Thematic Investors: James Davolos on why investors can’t paint-by-the-numbers in real asset investing
Mar 20, 2024
auto_awesome
James Davolos, Portfolio Manager at Horizon Kin, talks about tackling high inflationary markets and the changing investment playbook. He discusses being a bottom-up investor using unconventional data collection techniques, the concept of 'immaculate disinflation,' and the benefits of AI for investors. Davolos also shares insights on the evolution of financial exchanges and the firm's unique investment strategies in real assets.
Successful investing requires chasing inefficiencies and using unconventional data collection techniques.
Shift in investing strategies due to changing economic dynamics like inflation and interest rates.
Seeking investments in businesses with resilient models to navigate uncertainties and capitalize on opportunities.
Deep dives
James Tobalos' Background and Success in Fund Management
James Tobalos, the Co-PM of the Inflation Beneficiaries ETF and PM of the Internet Fund, has a remarkable journey starting from the trading desk to managing successful funds. His small cap fund in 2022 outperformed 1,400 funds, showcasing his rising star status in the value world. With a background shaped by his family's experience during the SNL crisis, James learned invaluable lessons about business and finance, leading to his current achievements in fund management.
Horizon Kinetics' Eclectic Investment Approach
Horizon Kinetics, founded by Murray Stahl, manages about $6.5 billion across various funds and ETFs. Known for its diverse investments, the firm engages in unconventional strategies like investing in physical diamonds, vast land holdings in Texas, and funding Bitcoin mining operations. Murray Stahl's unique approach and knack for identifying opportunities in unusual sectors have contributed to Horizon Kinetics' reputation as an eclectic firm.
Insight on Rising Inflation Concerns and Investment Strategy
James Tobalos discusses concerns about rising inflation, highlighting the shift from a low inflation, low volatility environment to potential disruptions in the market. Factors such as low interest rates, increasing money supply, and deficits indicate a shift towards a new inflation regime. He emphasizes the importance of understanding historical context to navigate current and future economic trends, suggesting a need for a different investment approach in the face of changing economic dynamics.
Strategies for Investing in a Changing Economic Landscape
In response to evolving economic conditions, James Tobalos advocates for focusing on balance sheets, operating leverage, and shareholder value within companies. Emphasizing the significance of real asset business models that can protect margins and generate cash flow, Tobalos highlights the potential for certain industries to thrive amid macroeconomic shifts. By seeking businesses with sustainable growth prospects and resilient operating models, investors can position themselves to navigate uncertainties and capitalize on emerging opportunities.
The Role of Exchanges and Capital-Light Businesses in Investment Portfolios
Exploring the potential of capital-light businesses, such as financial exchanges, James Tobalos underscores their resilience and potential for growth in various economic environments. By investing in businesses with favorable operating dynamics, limited sensitivity to macroeconomic factors, and strong revenue models, investors can diversify their portfolios and mitigate risks associated with market volatility. Tobalos highlights the benefits of incorporating asymmetrical opportunities and agile investment strategies to adapt to changing market conditions and maximize returns.
Looking for asymmetry in the institutional investing space, and making it a part of your core competencies is not an easy task. In many instances, this requires hard work built on chasing down inefficiencies in the market and going into research overdrive on an idea where very little sell-side coverage exists. This is where great success stories are made.
In this week’s episode of the Thematic Investors podcast, host Kieran Cavanna, speaks with guest James Davolos, Portfolio Manager, Horizon Kinetics who shares his methodology on tackling high inflationary markets while becoming a rising star in the value investing space.
James also covers:
his early hotel beginnings on the New Jersey Shore and how that evolved to the trading desk at Horizon Kinetics.
the end of the ‘Goldilocks’ scenario of low inflation, volatility, interest rates, and how the playbook has changed from the last 10-20 years.
what it means to be a bottom-up investor, going after investment opportunities using unconventional data collection techniques.
the prevailing logic around the topic of “immaculate disinflation” and whether investors are considering the full picture?
easy gains in AI for investors, and what does the full net benefit look like over time.
