Podcast Summary
Learning from Experienced Investors and Diversification: Learn from experienced investors, focus on asset allocation, and maintain a well-diversified portfolio with top managers in various asset classes.
Learning from this discussion with Ted Seides is the importance of learning from experienced investors and the value of a well-diversified portfolio. Seides began his career working for David Swensen at Yale Endowment, where he learned the principles of asset allocation and picking managers instead of individual stocks. Yale's portfolio is known for its broad allocation, with only 10% in US stocks. Seides adopted this approach, focusing on finding top managers in various asset classes to compete against the world. The institutional market, despite having large pools of capital, often has under-resourced teams. Therefore, it's crucial to ensure each manager can compete effectively in their respective fields. Overall, Seides' experience at Yale shaped his investing style, emphasizing the importance of learning from experts and maintaining a diversified portfolio.
Partnering with the best experts: Successful investing often involves finding and collaborating with top talent in the field, rather than competing directly.
Successful investing often involves finding and partnering with the best experts in the field, rather than trying to compete with them directly. David Swensen, a renowned investor, emphasized this approach and developed expertise in identifying and collaborating with top talent. This style of investing requires a different skill set compared to traditional stock research, but both disciplines are viable. Swensen's superpower lies in his independent streak, intelligence, and ability to see around corners. He is also an exceptional communicator and thinker, always focusing on the next important aspect of his investment program. The ultimate decision-making power in investing lies with the person who owns the money, with CIOs serving as their close advisors. Swensen's coaching style influenced his mentees, emphasizing the importance of finding and collaborating with top talent in the industry.
Learning from Yale's Investment Approach: Be rigorous about investment objectives, understand personal biases, maintain consistency, and consider alternative asset classes or strategies beyond traditional 60-40 portfolio.
Investing with the likes of David Swensen and Yale University's endowment may not be directly replicable for retail investors due to their unique network and resources. However, the process and disciplines they employ can be learned and applied to one's own investment strategy. For instance, being rigorous about investment objectives, understanding personal biases, and maintaining consistency in executing beliefs are essential elements of a successful investment approach. Additionally, the traditional 60-40 portfolio of stocks and bonds may not be sufficient for meeting spending needs given current market conditions, and investors may need to consider alternative asset classes or strategies.
Seeking Higher Returns Beyond US Stocks and Bonds: To achieve desired portfolio growth, individuals may need to look beyond US stocks and bonds for higher returns. Institutions require a higher rate of return, and alternatives include diversifying through ETFs, cryptocurrencies, and companies like Blackstone and KKR, as well as listed hedge funds like Pershing Square and Third Point.
With stock prices being high after the stimulus, earning a 3-4% return may not be enough for individuals to achieve their desired portfolio growth. Institutions, as better-equipped proxies for individuals, require a higher rate of return. Thus, it's essential to consider alternative investment opportunities. This includes diversifying away from US stocks and bonds through ETFs, cryptocurrencies, and public companies like Blackstone and KKR. Additionally, listed hedge funds like Pershing Square and Third Point provide access to high-quality opportunities. Risk management is crucial in retail investment, and exploring various investment options can help mitigate risks and enhance potential returns.
Understanding personal risk tolerance and acknowledging unpredictable risks: Effective risk management involves recognizing potential loss, understanding personal risk tolerance, and implementing processes to minimize emotional reactions during market volatility. Strategies include forming decision-making groups, seeking professional expertise through hedge funds, and staying committed to long-term objectives.
Effective risk management in investing requires acknowledging the unpredictable nature of risks and understanding one's personal risk tolerance. As economist Peter Bernstein noted, risk means we don't know what will happen, and even if we think we do, there are always unforeseen outcomes. Risk management is about recognizing the potential for loss and determining how much risk one can afford to take while staying committed to long-term objectives. Even experienced investors can be swayed by emotions during market volatility, leading to impulsive decisions. To mitigate this, investors can establish decision-making groups to hold each other accountable and implement processes to minimize emotional reactions. For individuals with significant capital, investing in hedge funds can provide additional layers of risk management through professional expertise and diversification. Ultimately, risk management is an ongoing process that requires self-awareness, discipline, and a commitment to long-term goals.
Investing in Hedge Funds: High Fees, Limited Access, but Potentially High Returns: Hedge funds offer high returns but come with steep fees and limited access to retail investors. Notable managers like Bill Ackman have accessible funds, but the best performing ones may not be available to all.
Hedge funds, despite their high fees and limited availability to retail investors, can offer attractive investment opportunities with potentially high returns. The exception to this is retirement accounts, where tax consequences are less of a concern. Notable hedge fund managers like Bill Ackman have listed vehicles that individual investors can access, but the best performing funds may not be available to everyone. The fees charged by hedge funds reflect the demand for their unique investment strategies and the perceived value they bring to the table. Institutional investors, who may criticize high fees in theory, can still invest in new hot funds that don't align with their stated preferences. Ultimately, the decision to invest in a hedge fund depends on an individual's belief in the manager's ability to deliver returns net of fees.
Understanding risk tolerance and market conditions: Successful investing involves balancing strategies, risk tolerance, and market conditions. Value investing can be effective, but investors and clients may not have an infinite time horizon. A more balanced approach, such as investing in funds, can be a better fit for some. Adapt to your unique 'sweet spot' and respond to results accordingly.
Successful investing isn't just about what strategies you use, but also about understanding your own risk tolerance, your clients' risk tolerance, and the market conditions. Value investing, as highlighted by the example of Ben Graham, can be effective over the long term, but investors and their clients may not have an infinite time horizon. Therefore, a more balanced approach, such as investing in funds and knowing why you're there, can be a better fit for some. Each investor has their unique "sweet spot" or pitch they're hitting, and it's essential to understand that and adapt accordingly. The market can stay irrational longer than you can stay solvent, and it's crucial to be aware of your limitations and respond to results accordingly.
The importance of human intuition and data analysis in investing: Successful investing requires a balance of human intuition and data analysis. Proper portfolio construction is essential to maximize returns and minimize risks.
Successful investing requires a combination of human intuition and data analysis. While numbers can provide valuable insights, human intuition can detect things that numbers can't describe. Therefore, it's essential to use both man and machine in the investment process. Another key point discussed was the importance of proper portfolio construction. Portfolio managers can either equally weight their positions or weight them based on conviction. However, without rigor in portfolio construction, managers can end up losing money. The science of portfolio construction is becoming more prominent in investing, particularly in hedge funds, where the focus is on allowing stock selection skills to shine without portfolio construction getting in the way. For individual investors, this concept may not be considered as deeply. The authors of the discussed book, "Capital Allocators" and "So You Want to Start a Hedge Fund," provide valuable insights from their experiences in the industry, emphasizing the importance of understanding the business and industry before starting a hedge fund and identifying a competitive advantage.
Learning from Hedge Fund Case Studies: Despite industry challenges, passionate investors can learn valuable lessons from hedge fund case studies. Stay committed to your strategy, even in the face of adversity, and consider financial tools like high yield cash accounts to maximize returns.
Entering the hedge fund industry is a challenging endeavor due to industry maturation and the increasing dominance of larger funds. However, for those deeply passionate about investing and willing to do things the right way, there are valuable lessons to be learned. Ted Seides, the guest on this podcast, wrote a book sharing such lessons based on real hedge fund case studies. The landscape may be difficult, but the potential rewards can be significant. It's important to understand the challenges and be prepared for the low probability of success. Moreover, financial tools like high yield cash accounts with Public.com can help individuals earn higher interest rates on their savings, maximizing their potential returns. As always, it's crucial to trust reputable sources for financial advice, like NerdWallet, which can help you make smarter financial decisions. In the past, Ted made a bet with Warren Buffett that he could beat the S&P 500 with a hedge fund, but unfortunately, he lost. Despite the loss, Ted maintains that he would have made the same decisions looking back. This experience underscores the importance of staying committed to one's investment strategy, even when faced with adversity.
Hedge funds didn't outperform S&P 500 post-2008 crisis due to less market exposure: Despite global market exposure, hedge funds underperformed S&P 500 post-crisis due to less market exposure on average. Interacting with Buffett was a significant win.
Key takeaway from the discussion about "The Bet" between Ted Seides and Jason Brett is that hedge funds, being hedged investments, did not benefit as much as the S&P 500 during the period of strong market growth following the 2008 financial crisis, despite having global market exposure. This was primarily due to the fact that the S&P's performance was closely tied to the Fed's intervention, and hedge funds have less market exposure on average. However, the experience of being part of the bet and interacting with Warren Buffett was considered a significant win. When preparing to meet Buffett, some individuals may prepare specific questions, but the most enjoyable conversations often occur when they are more free-flowing and unscripted. Buffett's vast knowledge and entertaining personality make for engaging and memorable interactions.
Warren Buffett's humility and exceptional mind: Buffett's single-minded focus on business, deep understanding of pricing, and entrepreneurial spirit made him a billionaire and stand out money manager. His impact on others' careers is notable.
Learning from the conversation is that Warren Buffett, despite his public success and wealth, remains a humble and deeply focused individual with an exceptional mind and entrepreneurial spirit. George Moore, who has a long career in allocating capital to money managers, was immediately impressed by Buffett and believes he could have become a billionaire again with no resources if he hadn't already achieved that feat. Buffett's single-minded passion for business and deep understanding of pricing and entrepreneurship were evident from his early ventures and continue to be a driving force behind his success. Moore emphasizes that it's not easy to identify a phenomenal money manager, but Buffett stands out as someone who would undoubtedly figure it out. Additionally, both Jerome Lewis and Jerome Maldonado mention that their experience in managing money and investing in managers has led them to increasingly focus on coaching and leading, highlighting Buffett's impact on their careers.
Understanding the investment process: Assess ideas, prioritize, interview managers, monitor performance, effort matters but not the only factor, use equal weight or conviction weight for position sizing, be mindful of adding value when using conviction weight, look to experienced investors for guidance on selling decisions
Successful investing is not just about making more money, but also about understanding the process behind it. The speaker, Trey Lockerbie, emphasizes the importance of assessing the investment process, which includes finding ideas, prioritizing them, interviewing managers, and monitoring their performance. He suggests that effort is important, but not the only factor, and that the best ideas don't always come from the most effort. Lockerbie also shares insights from his book on hiring, including the importance of position sizing and deciding when to sell. He recommends using either equal weight or conviction weight for position sizing and being mindful of adding value when using conviction weight. Regarding selling, he mentions that active managers are often good at buying but not as good at selling, and he suggests looking to experienced investors like Richard Lawrence for guidance on developing a framework for selling decisions.
Understanding the reasons for selling stocks and taking calculated risks: Stay informed, adaptable, and willing to take calculated risks in the ever-changing world of investing. Reasons for selling stocks include recognizing mistakes, rebalancing, competition for capital, changes in outlook, and getting tomorrow's price today. Post-IPO preannounced merger SPACs offer controlled risk and potential for significant upside.
Successful investing involves making informed decisions based on various reasons, but also understanding the subjective nature of the market and being willing to adapt. The five reasons given for selling stocks include recognizing mistakes, rebalancing, competition for capital, changes in outlook, and the controversial "getting tomorrow's price today." Jason Brett shared his favorite investment idea in the form of post-IPO preannounced merger SPACs, emphasizing the controlled risk and potential for significant upside. Trey Lockerbie added that risk should not be defined as a lack of knowledge, but rather as the uncertainty of future outcomes, which can include both positive and negative surprises. Overall, the discussion highlighted the importance of staying informed, being adaptable, and being willing to take calculated risks in the ever-changing world of investing.
Learning from experts and applying their insights: Prepare for uncertainty by listening to Ted Seides' podcast episodes with Annie Duke and Patrick O'Shaughnessy. Gain insights from their discussions on 'thinking in bets' and 'leading and investing'.
Importance of being prepared for uncertainty and learning from the experiences of successful individuals. Ted Seides, the host of Capital Allocators podcast, shared his recommendations for two must-listen episodes: the first one with Annie Duke, where they discussed the concept of "thinking in bets," and the second one featuring Patrick O'Shaughnessy, where Ted spoke about his new book. Preston Pysh, a guest on the show, praised Ted's book, "How the World's Elite Money Managers Lead and Invest," and emphasized its applicability to various business roles. Ted concluded by sharing ways to access his content, including his website, social media channels, and premium content. Overall, this conversation highlights the value of learning from experts and applying their insights to navigate the complexities of business and investing.
