Episode 95 is a radio show format. We start with a recap of Meb’s recent travels to Nicaragua and San Francisco, but then dive into a discussion about volatility. With the VIX spiking at the beginning of the month, some short-vol funds suffered massive losses. We discuss the short-vol trade, then the long-vol trade.
Next up, Meb gives us a quick (overdue) update on his trip to see Van Simmons, including which coins he purchased. But we quickly dive into a different topic – a recent offering from Wealthfront that’s raising some questions for Meb. The conversation touches upon a risk parity market approach, robo fees, and general transparency.
We then jump into listener Q&A. Some of the questions you’ll hear answered include:
All this and more in Episode 95.
In Episode 94, we welcome entrepreneur, author, and SEC filings expert, Michelle Leder.
We start with Michelle’s background. She was a business journalist – a self-professed “document geek.” She wrote the book Financial Fine Print: Uncovering a Company's True Value and decided to launch a website as an accompaniment to the book. Here we are, 15 years later.
Meb asks Michelle to give an overview of what she’s looking for in the various filings. She tells us that changes are important. She doesn’t necessarily look closely at the numbers because it’s more about the language. Also, the forward-looking statements can be big. Michelle mentions an example of one that used a significant amount of extra language.
This dovetails into a discussion about the process – is it a keyword search or is there software? Michelle uses both, as keywords alone don’t always work. She gives the example of when Goldman Sachs was subpoenaed, the language used to describe it in the filings was something like “an invitation to respond to the DOJ.”
Meb asks for examples of red flag behavior in the filings. Michelle looks for unusual compensation or stock grant amounts. Also, lots of extra language used to describe earnings or adjusted EBITDA. She mentions a company called GT Advanced Technology, which used to be an Apple supplier. In one particular filing, they added new disclosure language, identifying their dependence on Apple, and their vulnerability if that relationship soured. Some time thereafter, Apple ended the relationship.
Next, Meb and Michelle discuss the “Friday Night Dump.” This is the 90 minutes after market close on Friday, when there’s no major trading. Companies tend to dump all their bad info here. Michelle mentions recent examples using Tesla and Wynn. But her most memorable disclosure dump was Chesapeake Energy, revealing it had paid over $12M for a map collection.
Meb asks if Michelle has ever been contacted by a company she’s profiled, trying to defend or explain itself. She mentions Dell. Apparently, the company once purchased a company from Dell’s own brother and something seemed a tad off. After Michelle covered it, Dell reached out to tell her she had gotten it all wrong.
This is a fun episode with plenty more in it – what sort of time commitment this would take the average investor… the atmospheric changes Michelle has seen in the last 10-15 years… the story of Meb stealing someone else’s disclosure language for his own blog but forgetting to remove the other company’s name…
There’s even a discussion of something Twitter did recently that grabbed Michelle’s interest. If you’re a Twitter investor, you might want to listen.
All this and more in Episode 94.
In Episode 93, we welcome entrepreneur, author, and quant investor, John Reese.
We start with John’s background. When John was a child, his father was a subscriber to Value Line, and John related to the charts and numbers. Later, this love of numbers took him to MIT, where he researched how to take the wisdom from books and turn it into computer programs. Years later, when he sold his company to GE Capital, John needed to learn how to invest the proceeds. Yet, he wasn’t sure which investment guru to follow in doing this. He decided to study a handful of gurus, and was disappointed to find that there was no repeatability and sustainability of outperformance over multiple time periods.
However, John then came across Peter Lynch’s One Up On Wall Street. In the book, Lynch had provided enough detail about his strategy that John was able to translate it into a computer program designed to pick the stocks that Lynch might have chosen. The results were solid. John then moved on to Ben Graham, eventually codifying 12 different guru strategies. He then put his research up on a website, which eventually morphed into Validea.
Meb asks about the challenges of this – namely, many managers have a qualitative component to their stock selection as well quantitative. How did John account for this?
John tells us this was very challenging. He had to re-read the various books multiple times, determining whether the printed word actually matched what the guru did in the market, versus his actions revealing more information or biases. Meb asks about filtering the incredibly long list of potential gurus to follow, and John tells us the list actually wasn’t too long. Most gurus didn’t have a sufficiently-long track record of performance, or they didn’t describe their strategies in sufficient details as to be able to be codified.
Meb then asks how John determines when a period of underperformance reveals a manager has lost his touch, versus the manager’s style is simply out of favor.
John tells us that he first looks at the length of time in which the strategy worked. If it was long enough, he tends to believe that, at some point, the strategy will come back into favor. He goes on to tell us that in all of his research, he found that there was not one strategy that outperformed the market every single year. They were these periods of going-out-of-favor that paved the way for the outperformance that occurred when the style came back into favor.
The guys then jump into an actual example of how John’s guru quant strategies work, using Buffett. Be sure to listen to this part for all the details.
Moving on from Buffett, Meb asks if there are any common attributes to the models that tend to do the best – any broad takeaways.
John tells us that, over time, the more successful strategies tend to have a value orientation, some kind of debt criteria, and they’re all profitable.
Meb asks – “Okay, gun to your head, which strategy has outperformed?” I’m going to make you listen to find out John’s answer, but odds are you’ll be surprised.
Next, the guys turn to factors, with Meb asking if there are any combination of factors that John tends to prefer. John says he likes momentum and mean reversion. This leads into a conversation on timing factors.
As usual, there’s far more in this episode: practical guidelines for listeners looking to follow along… portfolio construction in today’s challenging environment… what John would have done differently if he could start over again on Day 1… a roboadvisor for income investors… and of course, John’s most memorable trade.
This one happened the day after Black Monday. What are the details? Find out in Episode 93.
In Episode 92, we welcome investor, author, and activist, Andrew Tobias.
Meb starts by asking Andy about his background and introduction to investing. Andy gives us his origin story, with highlights including collecting stamps, an early introduction to the stock market, a trip behind the Iron Curtain which led to a brief dalliance with Communism, then his becoming a paper millionaire due to some creative accounting (then those monies disappearing). It’s a fascinating look back.
Next, Meb recalls a survey we conducted some quarters ago, soliciting readers’ favorite investing books of all time. Andy’s book from 1978, The Only Investment Guide You’ll Ever Need, turned out to be high on that list. Meb asks Andy to explain the thesis of the original book, and whether there have been any significant changes in subsequent editions.
Andy tells us “There are just a few things you really need to know about investing, and they don’t ever change. The problem is it’s hard to get people to really grab onto them.” He goes on to say that investing isn’t like cooking or chess, where the more you read/learn, the better. Instead, with investing, the more you read, the more you can get yourself into trouble. He gives us an example using commodity speculating. Given that so much about investing remains constant, Andy’s revisions in subsequent editions haven’t been too substantial.
Meb pushes a bit more, asking if there’s any subject about which Andy has changed his mind since the original publication.
Andy tells us he’s become a bigger fan of special opportunity investing. Most people aren’t looking for this type of thing. So, Andy discusses putting 80% of your portfolio into inexpensive index funds, but spreading the remaining 20% over 5-6 really interesting, exciting speculations. Most will go to $0, but maybe you hit with one or two, and those proceeds offset the losses and more. Plus, this satisfies the need to have something more exciting to do with your money.
Meb agrees with this idea, and asks about Andy’s speculative process – is it rooted in quant or is there a discretionary component? Andy answers by giving us an example with Support.com.
Next, the guys discuss valuations, comparing where we are now to where we were back in the early ‘80s. It seems we’re flip-flopped a bit in terms of interest rates and equity valuations.
This segues into private investing, with Andy telling us about how came to own farmland. Turned out to be a great investment, buying at $500 an acre and selling years later at $3K an acre. Meb agrees farmland is a great asset class, but it’s hard to allocate toward.
This dovetails into a few other private investments in which Andy has participated, most notably “Honest Tea,” which was purchased by Coca Cola, as well as a small, musical comedy, which went on to play on multiple continents over many years.
The guys bounce around a bit here, discussing the need to spread your bets in private market investing… lockups… the benefit of illiquidity… binary thinking… Andy’s firsthand experience with selling way too early…
There’s plenty more in this episode, including Andy’s concerns for our existential future, his most memorable trade, and finally, a product he endorses which might help tackle dementia and improve reflexes. Apparently, Tom Brady swears by it.
What are the details? Find out in Episode 92.