My guest this week are Matt Smith and Ian singer of Deep Basin Capital, a hedge fund specializing in the energy sector.

I first met Matt almost 10 years and, in that time, I’ve grown to respect him as much as any investor that I’ve ever met. Now having spent time with Ian, who specializes in oil and gas field exploration companies and the rest of the Deep Basin team, I have similar respect and admiration for all of them.

Deep Basin does almost the exact opposite of what us quants do. In fact, their entire goal is to build a portfolio of mostly idiosyncratic or stock specific risk, the very thing us quants mostly remove from portfolios. Deep Basin positions the portfolio to make a series of carefully constructed bets, long and short, without taking market risk, style-factor risk, or even commodity risk. They use a hybrid fundamental and quantitative process which we explore in detail. This is definitely another good example of who we are all up against in public markets.

What makes this story unique is that we are investors in Deep Basin’s management company and so have a clear interest in their ongoing success. Listeners know that I want to be as transparent as possible on this podcast so we event spend a little time telling the story about how it all came together a few years ago.

I have learned a ton about investing from my countless hours with this team and hope that this conversation gives you a glimpse into what is happening at the cutting edge of investing in the world of hedge funds.

Please enjoy my conversation with Deep Basin

For more episodes go to InvestorFieldGuide.com/podcast.

Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.

Follow Patrick on Twitter at @patrick_oshag

Books Referenced

Expectations Investing: Reading Stock Prices for Better Returns

Show Notes

2:47 – (First Question) – Looking at the universe of the energy space that they are focusing on

7:48 – Breaking down the important components and their labels in this space

10:27 – What makes energy companies distinct from the broader market.

12:52 – How the isolate unique value creation

14:58 – Ian’s take on the upstream part of the business where he has spent a lot of time

18:35 – How does Deep Basin use data and what edge do they derive from it.

21:31 – What insight are they looking for from updated well data

23:59 – How do they use combine the business value that they measure with the market price that is being forecasted

24:40 – Expectations Investing: Reading Stock Prices for Better Returns

29:34 – How do they build an actual portfolio

31:51 – Their systematic approach to energy investing

37:53 – What are their thoughts about using leverage when making investments in the energy space

40:53 – A look at the changes to the hedge fund industry over the entirety of their careers

45:46 – Defining the culture of Deep Basin

49:15 – The story of how OSAM and the O’Shaughnessy’s came to be investors in the Deep Basin

54:13 – Kindest thing anyone has done for each of them

Learn More

For more episodes go to InvestorFieldGuide.com/podcast.

Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub

Follow Patrick on twitter at @patrick_oshag

Episode 1: Dan McCrum on hedge funds and fall of Wirecard