The Risk Management Side of Investing in a Security

My guest in this episode is Jason Thomson, a portfolio manager at the William O’Neil family office.

On paper, Jason doesn’t seem like a particularly good fit for this podcast.  He runs a highly concentrated discretionary portfolio of growth equity names.  He can be levered long, net short, or completely out of the market all at his discretion.

What becomes rapidly apparent is that while Jason has ultimate discretion, he adheres closely to a disciplined, rules-based process driven by the empirical research of an in-house quant group.  The core framework of that process retains the spirit of William O’Neil’s original CANSLIM methodology, but now has nearly a half-century of learning and nuance layered on top.

As a quant, it is tough to hear “growth” and not think “expensive.”  Jason dismisses the idea that growth investing is all about headline-making, high-flying stocks, though, and emphasizes the importance of valuations.  In fact, about a quarter of his holdings are turn-around plays.  

We talk about the role of investment themes, the importance of position sizing, and how Jason thinks about managing risk in a portfolio with less than ten names.

The idea of managing a portfolio the way Jason does definitely put me out of my comfort zone, but our conversation made me reconsider what I think I know about growth investing