Dan Rasmussen, founder and CIO of Verdad Advisers and author of "The Humble Investor," shares his unconventional take on investing. He critiques the heightened risks in private equity and credit, emphasizing the limitations of traditional forecasting methods. The conversation delves into differing perspectives on growth investing's sustainability and the intricacies of market dynamics influenced by passive investing. Their lively debate on base rates versus marginal opportunities reveals how market perceptions can lead to contrasting, yet insightful, conclusions.
Private equity and credit are viewed as highly risky investments for the next decade due to changing market conditions.
The podcast highlights the essential role of effective research tools like AlphaSense in enhancing investment decision-making processes.
There exists a significant debate on the accuracy of profit forecasts, with differing opinions on the effectiveness of short-term versus long-term predictions.
Deep dives
The Role of Research Tools in Investing
Effective research is crucial for investors seeking to make informed decisions, highlighting the importance of reliable tools. One significant platform mentioned is AlphaSense, which is widely trusted by top hedge funds and offers extensive market intelligence to streamline research. The platform provides access to a vast array of sources, including millions of expert transcripts and company filings, enabling investors to analyze and uncover opportunities efficiently. Investors who leverage such technologies can enhance their research process, leading to more confident investment decisions.
Position Sizing and Investment Discipline
Discipline in position sizing is often overlooked by investors who focus heavily on research and analysis. Many successful fundamental investors fail to apply the same structured approach to position sizing despite understanding its significance in their overall strategy. Alpha Theory is introduced as a tool designed to help investors systematically size their positions, ensuring that investment decisions are grounded in rigorous processes. This systematic approach helps in balancing portfolios and mitigating risks associated with concentration in a few high-conviction ideas.
Debates around Forecasting and Investment Strategies
The discussion emphasizes contrasting views on the reliability of profit forecasts and the predictability of growth among companies. One viewpoint argues that profit forecasts are often inaccurate, while the opposing view holds that skillful analysts can generate significant returns through accurate long-term predictions. The conversation highlights the debate on the optimal forecasting horizon, with one side advocating for short-term predictions while the other argues that longer horizons often yield more stable results. This divergence in perspectives showcases the complexity of investment strategies and the importance of aligning approaches with individual preferences.
The Impact of Technological Advancements on Investment Returns
Recent advancements in technology have reshaped the landscape of investments, particularly regarding the performance of large-cap tech stocks. The podcast discusses how these innovations have disproportionately benefited specific companies, creating an anomaly where growth has been concentrated among major players. While traditional investment wisdom suggests that smaller companies should outpace larger counterparts, the current market dynamics challenge this notion. The conversation raises questions about the sustainability of this trend and whether the exceptional performance of large tech stocks will persist in the future.
Skepticism Towards Private Equity Returns
Concerns are raised regarding the ability of private equity to sustain historical returns amid changing market conditions. The discussion explores how recent trends, such as high starting valuations and increased competition in private equity, may lead to diminished returns for investors. The analysis underscores that the financial landscape has become increasingly crowded, impacting the overall rates of return as more capital flows into the space. This skepticism highlights the need for careful consideration when allocating funds to private equity, as the dynamics of the market evolve.
Dan Rasmussen is the founder and CIO of Verdad Advisers, an unconventional quantitative investment boutique. In this conversation, Steve and Dan agree that private equity and credit look highly risky for the next decade. They debate the value of forecasting, where they have very different views. They similarly disagree on forecast horizons, with Dan favouring near term accuracy and Steve thinking longer term forecasts are more likely to be accurate. They also debate the persistence of growth and discuss Dan’s favourite financial metric.
Steve and Dan have different perspectives on many issueswhich leads to apparently contradictory conclusions but in reality, they don’t disagree – the issue is base rates versus marginal opportunities. Steve and Dan view markets through different lenses, which makes for an interesting discussion.
Remember Everything You Learn from Podcasts
Save insights instantly, chat with episodes, and build lasting knowledge - all powered by AI.
