Invest Like the Best with Patrick O'Shaughnessy

This week’s guest is Will Thorndike, an author and investor whose book The Outsiders is an all-time favorite of mine. Our conversation is in two parts. First, we dive deep into the lessons of his 8-year research project studying CEOs who were master capital allocators. These CEOs include Henry Singleton, John Malone, Tom Murphy, Katherine Graham, and Warren Buffett. We discuss how these CEOs tended to be contrarians on topics like dividends, buybacks, acquisitions, and the use of debt. As we go through each of the tools in the capital allocators toolkit, you’ll hear several useful lessons for running or evaluating a business. In the second part, we cover Will’s career in private equity. Will founded and continues to run Housatonic Partners, investing in buyouts, recaps, and search funds. Will has been one of the most active search fund investors for decades, and given how much time I’ve spent in past episodes on the searchers or operators in the micro-cap, permanent equity space, it was great to get the perspective of an experienced LP. As always, we also take time to survey the dangers and opportunities in today’s private equity market. For comprehensive show notes on this episode go to http://investorfieldguide.com/thorndike 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

Ted Seides discusses his famous bet with Buffett, comparing hedge funds to S&P 500. Topics include origins of the bet, nuances, fees, indexing, and asset allocation. They reflect on Berkshire shareholder meetings, valuation impact, market dynamics, and skill in investing. Exploring permanent equity investing and public market portfolio strategies, they compare S&P 500 returns and investor discipline.

My guest this week is Danny Moses, who was directly in the middle of the biggest trades in market history, chronicled by Michael Lewis in his book the Big Short. Danny was the head trader on the Frontpoint team led by Steve Eisman, which was one of a small group of firms that figured out, in real time, the dire situation with mortgage-backed securities during the financial crisis, and how to build a portfolio to bet against the U.S. housing market. We cover his part in the Big Short story, but also lots of other interesting ground, including the state of sell-side research and financial markets. I love conversations with traders because they live and breathe market risk. You’ll be able to see why quickly in this great conversation with Danny Moses.   For comprehensive show notes on this episode go to http://investorfieldguide.com/danny 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

In this episode, I continue to pull on one of the most interesting threads that I have uncovered while producing this podcast: the world of permanent equity. My guests today are Royce Yudkoff and Rick Ruback, two Harvard Business School professors who have partnered to create a popular class that teaches students how to search for, acquire, and run a small business directly after graduation. I approach this conversation from an investors standpoint. LP investors usually partner with these searchers to form what is called a search fund. A search fund allows recent MBA grads to spend time looking for a business and ultimately acquire it. The result is a small scale but often high return proposition for investors. I loved our discussion of what to look for in a business and what to avoid. The principles we list are useful for investors of any kind, and will particularly appeal to those from the buy and hold, value investing, and quality investing camps. One point of note which wasn’t captured during the recording. One of the reasons this style of investing isn’t more well known that it is extremely costly upfront. It can take years to find a company, and once found, the transaction costs can be 20% of the total purchase price. Rick calls this category “REALLY private equity. If you enjoy this conversation, be sure to check our Royce and Rick’s book. HBR Guide to Buying a Small Business, which goes into many of the topics we cover in even greater detail.   For comprehensive show notes on this episode go to http://investorfieldguide.com/hbs 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

SPECIAL EPISODE: Introducing Capital Allocators Podcast with Host Ted Seides This is a special episode to premiere a new podcast from my friend, Ted Seides. In this show, Capital Allocators, Ted will feature a broad range of people that control the flow of money through the capital markets.  Ted is in a unique position to this; he knows this world as well as anyone having spent with both allocators and the money managers who invest on their behalf.  Below is the information about this first episode including a link to the homepage of this show, where you can subscribe.   Enjoy the first full episode of Capital Allocators. ———————————————————————— Steven Galbraith is best known as the former Chief Investment Strategist at Morgan Stanley. He also sat in every seat in the asset management industry – credit and equity analyst, portfolio manager, business executive, entrepreneur, and Board member at an endowment and a large family office. We discuss Steve's journey, incorporating his deep insights in the investing world alongside colorful anecdotes of market inefficiencies in European football, college sports gambling, local breweries, and Charter Schools. For more episodes, go to capitalallocatorspodcast.com/podcast Follow Ted on Twitter at @tseides

This week’s episode is the most unique to date. My guest is Boyd Varty, who grew up in the South African Bush, living among and tracking wild leopards. The main theme of our conversation is tracking, and how the same strategy for pursuing animals in the wild can be applied to all aspects of our lives. Boyd’s family has been tracking animals for four generations, and he is bringing what they have learned to a larger audience around the world.   The episode includes the best answer I’ve ever heard (which comes when I ask Boyd to describe his most memorable experience). We also discuss the dangers of an achievement or goal oriented mindset, and what he learned from spending time with Nelson Mandela as a boy.   This episode is one I hope you share with those you love, because I think Boyd’s ideas will have a profound impact on many who are thinking about what to do with their lives—whether they are young or old.   Please enjoy.   For comprehensive show notes on this episode go to http://investorfieldguide.com/boyd 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

My guest this week is Khe Hy. Khe has a very interesting, two-part story. We start with Khe's career at Blackrock, where he rose to be one of the youngest MDs at the firm, specializing in quantitative hedge funds. Khe shares his perspective on how the hedge fund landscape has changed and what investors should look for in hedge fund managers in the future.   The second part of the story is about Khe's attempt to understand himself. We get into fear, joy, and all that he has learned across several years of introspection and exploration. His lessons coalesce around four key pillars--compassion, stillness, uncomfortable introspection, and finding truth. We explore what he means by each of these ideas in detail. I don’t think that Khe is capable of lying. He is one of the most honest people I've met, for better or worse, and was kind to share both his struggles and moments of clarity on investing and life.   With Deep questions about purpose and deep questions about how to evaluate a quant hedge fund, This was my kind of conversation. Please enjoy   For comprehensive show notes on this episode go to http://investorfieldguide.com/khe 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

This week, my good friends Ted Seides and Brent Beshore join me to discuss the future of asset management and a ton of fun side topics. While we are all passionate about investing, we’ve had very different careers: Ted in alternatives, hedge funds and fund of funds, Brent in lower middle market private equity, and my own in quantitative equities. What we share is a passion for investing in general, and a deep interest in where the asset management business and profession is going.   This conversation starts like most episodes—a somewhat structured exploration of the investing business –but morphs to be a bit more fun and informal as we work our way through a bottle or two of wine. In the later half, we talk about how to dissect an industry, common features of good businesses within a given industry, books we’d like to write, books we wish existed, and things we’ve learned in our careers.   For comprehensive show notes on this episode go to http://investorfieldguide.com/brentandted 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

My guest this week is my father, Jim O’Shaughnessy. He was a pioneer in quantitative equity research, part of an early group of explorers who combed through data to find factors which predicted future stock returns. While we’ve both written extensively on factor investing, we chose to mostly avoid that topic for this conversation. Instead, we discuss what has been a fascinating and colorful career on Wall Street. We talk about the power of premeditation, formative books, and his crazy experience during the dot-com boom when he ran a robo-advisor 15-years ahead of its time.   For comprehensive show notes on this episode go to http://investorfieldguide.com/jim 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

My guests this week are Trish and James Higgins, who run Chenmark Capital Management.  In this episode we continue to explore a style of investing I call Permanent Equity.  Returns in permanent equity come first from the ongoing cash flows of portfolio companies, not from reselling businesses down the line.  The partners are Chenmark are pioneering this style of small business investing and share their experience with us thus far.   For comprehensive show notes on this episode go to http://investorfieldguide.com/chenmark 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