• 016 07/16/2014 Hedge Fund Launch

    Jon Gattman, who I’m privileged to say is a cool friend, is in the process of launching Cloverdale Capital, a Dallas-based, value focused long/short equity hedge fund. He has capital committed, and the fund is set to launch in October of this year. Everything is lined up with one exception: junior talent.

    Recently Jon mentioned that outside of intelligence what he is looking for in a new hire is passion.  His comment reminded me of an interview I read previously featuring Tiger Tyagarajan, chief executive of Genpact. I thought the following excerpt from Tyagarajan's interview was worth sharing in this context:

    How do you hire? What qualities are you looking for?

    The single biggest quality I look for is the ability and desire to learn. Are you a really curious person? If you are, then you learn. If you’re not, then you won’t learn. And curiosity opens up so many other windows. You’re more inclusive. You question more, and you listen. In today’s world, if you’re not curious, you’re dead, because every day is so different from yesterday. In an interview, I want to know whether you exhibit all the qualities to learn, and are you willing to spend the blood, sweat and tears to learn? How important is that for you? Show me some examples of that.

    One thing that often comes with curiosity is sheer passion, and that can neutralize many other shortcomings. You may make a lot of mistakes. You may end up going down the wrong paths. You may have to make decisions that are based on not enough information. How are you going to convince people to follow you? If you don’t have passion, you’re not going to be convinced yourself, and if you don’t wear that on your sleeve, how are other people going to be charged up to go in that direction?

    They actually depend on what you’re telling them, because they may not also have all the answers. And hard work and persistence have to start with passion, because if you don’t love what you do, it’s not going to work.

    The full interview, which is part of a feature titled "Corner Office" in The New York Times, can be found HERE. If you are interested in the feature I would suggest perusing the ARCHIVES as well. One of my favorites profiles Daniel Lubetzky, the chief executive of Kind Snacks (omnipresent nut bars in transparent packaging). Lubetzky’s interview is particularly entertaining because he was formerly a magician, and he explains why magicians make great CEOs – LINK.

    Also, the original purpose of this post was to help Jon engage potential candidates. If you believe you might be interested in pursuing an analyst position please apply HERE.

 



  • 015 07/04/2014 365 Days of Models

    The image above is a screenshot from Google Analytics showing activity by country since I launched the website one year ago today on the 4th of July. It has been awesome to see the site move across the globe.

    I wanted to take this opportunity to thank all of the nerds that frequent this website. Thank you nerds. 

    Now if I could just get Eritrea on the map...

 



  • 014 07/01/2014 "You Have to be Uncommon"

    I wanted to share two passages that touch on a recent post, and add some heavy-hitter commentary advocating contrarian thought and concentrated investing. The first is one of Howard Marks' favorite interview questions (or riddles), which he claims has never been answered correctly: 

    For years I've posed the following riddle: Suppose I hire you as a portfolio manager and we agree you will get no compensation next year if your return is in the bottom nine deciles of the investor universe but $10 million if you're in the top decile. What's the first thing you have to do - the absolute prerequisite - in order to have a chance at the big money? No one has ever answered it right.

    The answer may not be obvious, but it's imperative: you have to assemble a portfolio that's different from those held by most other investors. If your portfolio looks like everyone else's, you may do well, or you may do poorly, but you can't do different. And being different is absolutely essential if you want a chance at being superior. In order to get into the top of the performance distribution, you have to escape from the crowd. There are many ways to try. They include being active in unusual market niches; buying things others haven't found, don't like or consider too risky to touch; avoiding market darlings that the crowd thinks can't lose; engaging in contrarian cycle timing; and concentrating heavily in a small number of things you think will deliver exceptional performance.

    The second passage comes from legendary investor Joel Greenblatt's book You Can be a Stock Market Genius, and adds quantitative support for "concentrating heavily in a small number of things." Before you read it, I want to point out that the reason for including this excerpt is that many of the methods Marks describes appear counter-intuitive. Why would you invest in what most "consider too risky to touch" or concentrate your portfolio "heavily in a small number of things" when you have always heard to avoid risk and diversify? Greenblatt does an excellent job addressing these questions, and the passage that follows is a good example: 

    Statistics say that owning just two stocks eliminates 46 percent of the nonmarket risk of owning just one stock. This type of risk is supposedly reduced by 72 percent with a four-stock portfolio, by 81 percent with eight stocks, 93 percent with 16 stocks, 96 percent with 32 stocks, and 99 percent with 500 stocks. Without quibbling over the accuracy of these particular statistics, two things should be remembered:

    1. After purchasing six or eight stocks in different industries, the benefit of adding even more stocks to your portfolio in an effort to decrease risk is small, and

    2. Overall market risk will not be eliminated merely by adding more stocks to your portfolio.

    If you are not familiar with Greenblatt I would recommend his book. Not only is he excellent at outperforming the market - he managed an annualized return of 50% over the course of a decade at Gotham Capital - he also has an unusual sense of humor. I like to think it's why the cover of his book is covered in $100 bills (see image at right). 

    The letter from which Howard Mark's riddle was taken can be found HERE

    Title of this post taken from Herb Brooks.

 




 



Models are:
 
A) really boring
B) pretty sweet
C) super important
D) somewhat easy
E) kind of hard
F) fun
G) all of the above

 

 


*Answers a, b, c, d, e, f and g are all correct.