YouSaid · the spoken record

Cameron Hight

lines on the record: 98
first: 2018-03-12
most recent: 2018-03-12
sittings or episodes: 1
sources: podcast

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“It'd be a lot of the same. I think it'd be slow down. I think that what I found is that as I've had kids and as I have gotten really busy with Alpha Theory, I've lost touch with a lot of the friends that I hold dear and I think that I will look back as a person sitting in my rocking chair and say to myself, did you make a mistake there? You need to honor those relationships and put the time in every relationship requires an investment. Marriage, your kids, your friends, your family, and have you invested enough in that? Because those are the things that really pay dividends when you're sitting in that rocking chair.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“A year, I can't believe how fast 2017 went by. It's one fortieth of my life. So there's a denominator effect which changes our perspective.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Type A people, and we go a million miles a minute, and we have no spare time, it's to try and slow down and enjoy more. I have an eight-year-old and a five-year-old. And so when people that are older than me tell me that it goes by so fast, I mean, I can't tell you, every parent has had 100 different people say, enjoy every minute you can, it goes by so fast. And when you're living in the moment, you can't appreciate that. You really just can't. And so what I try and do is honor their opinions because when you hear it so many times from people that have been there, you have to take it at face value and believe that it's an objective fact, sort of a tangent, but it kind of reminds me of people always say that as I get older, time just seems to fly. And I think it's an effect of our denominators growing. I remember when I was five years old, a year seemed like forever, you know, because it's one-fifth of my life.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I knew this question was coming and I couldn't even think of anything. And the funny thing is I'm such a follower when it comes to information. And there's a Tim Ferris, I think it's Tim Ferris, where he talks about you have a rule of three before you read a book. You hear it from three different people that you trust before you read a book. And that's kind of the way that I do everything. And I do read a broad array of things. And so it's not specific information from one place, but I'll read about physics or historical fiction or just a history book or about AI or, you know, a ton of cognitive science books, investing books, business books. And so I try and have a wide array, a renaissance kind of mindset. I'd say that's probably the most important thing that I have from a learning standpoint, from an information standpoint, but I wish I had some great source, but I don't.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I have two amazing parents they are both very happy and I don't think that it's anything necessarily that they taught me through verbalization but it's more through following their lead. They're both selfless people and they put others first. You don't really know how that leads to happiness, but I clearly have seen that in them that putting others first makes them happy. And I try and be quote unquote a nice guy. And a big part of that is what I've seen and experienced from my parents.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I am. I normally wear my carol on a belt hidden today. We play Duke tomorrow. I grew up 30 minutes from Chapel Hill. Went to school there. And I remember probably two different times, 93 when we won the national championship. I was in my mom's den with a bunch of my buddies from high school. And we drove up to Chapel Hill, went to Franklin Street, and celebrated. That's probably, you know, hands down my favorite sports memory. But I was in Phoenix last year for the Winoverzaga, which was being there and actually see it happen was pretty stellar too.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“that all of these cognitive biases that he has exposed with and others have exposed over the years, they really haven't made that much of a difference. And his point was that just knowing about a bias doesn't change human behavior. That's what we're doing in a lot of ways.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm going to sign up for your gym. They go, they try it out. Doesn't quite stick. It's behavior. They stop going and they cancel their membership. And then there's the third group of people that just know up front, I'm not going to do this. And even though they know they should, they still don't. Most of us overeat at Thanksgiving and Christmas. Why is that? We know we shouldn't, but we still do it. We're humans. And so I think that's probably the biggest challenge. I think I went into this a bit Pollyannish, understanding my belief was that you build it, they will come because it is a concept when said out loud, it is yeah duh, we should do that, but that's not the way humans work. And somebody asked a question about him and his career, and he said it actually took like a cynical turn because he said one of his biggest disappointments is”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Changing human behavior. I don't think that we go into too many meetings where people sit across the table from us and they say this thing that you're proposing that we do is a bad idea and not something we should do almost uniformly. They all agree that this is something that they should probably do with alpha theory or not. They should definitely create some more process around how they make decisions in general. But I sort of equate it to a gym membership. Everyone knows that going to the gym or working out or whatever way you want to analogize it, it is important to our health and our well-being and our happiness and all of these things. We have three different groups of people. There's the people that say, yep, that's a great point. I'm going to sign up for your gym and they're going to go. Great. Those are the people we're looking for. Then there's going to be the other people that are aspirational and they say, yeah, it's great.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“And worst. And then we just did return an invested capital for each of those. And it was, I'm going to get the numbers wrong, but it's going to be directionally accurate. The top was around 9% return on invested capital. The second was like seven. The next was like three. The bottom was like zero. And there is a distinct correlation, at least in our small sample size. Once again, keeping in mind a small sample size, a distinct correlation between process and performance.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, it's just pure return on invested capital. Yeah. It's such a simple rule that a firm can implement where we have enough data that should say, if you don't take the time to put in a price target, don't put the position on. Then we went to and said, okay, well, let's think about that a little bit further. We have a little bit of other data for our clients where we can break them down into the people, like I mentioned before, most correlated. So how closely do they follow the model? What's the percentage of coverage of price targets in their portfolio? And how fresh are those price targets? So if they haven't updated in 90 days, it starts to get to the point where we called it stale. What percentage their portfolio has been updated in the last 90 days? So we take those three metrics, correlation, coverage, and freshness. And we scored them equally and quartiled our clients and said, the best actors, second best actors, third.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that we did is we wanted to see if our clients that used our system more frequently were better performers. One of the simple things that we did was just say, all right, let's carve out the positions of all of our clients and put them into two buckets. One bucket's going to be positions where they took the time to come up with a price target. The other bucket's going to be positions they didn't take the time to come up with a price target. Well, guess what? The ones with price targets outperform the ones without price targets. And it was a huge margin. It's basically 7% was the return on invested capital for positions with price targets. 1% was the return on invested capital for positions without price targets.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a tricky one because it's easy to embrace the notion that trading creates transactions costs and therefore people should trade less. And this is just movement around stock prices on a path. What other research have you been able to do based on the data that you're receiving from doing this a long time? And what has that shown you”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“We find managers should be trading around positions more. They're generally not. And the positions that's easiest to ignore is the one that's working and making you money. And so what happens in that situation is the prices going up, which means the position size is going up as a percentage of your total assets under management. And so let's say a 5% position has now grown to a 7% position. But what also happens to the expected return in that case? The expected return goes the opposite direction, all else being equal. Let's just say that our price target was 100, the stock's gone from 50 to 70. So the expected upside has gone down. The expected downside is gone up. And clearly something's changed. Maybe the probabilities of upside or downside, but clearly you can reset those expectations. But the expected return in some ways has gone down while our position size is going up. Managers in general should be trading more because there's a big reversion to the”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“How much does the optimization of the inputs of the tool reacting to the dynamism of markets or stock price movements end up driving kind of the efficiency of portfolio construction? So you have your assumptions. The assumptions might not change, but stock prices are moving and managers trade around a little bit every day and the questions are they making the right trades.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“And pause and wait for them to tell you what their sixth best idea is. Now, if they can turn to a sheet or a dashboard or something like that that says, that's my sixth best idea adjusted for all the things that I care about, which are going to be risk reward, drawdown risk, liquidity, all those kind of things. I can look down my list and say, this is my sixth best idea right now because things change. If they can tell you that, they can manage their portfolio effectively because they can make sure that their best ideas or their biggest positions, their 16th best ideas, their 16th largest position. But if they can't quickly tell you, they don't have somewhere to turn. And if they can't answer that question in five minutes, there's a hole in their process.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“You were an allocator for a long time and you asked a lot of these questions. And the question is, how do you size positions? Every allocator asks that question. And portfolio managers are well trained to say that what we do is we're constantly looking at risk reward. We're evaluating that. We're making sure that our best ideas are our biggest positions. We want to evaluate management teams and constantly looking at risk and other portfolio factors and trying to make sure that we're not in too crowded a bets and looking at exposure analysis. And they just, when you walk through it that way, it sounds great. But how do you do it? And really the question that an allocator could ask is say, hey, what's your sixth best idea?”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, this is decision making 101. It's what we're doing. You could apply to trying to buy a house or should I take a new job? This is all applicable. And yes, we have had some high-o stress guys that have said this is something that we're working with a few right now to vet that idea, but it's the same. You're still coming up with the upside maybe par instead of something, actually in some ways, it's better because your expectations are a lot more discrete. You know, you kind of know what your upside is. You kind of know what your downside is, and the probabilities are still a little fuzzy, but the assumption is going in are a lot better.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Long only managers. It's just that our background is I came out of a hedge fund. A lot of my friends worked for hedge funds and so our initials were clientele were those folks and it's a network effect they tell other people and they happen to be hedge fund managers. But I actually think that this is what we're doing a lot of times is more applicable to a long only manager because they end up having a larger stable of analysts working for them and they have less of a conversation sometimes between them. Just imagine Newberger, for example. They have a large number of analysts and they have portfolio managers that don't directly control those analysts unlike a hedge fund. And so the information flow and making things explicit is so much more important in that process. And they end up having a lot more rules as well. And so there's a good fit for that. It's just haven't had as many conversations.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we look at it both ways. It doesn't end up mattering too much. We actually came up with this concept of size-weighted batting. And it's very similar to the AUM-based performance, alpha generation, which showed that active managers were able to contribute more net alpha if you don't look at an average, you look at on a size-weighted basis. This is something that we also found across our clients, is that batting average, when we just take and multiply, basically we're just summing up the total exposure that made money versus the total exposure that lost money. It actually goes to 54.4% from 51%. And what that basically is saying is going back to the concentration manifestor. There's a lot of little small positions that they're losing money on that they shouldn't have in their portfolio in the first place.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Could have taken on bigger positions. They have a higher likelihood of losing more money. And dogma, which we're talking about before, for the allocator, is that that's not typically what we do. We invest in people that are thinking about risk. And so there needs to be a conversation between managers and allocators to get on the same page so this kind of evolution in our industry can happen. It's better for the managers. It's better for the allocators. And it will be the kind of thing that can save active managers.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically, our clientele is not investing in just our fund. The risk mitigation that we may have wanted to create, they can create themselves by investing in multiple different funds with different attributes. And so what I would get is if I am in, let's say I'm an institutional investor and I basically have an array of funds right now that are generating 51% batting averages. And then I could just say, nope, all of you guys go to your 30 best positions and all of a sudden the batting average goes to 57% across all of them. I don't dilute that batting average for any of them. I still get a 57% batting average, but I can create the diversification effect by investing in multiple different managers. So it's a beautiful concept. Here's the challenge, though, is that there's business risk for the hedge fund manager that takes on this strategy because they inherently”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Positions outperform the next 10, outperform the next 10. And so for our clients, it ended up being, you know, I said the batting average for our clients was right around 51%. This is on an alpha adjusted basis. So the top 10 positions was 57%. Next 10 was 55. Next 10 was 52. And then it went into right after 30, it sort of went into randomness. Basically, it was a coin flip. If you were picking a good stock or not. And so my premise is this. If we as active managers want to survive, we need to do what we're good at, which is picking good stocks and not diluting ourselves with portfolios of 100 plus stocks. If we can pick 30 good positions, 30 may not be the, there's no magic number here. It's going to be different for different folks. But just to say 30. And then we can generate alpha that way. Yes, there are risk inherent in creating a portfolio of 30 stocks.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so at a high level with a concentration manifesto is, is that active management is under immense pressure. And a big part of that is self-induced because either fees are too high to get over the hurdle of the performance that they generate. You know, they do generate alpha. It's just the alpha's not high enough to get over the fees. It's also self-induced because we've been told by the people giving us money, either institutional allocator or retail allocator, that we need to be diversified. We need to control risk as a portfolio manager. But once again, it goes back to what I was saying before. We're trying to be great analysts. And generally we can pick good stocks. So what we've found, going back to that example I gave before, is that if you look at a fund's top 10 positions, those for our clients at least, and a lot of other academic studies, I know that Novus did some research here as well,”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“But guess what? Their only right fifty one percent of the time. So there's a big gap, and we can point out those gaps. We call it probability inflation. And what our clients are able to do is to rectify that the next go round, the next time they're making forecasts, they can come up with more conservative probability assessments, which ends up creating portfolios which are skewed less towards risky assets. And so these are good things that you can get from”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Batting advertire for the top ten versus the next 10 versus the next 10. If we take their forecast and say is the highest expected returns, do those outperform those top 10s outperform the next 10, outperform the next 10? And what we can find, we can sort of point to the managers that have that skill. It's been enlightening and we can reflect back to our clients where they can make improvements in their process because we can point out things like On average your upsides are too aggressive, but your downsides are about in line. And overall, your probabilities, for instance, our clients on average assume that they'll make money seventy-four percent of the time. That's basically they forecast an array of scenarios, and we can pick the scenarios that are forecasted to make money, and we just add up the probabilities associated with those scenarios. On average, our clients assume they're going to be right 74%.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“people that are really good stock pickers. And we can measure that in a few different ways. You can do it based on their forecasts for where they believe the stock's going to go. And I'm just measuring what actually happens in the future. We have that kind of data because we have 135,000 price target forecast across our history to be able to analyze how good our analysts. And so we can actually tease some of that out. We actually use Breyer scores to using some of the stuff that we learned out of after reading Phil Tetlock's super forecasting. What makes or what is a good stock picker? We also can sort of just say, is the portfolio manager good at figuring out the assets in his portfolio, his or her portfolio that are most likely to outperform? And the way that we measure that is something simple as saying we take the top 10 positions compared to 10 through 20, 20 through 30, and just say is the best.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'll have to say that my perspective is limited. So I don't have a lot of experience working with, let's say, a macromanager, which, you know, those are the folks that are generally associated with being really great traders, like a Paul Tudor Jones or there could be a lot of that. What I typically end up, the people that are attracted to what we're doing are the people that are, you know, have a scientific mindset. They end up being those that have the fundamental background and come out of that analyst mold and are trying to be better portfolio managers. So I wish I had a great perspective there. I don't know that I have seen anyone that I could empirically prove that they're just really great position sizers or they're really good at overriding the system. Maybe that's a better way of saying it. I don't think I've found that yet. There's a selection bias in our clients. What we have found, though, is that we can find”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we're generally good at, and people that are in this profession have grown up being great analysts. We're really good at finding good stocks and digging in and finding out their economic value and what's their potential risks on the downside and how good is the manufacturer. That's what we're really good at. Translating that information into a portfolio, I don't think we really have a lot of skills there. So let's use computers and let's use rule sets to help us do a better job.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd have to look it up. Well, I'm just talking about when Billy Bean started at Saber Metrics and Billy Bean implementing it at A. The gaps still persist in. Baseball. Not everyone has adopted these empirically proven rules that make us make better decisions. Football still coming along and hockey and soccer, all of sports where it should have changed. Michael Lewis has a great quote where he talks about the ossification of industries where things that have been going along for decades and sometimes centuries like baseball, there's a dogma that gets created and people assume that the dogma is correct because everybody believes it. And so it's challenging that dogma, the dogma for our world is that portfolio managers of these savants that can consume large amounts of information and translate it into great decisions that no one else can do. There may be people that are and I'm not questioning that, but I don't think that the large majority of us are.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, my grandmother's like, it's like, and it's really hard to disabuse people of the fact that very smart people that are making millions and some of them billions of dollars a year have these huge gaps in their decision making process. But it's not uncommon. I mean, look at sports and moneyball. Moneyball has been around, I don't know how long, 25? I don't know. You probably know better than I how long it's been around.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I remember when I was explaining to my family for the first time, like I was leaving the hedge fund that I was working for and I was going to start out theory. I was trying to explain to everyone what I was doing. And my grandmother said to me, you mean they're not doing this already?”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was always astounded. We've met a long time ago, and I remember looking at alpha theory pretty early on. I was always astounded how simple the tool was. And you could look at it and say, well, I should be able to do this on my own. And yet, to your point, people don't.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“With consistency, every single year, every single year they would have done better. And so there's a huge gap. I mean, let's recognize, I keep going back to Mobison, but he's talking about paradoxic skill. And so there's a lot of really smart people out there looking at the same thing. So finding really good ideas is incredibly challenging right now. The edge that we find a lot of time actually needs to come from better position sizing and not from better stock selection because stock selection is so hard. It's just maximizing the value that you can capture from the research that you perform.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have a few Hong Kong, a few London, a few Canadian. But what we found is that our clients over the past six years, which is as far back as we have data, have outperformed the equity edge index every single one of those years. There's either it's part of that alpha theory. I'd like to believe that. Our clients would have done better each of those six years if they would have followed the model that they built.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have correlations statistics that actually show the correlation between the model that they built, we call it optimal position size, and what they actually do. And the discrepancies can be different for different clients. Some of them are very highly correlated, you know, 98%, and then others have wide gaps. What we found over time is that, number one, our clients in general outperform others. We only have six years worth of data, but going back to that.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Overall, what we found is that just like in the expert studies, people would have done better off if they had followed the model that they built. And it works out about 75% of the time that clients would have been better off if they would have followed the model they built instead of what they actually did.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Either way it's garbage in, and so I believe that what happens is by making things explicit, you can objectively analyze and challenge the assumptions that you're making because, you know, if I come in and I say it's got a lot of upside, it's a lot different than saying it's eight times 2018 EBITDA of 500 million. We clearly recognize that in most fund managers are already doing that. I think one of the great things that Mulbison always talks about is the outside view. Then what you want to do is then take some of that and compare that to what's the historical highest multiple this thing is ever traded at and what does the industry trading at and have this outside view to really give a portfolio manager a way of sort of creating a foundation for how they're making those decisions”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's probably one of the biggest challenges that people realize the inputs into the system are just good guesses and sometimes they're not even good. What we're doing is we're saying, hey, take this information that you know isn't quite right and use it to make decisions. Well, that's a hard thing to on paper look at and say, I'm going to do that. But let's recognize, let's look at the counterfactual. What are we doing already? As a portfolio manager without the system, we're doing the exact same thing. We're already taking that information in and we're processing it mentally and it's implicit and we believe that our mental calculator is better at taking those ambiguities and refining them so that they come up with better results. But really, honestly, we're not. Let's recognize this is a garbage in, garbage out system either way. If garbage goes into alpha theory in our case or goes into the portfolio manager's head in the heuristic kind of case.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“It runs a gambit. So we will walk into a new fund that we start working with. And they already have a lot of this philosophy embedded in their mentality. So codifying that is relatively straightforward. Then we'll have others where a lot of this is greenfield for them. And so we're asking questions that as a firm they know they should have been asking, but they haven't been. And so a lot of it is the big gains that they get from starting to use alpha theory is the initial phase where they try and come up with a similar vernacular and standardization for how they make decisions. And a lot of those questions are really enlightening for them. And so for both firms, once they get to the point where they have a process in place, it starts to become refinement over time. There's an evolution. Just like I said before, people like to override the system because we have empirical evidence that proves out if it works or not. We can then get them more comfortable with making decisions.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of our clients is different, but taking those implicit assumptions, making them explicit, and then allowing a portfolio manager to set rules for how they want to translate explicit information into decisions, that decision inside of a portfolio is going to be, what's a position size? A zero percent position size is still the decision. It's deciding not to do something, but taking assumptions that are implicit, making them explicit inside of our system, setting rules, and then allowing those rules to dictate how we size positions in a portfolio. You point out where there's discrepancies between what you said you wanted to do a priori, and what you're actually doing, and those incongruous situations are the ones where you either have to as a portfolio manager or say, yep, I need to trade, or I need to reassess my assumptions.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Largely what we're doing is we're a toolkit. We're trying to allow portfolio managers to do what they're doing already, but trying to take those implicit assumptions. We capture a lot of those implicit assumptions and allow them to make them explicit inside of our system. So those things can be something as simple as how much do I believe I can make if I'm right? How much I could lose if I'm wrong? What are the probabilities of those things occurring? And I think that your last couple of podcasts you had Amobison on, you had Andy Duke on. One of the things that they found of paramount importance and they kept coming back to was expected value or coming up with ways of using probabilistic expectations to come up with the decisions that people should make. And so what we do is we want to capture that and make the implicit explicit and then allow them to define other things that they deem important. It can be a checklist of items. So how good is the management? We want them to rate the how good the management team is or how good is the balance sheet and for each”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Follow them, but even if they are explicit, what we find is a lot of times people override the rules that they've set in advance. And I think that there's enough cognitive science studies, psychological studies that show that experts really aren't good at making decisions in general. Political pundits on who's going to be elected or wine experts on what's a great vintage or a noncologist on who is most likely to get cancer. And so these are people that are experts that spent their whole life studying these things. And so as an example, let's say the oncologist study, the oncologist.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Interpreted a lot of upside as 120% or 30%. There's a great quote by Richard Chewer who wrote the psychology of intelligence analysis where he says that objectivity is gained by making assumptions explicit so that they can be examined and challenged. It's one of my favorite quotes because it is the essence of what we try and do. We try and help firms take a lot of the bias and emotion of the decision-making process out so that they can make better decisions. And what are the mistakes that you see portfolio managers make? Step one is really that sort of implicit, explicit translation. Then setting rules around those things. So if I set rules for how I want to size a position, how I want to think about liquidity, how I want to think about risk reward, I need them to be explicit so that I can actually”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“when we're better off taking things that are implicit, making them explicit, using those explicit assumptions with a set of rules to make better decisions. Let me dive in just a little bit there. What's implicit and what's explicit in that definition? Yeah, so let me give you an example for investors. So imagine I'm an analyst walking to my portfolio manager's office and we're talking about investing in a security and I believe that I tell him, you know, I think this stock has a lot of upsides. He's got a great management team, not a lot of downside. He's kind of a liquid, so we have to be aware of that. Hey, portfolio manager, try and size that position. There's a lot of implicit information that I've given him. And so if I could translate implicit information into explicit assumptions, then we can be better off. So if instead of saying, I have a lot of upside, I'd say I have 60% of upside. I say, I don't have a lot of downside. I say 20% of downside because my portfolio manager could have been.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“We turn from the nitty gritty of trade execution to the construction of portfolios with Cameron Height. Cameron, thanks for joining me. Thanks for coming by. Absolutely. Thanks for having me, Ted. Why don't we start with your background and how you got to founding alpha theory? I graduated from UNC Chapel Hill and then I moved up to New York where I was an equity analyst for CIBC, then DLJ, and then Lehman Brothers. So I was on the equity side during the heyday of the dot-com boom. I then was hired away by one of the funds that I was a clan of. There I became a equity analyst for hedge fund, long short equity fund. That led me to find the problems that alpha theory tries to solve. And what are those problems? Well, I think it's something that is not just specific to investing. I think it's something that's specific to all forms of decision making is that we take things that are generally implicit and we use them to make decisions.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would probably advise myself to store some stem cells now Something that has been on my list for ages and I have not done it and I can see myself in a rocking chair kicking myself for having done that so I'm going to get on it. Thank you for the nudge.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“For where it is, don't try to make it go away because it's going to show up somewhere else anyway, but recognize it for what it is and then have a rational conversation with yourself about what did I actually learn from that? What will I do differently next time? If you don't have those, then you can't do that and learning becomes very difficult.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I've learned that failure is not only an option, but it's a necessity in life. And I think I was taught quite young that failure is not an option. And you do not give up and you do not, you know, the problem with that, of course, and being an overachieving kid, you know, and those of us who are parents are now able to be conscious of this, is that when the kid finally fails, or maybe they're an adult by then, it hurts a lot. It's a bit of a rude awakening. And actually, through my work at Accenture, this has all become much more clear to me that if you start thinking about things in terms of feedback loop, then failure becomes very valuable learning experience. And it gets easier and easier to separate the emotion of failing, you know, or getting something wrong from the learning and recognize the emotion.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm listening to things about behavioral economics or entrepreneurship or the crossover between technology and humanity because these are just things I'm interested in. And the ones that I will reach to first, how I built this, which is an interview for entrepreneurs who I just love. And I think it's interesting even if you're not an entrepreneur, but true stories. And then note to self, which is about technology and humanity and sort of delve into wearable technologies a lot. They talk about privacy issues and children on social media and all that kind of stuff. I think they're fantastic.”
2018-03-12 · Capital Allocators · Clare Flynn Levy and Cameron Hight - Moneyball for Managers (Capital Allocators, EP.43) · IDENTIFIED FROM THE TRANSCRIPT · source