope that's helpful All right Have you seen transitions from tech into PE what have you found seen or common patterns there
• 50:00 - 50:30 especially for mid-career professionals I've seen a lot of it Uh you can have a lot of advantages especially uh if you know the tech Most PE guys don't know the tech It's actually hilarious to actually uh see the PE guys They're really good at you know modeling but they don't really understand the technology You not only need to understand the technology but understand the customer Is the tech actually solving
• 50:30 - 51:00 the pain points of the the customer the beauty of technology is that it lowers your cost and extends your reach right so understanding the tech and that that's something that you can bring in and you look at a at a business and you're like okay this is a product that can actually work Um and then once you understand the tech you can also understand the cost structure around it and where to yank out costs um uh to make the business more valuable uh and
• 51:00 - 51:30 so on I mean there there are other advantages Um the the the problems you're going to have as a PE guy is how do you solve the sourcing problem sourcing has gotten very very competitive And a lot of PE is a project management problem rather than investment problem You know one of my problems with PE is that you can do a lot of work and never close a deal Uh that always bothers me actually Um uh there are aspects of PE that I love Uh
• 51:30 - 52:00 you learn a lot You know you have access to internal uh documents You know you you get to control the incentives of management You can put governance structures and rituals and and that that drive culture you know things that we can't do on the public side Uh uh but yeah uh there are ways it's just worth studying
• 52:00 - 52:30 Uh Simon we don't critique uh individual names only because uh we don't discuss individual names but I see some fairly high quality businesses on your list I really really recommend people study New Bank I I'm not investment recommendation We're not in the investment recommendation business Uh uh it's a terrible business to be in
• 52:30 - 53:00 We're in the fund management business and all of the businesses that you've listed are worth a study and some of them are uh actually it's a very high quality that you put up Um you know the there's a book on Amazon called Working Backwards must read chapter two and working backwards on hiring It's like sex for hiring Um sorry I can't be more helpful
• 53:00 - 53:30 there Any views on Fanny and Freddy released from conservatorship thoughts on recent opinion of Aman Py Bessant love Aman Love PY Love Bessant There is no way in hell I will ever give you an opinion on conservatorship of Fanny and Freddy It's not what we do We don't give opinions Are you a member of the VIC uh do you have any tips on what the committee
• 53:30 - 54:00 prioritizer looks for specifically i've tried three times before but I haven't cracked the code yet You just need good ideas Alex You know just work on your ideas Um you have to read the best Vic ideas I'm a Vic uh nut I love reading Vic Um but I'm also a memo uh reader Every day I try to read one to two investment memos Um and I think I I've
• 54:00 - 54:30 written about this and it's important You need a a daily ritual where for 90 minutes you're feeding your competitive advantage So I have specific competitive edges at what I do where not only am I good at it but I try to get better at it over time And I have thank God Uh because you should have seen me when I started out It was a it wasn't a catastrophe but my Jesus sometimes I
• 54:30 - 55:00 look back at the [ __ ] I was doing I'm like "Oh my god I fire me." And thank you to all my mentors and people that believed in me for giving me capital Okay thank you Um uh but what is your process here's mine I read three hedge fund letters I read 110K I go through the 13F of a fund manager that I admire And I read one to two investment memos every day for 90
• 55:00 - 55:30 minutes Uh it feeds my competitive advantages What's your edge what do you gravitate to in investing how can you feed that on a daily basis uh I definitely recommend you read Vic Um I mean by the way so to crack Vic you kind of need to know who founded Vic
• 55:30 - 56:00 And to be like uh uh I mean for example the founders of Vic wrote a book called You Can Be a Stock Market Genius Are you pitching ideas on Vic that fit that style it doesn't have to be spin-offs by the way but are you very valuable to actually go and just read that book okay The other thing is um are you pitching the heat you know
• 56:00 - 56:30 are you pitching really really high quality ideas are your ideas getting better you know the we have a a a thing called idea discipline If we read a memo and the memo is really good We spend time on that idea We got that from Barry Diller who used to pick uh movies on the script He called it script discipline If the script is really good you do it But anyways all right I only have 50 more
• 56:30 - 57:00 minutes Okay Do you incorporate till risk hedging into your portfolio um not really There are times when maybe options might be really really cheap and we buy some but again no that's what our net exposure uh is actually for Most uh uh tail risk uh I mean it's rare We have done it but
• 57:00 - 57:30 it's rare It's rare you you know that's why we have shorts If you're worried about tail risk you should run with cash because you don't know but the cash is actually going to be uh like your margin of safety in your portfolio One thing uh by the way uh we just we're writing a memo right now on families and individuals that are able to keep wealth across generations
• 57:30 - 58:00 Um it's really weird because the people that have written on it miss all sorts of stuff because mostly they are not that family They're observing the family But one of the things which is really clear is that it's having cash when the market freaks out that really matters right not really Investment acumen is literally having not only the financial fortitude meaning you have
• 58:00 - 58:30 cash when everybody is being fearful and you're looking at everything and you're like "Look I don't know what it's worth but it's four times earnings and this thing's going to be around in 10 years So you know maybe it'll go down another 20%." But it doesn't matter because I have cash and I can buy it right so always having cash always doing things to generate more cash and having cash is actually the the strength You know I I put out a tweet on Buffett His operating companies give him the cash to buy more
• 58:30 - 59:00 when the market freaks out Most fund managers don't have that When the market freaks out very very few people are investing more money in their funds right hypothetical an undergrads a free summer ahead What should his daily schedule look like for those nine days to become read uh and John Rui in your case spend time with me
• 59:00 - 59:30 pal you made a comment before the generalists tend to perform better in specialists Could you expand on that yes So the specialists tend to know a lot of details about their space which are important but they tend to be really bad at the really good business stuff right uh competitive strategy bargaining power you know having crosset insights
• 59:30 - 60:00 uh understanding the customer when you speak to a specialist He sometimes likes to show you how smart he is because he knows words you don't and you're like uh what does that mean and he tells you and you're like okay yeah there are certain sectors I definitely don't recommend generalists you know a buddy of mine he calls a certain sector where generalists go to die and it's hilarious uh because a few people are experiencing that right now Um so uh the other thing
• 60:00 - 60:30 is a specialist when his sector becomes overvalued there's nothing for him to do So he's constantly pitching you ideas He's like oh it's not that valuable it it's not that cheap but you as a PM you actually have to know that his sector is overvalued and and actually underallocate to that We prefer generalist Generalists also have crossasset networks rather than specialists that
• 60:30 - 61:00 have you know a network only within their space Okay So we know a few people for example that have only focused on financials and they have a hard time going to do anything else because they don't have the historical context of having done uh other things And then the other part about uh being a sector specialist it hasn't escaped the pods that it's easier to manage the sector specialist guys and replace them than to
• 61:00 - 61:30 replace the generalist guys right and also to motivate and manage generalist guys you know So you know you I if you if you look at the guys that run the center books and side pods they tend to be more generalist you know you've seen more patterns and you can recognize threats and opportunities better I should probably write something about that Um because I don't think I I just explained that correctly Only 10 more minutes All right Good question What are
• 61:30 - 62:00 the most creative approaches to driving dynamic range that you've seen analysts take up on their own initiative your network Expand your network Find mentors Uh we're we're human chimpanzees okay which means monkey see monkey do Much better to have a lot of smart monkeys about you and then you imitate them Very important to expand your network Remember the currency of our business is ideas You have a great idea
• 62:00 - 62:30 call the smartest PM you know pitch it to him get his reaction Okay over time you'll get better And over time if you're pitching him the heat he'll call you and pitch you the heat Right Case study on Vanguard is some interesting narrative on that issue Great point uh Thaker Uh I like it Thank
• 62:30 - 63:00 you You always need good shorts Okay Uh one thing about um uh great short selling is short bad businesses You know such if it's a good business don't short it Okay the the the I've saved a lot of money in my career where I look at something I'm like "Yeah it's a really good business you know but it's overvalued I'm going to go short it." Just don't do that
• 63:00 - 63:30 Find already a shitty business that got pumped up for some reason and you're like "Wow that's not a really good business." Apply traditional competitive strategy analysis to it Okay uh bargaining power Um we like breached moes So if a business has a moat and you can literally see the competitors like hitting the moat and breaching through short
• 63:30 - 64:00 that So should one look at trades such as aggression or passivity when picking portfolio management styles uh absolutely It's helpful here to study the poker terminology on this Uh the tight aggressive investor tends to outperform I think uh the loose aggressive guys it's rare I I do know some loose aggressive guys that are really really good but what they do is
• 64:00 - 64:30 they use crawl walk run So they they're tight aggressive when they're crawling meaning crawling to being up 7% Then they loosen up a little bit when they go from being up 7% to up 15% And then when they're up 25% it's like holy [ __ ] they loosen up Um I don't recommend that I'm a tight
• 64:30 - 65:00 aggressive guy uh even when I played poker Um there were times when I was younger where where I was a lag uh but I was under specific poker playing situations and investing You're managing other people's money Be tight Be tight Um analyst's job is to give us portfolio manager conviction Nero always great questions Does this relationship also
• 65:00 - 65:30 apply portfolio manager and the conviction with his portfolio management style absolutely Um uh conviction is paramount You have to to to be able to develop it develop it very fast and also to lose it very fast when when things change Very important to study Stan Ducken Miller on that uh the the the level at which he he changes his mind It's okay to change your mind
• 65:30 - 66:00 Okay One of the reasons why we don't recommend people pitching their ideas publicly is the psychological aspects of having your word out there and being wrong makes it much harder for you to change your mind because you're afraid of of people being like "You were wrong." You know so guys end up "Who cares you pitched it publicly You were wrong I was wrong yesterday." Okay the there's one idea
• 66:00 - 66:30 that's a very popular uh short right now We looked at it we actually think it's a long and it's being literally attacked like you wouldn't believe And and even by friends of ours and we look at it and we don't we actually don't know We've done the work We don't know if it's a long we don't know if it's a short We have no idea Okay Am I right am I wrong on it i I don't know I don't know But we love it because we love bull bear
• 66:30 - 67:00 battles Uh and we haven't developed conviction on it yet but we we'll see Okay You spend time reading investment memos and company specific notes if so which are your top shot shops you trust the most uh we can't disclose that and I don't think my friends would like us to disclose that either Um there are there are some historical stuff out there You must read anything Aman puts out in the company The level
• 67:00 - 67:30 of work that he does you know it's it's it's very very good Um if there are guys out there that have put out things publicly you know they're worth reading Um you know I can't think of people um you know Baron Capital puts out public stuff We like to read their stuff We think it's very very good You know any mutual fund or or outfit out there that
• 67:30 - 68:00 puts out stuff publicly you know read it and over time decide you know if you've learned from it By the way one of the signs that you're reading a good memo is are you learning from the memo you know is the hair on the back of your your neck like it gives you the chills you know the for us it's uh it's one of the signs that we know we're going to make money is if we're learning Okay All right I only have five
• 68:00 - 68:30 minutes Uh Ocean I can't answer if we are long anything Thanks for doing this Have you considered writing a booking do you often write to clarify your own thinking any advice to finding a mentor uh find smart people uh ask them questions uh learn from them anybody that will spend time with you you'll you'll your failure will be high but you'll do well then the diligent collecting your various content recommendation across your video do you
• 68:30 - 69:00 have a comprehensive list anywhere not really I haven't done structured analytical techniques for CIA training also must read yes must readad uh same writers you know generally to learn analysis it's helpful to learn it from different fields it ends up that Every single intelligence outfit out there including the CIA including DGSC and all the others except for the Chinese really they've all written stuff about analysis
• 69:00 - 69:30 Go read it It's if it's being used by governments and deciding life or death read it Uh uh Rand Corp has a bunch of amazing pieces especially on strategy If you're trying to learn strategy in business it's not just useful to read Michael Porter's competitive strategy or the economics of competitive strategy or the seven powers or these books How but how does the military do do strategy how
• 69:30 - 70:00 do basketball teams do strategy how does the NFL do strategy you need those analogies Very powerful Met with a PM on two separate occasions What would like to work for how would you go about keeping in touch with his intent in mind okay Uh so this is gonna be the last question I answer There's some really good questions here boys Uh geez I could but I have to go to a meeting with the co where the co-CEO of Netflix is speaking So I only have four minutes Uh
• 70:00 - 70:30 hold on Let me see if this is the best question to answer S would like to work for who would you go back keeping in touch with is Zack ping me after pal You and I know each other Ping me and we'll talk about that Okay Lucas do you pay for any research content and what's your weekly reading content routine look like i read like I said for 90 minutes every day There are sometime weeks if I'm doing a learning project So I'm
• 70:30 - 71:00 doing a learning project uh right now on movie directors Uh Christopher Nolan is a god Uh and you can learn a lot from that guy So I'm reading a lot about that but reading 90 minutes We have a uh a rule We don't pay for research We don't um it it's it's not I don't want my guys
• 71:00 - 71:30 to be paying for something that they can get for free Okay It's And part of it comes from how I started I had no resources but that makes me creative and it makes me reach out to my network Okay and in reaching out to your network strategic benefits and strategic back products come from that where somebody's like "Hey you know you're looking at that You should look at this
• 71:30 - 72:00 this and that." And this and this and that ends up being the reason why you make money afterwards So one of the constraints that we put on our guys is we don't use research So we don't pay for anything I can't you know I use my tech stack that I pay for is BMSAC ticker It was started by a friend of mine and and I love it and the cost benefit is just insane And Finn Viz I have a Bloomberg I pay for it I very
• 72:00 - 72:30 rarely use it Uh go figure Okay Jen Rui I'll I'll cover that question when you and I have our weekly session Okay What level of shamelessness is needed to build a great network do you have any examples how you found your network and mentors last question You need a lot of shamelessness You're going
• 72:30 - 73:00 to get rejected a lot Okay Hounding somebody is often a really good approach Don't forget that um people that have gotten to be very very successful usually have done it with persistence and determination You know in the old days you guys are sending out resumes right now 30 emails at a time but back in the day you had to print out
• 73:00 - 73:30 a hundred resumes mail them show up there interview you know and that level of persistence is kind of lacking today you know and it's it's a game of numbers you know so you have to keep persisting The second thing is you have to follow the professor approach There's a guy Professor Raalo at Colombia He has an approach She says "Look if you're approaching a mentor you write him a message It has three things in it First thing this is what I admire about you."
• 73:30 - 74:00 Flattery goes a long way Okay second paragraph this is what I can do for you Third paragraph this is what you can do for me And then you always make the third paragraph smaller meaning you your ask is smaller than what you can do for him Always approach a mentorship with how do I add value to this guy okay you wouldn't believe sometimes by talking to
• 74:00 - 74:30 a mentor and you're like look what are your fears and frustrations what are your wants and aspirations and you go and do research on how to solve that problem and you call him back and you say hey I met a guy that can actually help you solve that problem Okay that's you have to add value People think too much in terms of extracting value That's not valuable Add value Add value Add value Much much more valuable Okay All right I hope that was useful Um
• 74:30 - 75:00 uh differenti management team These are all great questions guys Uh I could spend hours on that but I got to run Um uh thanks for showing up I'll try to put this up on on on YouTube uh later I hope it was valuable Um I'll try to do these more often I I'm a I'm an extrovert so I often need to do this stuff Uh and again
• 75:00 - 75:30 great questions Uh uh today I there's a bunch of guys here I know but Lucas all you guys great question Okay Uh uh JS most important lesson I've learned this year dude So many Uh I could do a whole pod about this a whole AMA about this So we'll do it again another time Thanks for showing up I got to run