YouSaid · the spoken record

David Sherman

lines on the record: 62
first: 2021-09-24
most recent: 2021-09-24
sittings or episodes: 1
sources: podcast

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“Those who are interested in learning more about Crossing Bridge, the best place to go is our website www.crossingbridge.com C-R-O-S-I-N-G-B-R-I-D-G-E.com Crossingbridge All One Word. You can also, if you want, email me directly at dsherman-shrm-a-n at crossingbridge.com.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“And if the market deteriorates to a more normal market like what it was a year or two ago, how big can our stack grow and is there a way that we could capacity? We've come up with a solution for that, we think. So we're going to be very mindful using the same words as the SG of not growing assets for the sake of broad revenue.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Depends on the market, right? There's 500 spac and what's the liquidity? What's the size? What are the heels? The assets were magic. So, I mean, when we start the ETF, probably not because it's going to start with very little assets. But as the assets grow, by definition, you'll grow your spec numbers. The other issue is owning more than 9.9% of a SPAC has issues regarding 13Ds, 13Gs, owning 19.9% has serious issues because it involves ownership, control issues. So if the SPAC assets grow, that obviously would by definition make you want to expand. And also there's a liquidity aspect. I mean, if it's a $200 million back, you can own $5 million, but you can own $40 liquidity, right? So those are the issues. So quite frankly, the SPAC market's big enough today. But one of the issues we actually have thought about, all of our strategies are capacity constrained. And I believe every strategy out there, whether it's equities or whatever, has a capacity limit. Both on the manager and the actual asset class. One of the things we explored when we launched the CTF is based on today's more”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Returns that we produce under the strategy aren't two and a half to eight percent, but they're one to three percent net. And obviously maybe we have to reduce our fee to help improve the expense cap. We've done that before. And some of our other mutual funds, we've actually reduced the expense cap and earn less in order to make the product more reasonable for the work we're doing for the underlying investor. It's not something, quite frankly, I'm that interested in doing, but if it's necessary, I will.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“So, the expense ratio is the audit, the tax preparation, the striking of the price NAV every night, the work involved in monitoring the, you know, creating the portfolio, doing the accounting portfolio, custodian, and custodian has costs. And of course, not insignificant is our management because I want to get paid for the work I'm doing. So in our SPAC ETF, I don't think we'd put in the registration statement, but we're going to propose an 80 basis points expense cap, which means the investor will pay 80 basis points off the top to both pay us and all those other expenses. We're not only 80 basis points. And if the SPAC's assets, the AUM, ROS, or the ETF assets grow, that expense ratio will come down because custodians relatively variable, but administrative costs, board of director costs, all that stuff's fixed. So you're going to bring down your cost. Ultimately, if interest rates remain low.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“What are the symbols now? That's pretty basic information, but if you have that information, you can replicate exactly what our ETF is going to do and what competitor ETF is going to do in the pre-merger specs. We're really focused on buying things at a below collateral value and then either letting them go to liquidation or redeeming them as a yield product. So as much as I like people to buy our product or other ETFs, you'll automatically have a better performance, most likely. If you just do a diversified portfolio yourself. And by the way, It sounds counterintuitive that we would focus on trying to provide that information to people for free. But again, I believe investors entitled to transparency and they have to make a decision. Do they want to do it themselves or do they want to pay somebody? Are our results going to be better? Hopefully, but who knows? It'll be an interesting test.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“A lot of companies that provide databases of all the SPACs outstanding and what their terms are, where they trade. But a lot of them, or at least all the ones I've realized, make you pay for the information. Now here's the situation. It's all public information. It's all filed with the SEC, but it's so much information and it's a work. So what you're really paying for is someone to aggregate the information for you in a way that you as an individual can work. And quite frankly, I think in our hope is in the middle of September, we're going to be able to give you a basic database for free. If you go to specsobserver.com in the middle of September, SPACObserver.com, all one word, and you put in your email, we're going to provide you the database for free. It'll be basic, but it'll give you how much is in trust, what the last price was, what that gross spread is, what your yield to liquidation is. Does it currently have a deal? And if so, what is that deal? Does it not have a deal? And who are the sponsors and what's the sec?”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Checks such as ourselves, and says, Hey, would you like a testing the witter call? You meet management, you get to talk to them, they can't really tell you any of their targets, but it's more, let me tell you all about how terrific I am and why this space makes sense. But also some of its sector selection, and that's actually a bigger point, there's over 50 SPACs focused on fintech. I don't think there's 50 FinTech good deals at a reasonable price. I could be wrong, but I don't think so. So sector plays a role as well. I actually think sector is a bigger situation, but at the end of the day, both sector and sponsor, if you're doing it the way our ETF that we're proposing is going in, it's a random walk. So in fact, it's such a random walk that someone could buy our ETF for another ETF that's doing it themselves, that's competing with us when ours launched. Or quite frankly, you can do it yourself and you can trade for free at Schwab and Robinhood so you don't have to pay our management fee and our expense ratios for running the fund. And in fact, if you're interested, there's”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“So, first of all, 550 facts will not necessarily mean 550 sponsors because many sponsors have SPAC 1, 2, 3, 4, 5, 6. So that lowers your number of sponsors. But that doesn't change the question. So I'd like to tell you that doing really good due diligence with the sponsor is going to give you a significantly better outcome. And unfortunately, I don't think that's been the experience. There are a couple sponsors that are definitely more successful, Bors, Betsy Cohen, Mudrick. Although he just had a spac that didn't work out. But you can sort of determine that. But there's been sponsors we had high hopes based on their history and their experience. And the deal was just okay. There's been people that most people haven't heard of. And the deal's been phenomenal. So I'd like to tell you, and the way you do the due diligence is there's something called testing the waters. And capital markets groups call up large institutions that can write.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“And pick up the back half. I mean, yes, your warrant's likely to double before you figure that out. You lost the first 100% move, but you can evaluate the situation and that may be a better way of doing it. It may not. That's a strategy. The other thing is a lot of warrants, the company has the right to force you to redeem or convert when it goes up, 1850. It doesn't mean you're not participating the upside, but again, it creates another technical trading aspect to it. I think it's perfectly fine on a portfolio of warrants. I'm not a venture capital investor. I don't invest in things where if you win the litigation, you make a lot of money. If you lose it, you get wiped out. It's just not what our discipline is, but it's certainly a legitimate strategy. So I want to clarify what you're suggesting. I'm not suggesting anything other than it's a very perfectly fine investment strategy for people that want to do that and they understand the risks. For us, it's not what we do and what we offer.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Better way of saying it at three or four percent. And if it's a good deal, it's going to trade up anyway, and we're just going to make less. In the warrants, you are correct. There's a whole group of SPAC investors and your value investors may be interested in this that actually look and say,”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Our number one mantra here at our firm is to protect principle first. And the way to make money is not to lose it first. That's what we're good at. Other people are great at making money and taking principal risk and figuring that out. We try not to lose money. We do lose money. We try not to. But our mantra is don't lose money. Focus on principle. You know, the Warren Buffett, return of principle is the fundamental basis of investing. If you get a unit, as FAC is depolutioning units, typical issue is a stock and a warrant. Eventually, the stock and the warrant split into two separate trading vehicles. So what we're suggesting is we would actually sell the warrant, take that cash, reduce our cost basis in the purchase price of the stock, right? Because we know if we paid $10 for the stock and there's 10 or more in trust, we're going to get 10 or more liquidation or merger. And if we sell off the warrant, which is all the future upside, we're going to guarantee a return or lock in a return against the bank.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“That we will dispose of the shares or units within 10 business days post a successful combination. I mean, quite frankly, I don't ever expect or highly unlikely to expect to go beyond the redemption. We either sell it or redeem it. Why is it 10 days? Well, I hope we never make a mistake. Sometimes you do. It gives me a little bit of room not to violate rules for the investor. But our intent is not to roll into the new deal. That's a different decision. That's, do I like the deal? What's the company's opportunities? That's a small cap mid-cap decision. And there's huge opportunities, just not what this one's going to be.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“That's one way of investing in the stuff that has announced the bents, and then you're going to, if the deal goes through, you're going to redeem. That's great. You make very good short-term returns. Obviously, of arbitrage deal doesn't go through. You now extend to the liquidation date. By the same token, you also have stuff that hasn't announced the deal yet that if they announce the deal, your maturity is coming up sooner if they close, which is going to improve your yield. So we think the asset size is big enough. And we think that if you're disciplined, you can provide people very, very low duration yields in that timeframe. And let me be clear, if you read our perspectives, we specifically say we're only buying things stocks and units at or below collateral value, trust value. So we're not paying a premium. So if the world becomes like February, they may not have so much to buy at the moment. I don't think that's sustainable. And if we also announce”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Companies entering the small and mid-cap market with an enterprise value that exceeds $200 million because the SPAC owners typically own a minority interest in the combined entity. That's a pretty big market. And of that, call it $550, about 140 have announced deals. And the rest are looking for deals. And what's interesting is that SPAC market today, if you bought the ones that are looking for deals, announcing deals, and you ran them to their liquidation date. The median is almost 2.5% yield. That means there's a whole bunch yielding more. Obviously a whole bunch yielding less. Some of them are yielding less because they're a more preferred sponsor like the GORS or because they have a deal in hand, right? So if you have a deal and you think it's going to go through, it's going to close in 90 to 150 days, right? So the liquidation date's longer than that.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“If they announce the deal, it's a great deal and it goes up above redemption value, a collateral value, we can sell. If it doesn't go above the redemption value, we'll redeem. So today, to give you an idea, I just want to look at a piece of paper. So we just ran today. Again, this is going to change because it's going to be announced a little bit in the future. But to give you an idea, this has become a huge market. And it's become 10 to 15% of our assets across the board just in this kind of product since it's a cash alternative product, right? You've got two-year maturity or less. You're buying at a discount for almost like commercial paper at a discount. So to give you an idea, today there are a total amount of facts approximately of 550, 550 facts. And the total amount of cash in trust is over 170 billion dollars. Now, if all of them find deals, typical deal size is about $2 billion, you're going to have 550 new”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“It at a discount backed by T-bills. And if they announce a good deal, you get equity upside. And if they don't announce a good deal, you make a return in a yield. Now, in a world today where the convertible bond market half the issues have a zero coupon and are trading at a 35 to 50 percent premium over the current stock price, it's kind of an attractive asset class. And we looked at it and we bought SPACs in the past where we look at it either as exactly like that as a convertible bond operation. So in the ETF, we're not quite that focused. In the ETF, we're saying we're going to buy at the IPL or in the secondary market units and shares at collateral value or to discount the collateral value. Effectively, we're not taking principles risk. And if they liquidate, we'll get our money back. If they go up, we can sell them. If they go down, we can buy more.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Because historically, if you ignore the period from, let's say, Labor Day of last year, meaning Labor Day of 2020, to let's say St. Patrick's Day of 2021, other than that brief period of time, most of the time, in order to induce you to be and give them the cash while they look for a deal, you had to get paid something on your money, kind value of money. However they did it, they had to induce you, whether it was with warrants or over collateralizing the trust that you could then redeem for the over collateralized amounts. They had to induce you. And most people that buy SPACs as an IPO were in the secondary market are looking more as arbitrage, getting a return on my money. And then if you announce a good deal, I get to participate. So think of this back shareholder or unit holder as a convertible bond with a two-year maturity with no coupon where you're buying it either at 100 par or you're buying”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“To agree to be part of the merch company. You can say, I'm voting for the deal because I want my money back. You have the right to redeem with the benefit of the trust account. Only you're a proration, not excess. So if it's 200 million trusts and 50% of the people agree to go forward.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“So, like a hedge fund, it's a pretty nice deal, right? Put up 8 million bucks, they get a deal closed, the value of the stock stays at $10 or parity, same price you issued it at $200 million, it just got $40 million, $8 million to make $40. It trades down in half and only goes to $5 a share, you lost a lot of money if you stayed in the deal. They still make money. So there's a misalignment to some degree because the fees are so egregious for the sponsors, but there's also an alignment that if they get a good deal, you do get to participate. Now, that's a basic spec. There's one other point I need to mention. When they announce a transaction, you, the shareholder, not the ward holder, not the bells and whistles, you as the shareholder, can vote for against the deal. You vote against the deal, they get to keep looking to liquidation. And a liquidation ain't the only people that get the benefit of the trust are the stockholders, not the warm holders, not anybody like that. If you vote for the deal and the deal goes forward, even the shareholder don't have”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Deal $8 million. So they're going to put up the $8 million of risk line, meaning they don't get any of the money that's sitting in collateral trust. That's the money to get this thing launched, operated, and defined a target. And if they don't find a target successfully, they lose all their money. Whereas you, the SPAC investor, if they don't find a target successfully, it goes to liquidation. Remember, that cash is sitting in a trust account and T-bills for your benefit. You get those proceeds. So you are, for simplicity purposes, principal protected. a SPAC issues $200 million and they put $200 million in the trust account and it's earning interest don't for debt. That's for your benefit. And sometimes facts put in $200 in $10 million against $200 million of shares. So there's over collateralization. But the sponsor gets no benefit. They only get a benefit if a deal is consummated, a merger, a business combination. But how do they get rewarded? They effectively get 20% or more of the upside.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Using the proceeds that you left. And you, as the investor, might be thinking about who is my sponsor? Is it a private equity shop, a hedge fund, industry players, people that have big jobs in investment banks? You make an investment on management. Are they going to find a good deal at a good price in a quick period of time? Because a spec has a life, typically of two years or less. And because you're getting bells and whistles with your stock, meaning warrants or rights, or even founder shares, by the way, you want a good deal. You get a levered or return or better gearing. Now, why does a sponsor? Let's back up. That's what the investor and the IPO gets, his various cycles. Why does sponsors? Sponsor does is because when a 200 million dollars back, there's lawyer fees. There's investment banking fees. There's registration SEC fees. There's putting a team together to go look at the industry and find acquisitions.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Just be shares, it may split. There's lots of pieces. It's an arbitrage's dream of the different pieces, but you're going to get ultimately shares. So if you get units and you sell off the warrants, you're getting shares. If you sell off the shares, you're getting warrants. Why is this important? Because what happens to your cash? It gets put in a trust account where it holds pretty much T-bills. And that trust account is for the benefit of the shareholders. So it went public, cash that you gave them to go public goes into a trust account with T-bills for your benefit. And now the people that launch the SPAC, the sponsors, are looking for a deal, right? You're hoping they find the next Virgin Galactic or DraftKids or something a little bit more arithmetic in cash flow like a Jupiter acquisition or when Fully bought CCC, which was a public company that then became a high-yield creditor, private equity that's now becoming public.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“So there are various product cycles and various opportunities within the SPAC product cycle to invest in. I'm going to specifically address your question on why we decided to launch a SPAC ETF and specifically the segment of that product cycle we're looking at. And then you can explore other areas if you want or not. So again, I know you have a very sophisticated audience, but just to get everybody who may not be quite as sophisticated on a level playing field, simplistically, a SPAC is a company that goes public. We're an IPO process where people give the proceeds of the money to the SPAC, except there's no business. There's nothing. They're selling you a dream or an opportunity for a future business opportunity for your cash. And yeah, they may be focused on a specific segment or industry, but that's what it is. You get fac shares. It may be units, which consist of shares and warrants.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Before that, what they call club deals, they get two or three guys in a room, they chop up the debt, they keep it, and guess what? It never trades. So there's no price volatility. We don't think that is best business practices. We'd rather see it owned by a lot of people. And if it goes up, we sell it. If it goes down, we combine more. And if we look at it.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“And there's a bid ask spread, and they make their money by taking risks or better yet, matching up buyers and sellers. So it's that kind of market. When I started in the business, the phone was how you transact it. Then it became the phone, you transacted, but you got information via faxes. Then you got information being computer systems such as Bloomberg, that is the system, where brokers put in electronic markets that they are quoting or making. A lot of times it's quoting because they don't really want to take risks. Give us an order and we'll go out and find out for you. There are some exchange traded when we sometimes take a big chunk of a new issue called anchoring. We often try to request it being listed on an exchange because it's a mutual fund we think the more transparency and the more opportunity for people to participate, the greater the markets. There's this concept that started in the leverage loan market and in the private place market.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“It would be great if debt was traded on an exchange like stocks. Sometimes, generally not. And also it's very, if you're an investor who can't buy in at least $100,000 lots, but ideally million. You get what we call retail ripoff, meaning the broker dealers charge you a big spread to transact. So hopefully as technology advances in the world becomes more focused on using our technology to create less friction to buy and sell things in corporate debt or mortgages or asset banks, that will resolve itself. But for now, probably the most efficient way from a transaction cost would be for either people who own ETFs that are passive or to own and actively manage funds. But the way it trades is, quite frankly, the way the stock market used to trade before there was technology, there's a market maker.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“The company has a very good software business. They issued this debt that is secured by that business. There are debt incurrence tests prevent them from layering more and more debt on top of us. It was originally sort of a smaller issue off the run and it became so much in demand, they upsized it pretty dramatically and they cut the pricing, by the way. That's what they do in this environment because today capital is a commodity. That hopefully will change in the future. We thought you were getting an outstripped return for a money good credit meeting. We thought the underlying business supported the debt with more cushion underneath than the debt. So there was plenty of residual value. And then what made it interesting was that the proceeds were used by Bitcoin. And that Bitcoin is pledged to this debt. So Bitcoin's worth zero. The core business covers the debt. And if Bitcoin's worth whatever, it's like a loan to value. We have that collateral that improves our credit.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“but that it doesn't mean our threshold so it's in the 20 bucket that bucket is about 14 today of total names i gave you two of them but it's not just about environmental you know you mentioned green it's also about community commitment social commitment customers suppliers i mean you can make it without being green i mean i'm not sure some companies are green focused they may be a governance focused or social i'm not sure it needs the best governance either by the way but it certainly provides a controversial but social attribute which is the democratization and decentralization of store value something i mean i want i'm avoiding the word currency because to me currency is something where you're required to accept it by legal tender by the government so you're not required to accept it we didn't buy it for the bitcoin in fact it's the thing we like the least about this company”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so first of all, we own the micro strategy paper in multiple of our strategies and products. It's a good question. So let me go back to our responsible investing strategy. There is no information that is readily available from micro strategy on an ESG policy. I'm sure they have one. We haven't really been very successful in getting one that is satisfactory for us to deem it on a scoring factor system to qualify as ESG in our 80% bucket. Remember, in our responsible credit fund, we have an 80% bucket, it has to be. We have a 20% sort of, they're not exclusionary, but it doesn't meet our bucket. So the distinction that 20% is it's not going to be coal, it's not going to be guns. It's not going to be people that take advantage of children overseas. It's going to have your traditional, this is inclusionary. We never buy them. So this is things where you could argue there is some ESG benefit.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Approaching responsible investing, that's how we're approaching ESG. As I mentioned, I had the privilege of mentoring under Joe Steinberg when I mentioned to Joe that we were doing a responsible credit fund. He said he wanted the irresponsible fund, right? Because sex pays.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“One has to consider the holistic picture. The other thing about Tesla, again, not picking on is everyone assumes because it's electric cars, it's very green. But if you're in Virginia, West Virginia, charging up your car with electricity coal-fired, I don't let that carbon footprint impact is. So there's a lot of issues with the SG, which is why we called it responsible. Our system does have negative merits. In fact, one of the positions we disclose our positions every month. So one of the positions in our portfolio is something called Copper Mountain, which according to Copper Mountain, the Canadian government has named it the most EST-friendly copper mining company. But when we did our underwriting, we decided it qualified in the portfolio in a 20% basket. So we say 80% is the need of threshold and 20% has to be some ESG attribute but isn't meet argument threshold. So it's in our 20% carve out, but it doesn't actually make it into our 80% completion. So that's how we're”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Great and they might meet our minimum threshold. They might not. We haven't actually scored up Tesla. But I can tell you one thing where they're going to get a negative attribution. Look, it's got an ingenious CO, but he has got some governance issues. He's got some issues, right? SEC sanction them. You can't say they're perfect and give them only positive attributes without considering that he has some liability or risk as a CEO. So we'd give the CEO from a governance standpoint a negative attribution. I mean, Elon Musk is a genie for sure. We'd also give them a negative attribution because their business was initially based.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Launch the strategy is that the constraints of what is deemed ESG enough may limit your investment opportunities for the sake of ESG as opposed to being mindful. So that's why we use the word responsible investing. It's a mindful approach. And by the way, our system is internal. We think we do a pretty good job. We're constantly looking to refine it. We welcome third parties to develop the system. We hope that we'll always be an ESG fund. But if the ESG requirement becomes so great that you're giving up reasonable returns, we'll just be ESG-mindful, right? Because they've narrowed the universal. I think, I don't know what other funds are doing. I've seen very few investment firms that are using an ESG concept that have negative attribution as well as positive attribution. So what do I mean by that? Well, I mean that let's take Tesla. Now, almost everybody thinks Tesla is ESG mindful and they're”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“in the leverage loan world, so leveraged loans are bank loans issued primarily in private equity or LDOs, that the banks don't want to hold in their balance sheet, they want to syndicate mutual funds, pensions, high networked individuals, everyone else but their own balance sheet. The LSTA has said, which governs how you trade these things and the rules, they're working on the ESG ranking system. So the money is going to be behind it because it's a business. And we recognize when that happens, unintended consequences can occur. So for instance, in credit ratings, we think the credit ratings do a great job at the initial time of underrating when they issue it. But they don't do a great job following it. And they do a terrible job. So we believe that there are inefficiencies that you can make money in the corporate bond market based on credit rating, more so in high yield than investment grade, but equally so. And we actually think there's a whole group of not-rated bonds that could be deemed investment grade or higher. So it's going to happen in the SG world. And a concern we had when we”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“And the equity market, and certainly not in the bond market, of what is ESG? What is it? And how do you measure the impact? And how do you distinguish one ESG company from another? So my concern when we were thinking about this was the world is going to come up with an ESG algorithm and ranking system. It's going to happen. It's going to happen in the equity market. It's going to happen in the bond market. And the reason it's going to happen is the same reason why there are credit ratings in the bond market. Because there's a demand and need for the product. People want clarity, transparency, understanding, and everybody wants a third party to step in between. And there's so much money to be made. The forces of capitalism will create it to happen. So if you're Moody's an S&P, you're working on creating an LST mandate of how you're going to measure LST and how people can adopt it.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Have another strategy called the responsible credit fund. And I love that name because it somewhat seems redundant a little bit maybe as far as we want it to be responsible because I'm questioning comes to mind, what is the alternative of that? But I'm curious, walk us through what is implied with the responsible credit fund. And the responsible credit strategy, the implication is that we're going to be ESG mindful, ESG meaning environmental, social, and governance mindful. Obviously, the question is why did we pick that? Is it because it's a current trend? Is it a marketing ploy? Is it greenwashing? I can answer all those questions. The answer is no to that. But the reason we call it responsible is because we want to take a responsible approach to ESG. And we want to have mindfulness to embrace the purpose of ESG, but we recognize that today there is no standardization.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Paid more returns, just like the equity market. Most equity investors took a five or ten year perspective and didn't look at their portfolio unless they thought they made an egregious mistake would do better than people that focus on what did the market do in the last three months of the state? Not always, but generally that's the concept. So in our particular parlay, with our products and our strategies, not everybody has the same exact definition, short-term generally means when you're less low duration applies more than a year, less than three years, we actually focus on nine months to about a year and a half in our low duration. So we're even lower than most low durations. But in the invest world, short-term security is almost always refer to things that will be one year or less from a balance sheet perspective.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“A great asset class to invest in if your kid's going to college in September and it's June and you need to make tuition because you could have prices go up and you get a prices go down and what you thought was a guaranteed tuition payment all of a sudden has a loss you should go put in the money market put it in a checking account buy a three-month CD right you shouldn't take price risk with it but if you say what about year next year when they're a sophomore perfect product for that because the implication is over a 12 month period of time you'll have all your principal back plus a recovery what we mean by low duration strategy we have a low duration high yield strategy is we mean more than one year but less than three years so that would cover your junior and senior year of college and in return for allowing us to take a longer horizon in investing we should get”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Touching on a couple more nuances, specifically around duration, since you touched on it, can you describe the difference between short duration and low duration? We have two strategies of which one of them is a short-term high yield bond strategy, which by the way, as a product would be misnamed. And we should have called it an ultra short-term high yield bond product. And what we mean by that when we were talking about our own individual strategies is a short-term security, and generally in the best world is deemed as something that has a maturity of one year or less, or a duration of one year or less, can have a longer actual maturity because your maturity can be different than your duration. So we think of short-term bonds as anyone who wants to put money to work for six months to a year and a quarter, like that one year segment. I mean, if it's not”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Maturity or your average life or your duration, which is called convexity, you have the same issue much more so in high yield than you do in investment rate. So those are, again, other nuances. So as you start going to the bond market, there are things that you have to become familiar with.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Bonds and high yield bonds, for instance. Investment grade bonds generally are not callable, meaning the company doesn't have the right to refinance them like you do with your mortgage before maybe six months before maturity, but not sooner. So if you took out a 30-year mortgage, you can refinance it whenever rates go down. But if a company takes out a 30-year bond to invest period, most investment bonds don't allow them to refinance it in the near future. In high yield, it works differently. In high yield, there's no such thing as a 30-year high yield bond that wasn't downgraded. But let's take a five-year high yield bond or a seven-year high-yield bond. They might not have the ability to refinance for two years, but then after two years, the ability to refinance at various prices, maybe initially at two or three percent over face, 102, 103, and maybe it drops down every year by a point until it gets to the point. So just like a mortgage with repayment speeds that affects your”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Instantly gets downgraded from single A to single B. It immediately goes from 100 basis points spread over treasury. Again, this is extreme, but it's for illustrated purposes, to 500 basis points over treasury. That's a 400 basis point change on a 10-year bond. Well, 10 times four is 40. So you're going to lose 30 to 40 points in bond price. Bonds are priced 100 is par. That's 100% of principle. 100 means you get it's worth 100% of its face amount of principle. So you're going to lose 30%. Now the company's committed becoming investment grade. The new guy realizes it's a good company. He's going to make the same 40%. So ratings and where they are in a pecking order and improving or not is one way to make total return. It's not the only way. In fact, it's a part of a way. But I'm trying to explain bond concepts in a very quick format for your investors to think about. And then, of course, a big difference between investment”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“But the point is that company is a single big. If the management team gets replaced and a new team comes in and they say, we're committed to becoming investment great again, well, if you have a 10-year bond, you have what they call a duration. And again, I'm picking things to help give you terms. So duration is a concept that for every 100 basis points or 1%, the interest rates go up or down, the price movement will be in the inverse. So if interest rates go up 1%, 100 basis points, and it's a 10-year bond, the bond will lose eight to ten bond points. So a zero coupon bond, somebody doesn't pay cash, always its duration, its maturity. The reason duration shortens when there's a coupon, what you get paid every month or quarter or semi-annual annually, is because it's a present value calculation. You're getting money today, which affects the value, right? Because you'd rather have money today than in the future. But in that case, in my example, a company issued a 10-year bond.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“The Treasury is wider or bigger or more yield or fatter when it's lower credit quality. When it's higher quality, it's narrower. So a company that was originally trading 10-year bond, trading at 90 to 120 basis points, that's 0.9 to 1.2% more than a 10-year treasury might be investment grade. It got downgraded. All of a sudden it's trading, it's a double B, triple B. So it's split rated. All of a sudden it's now trading at 225 basis points off the same treasury. That's 2.25% more cushion, more margin. Getting paid more for your risk. Now they continue to deteriorate and they go down to single bait. And now they're yielding 4% or 400 basis points more, 500 basis points more. And by the way, these spreads change both with interest rates and with business cycles and with market cycle. Right now they're very tight. Interest rates are also very low.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Those are important points. And that also doesn't change the fact that equity investors might find hidden assets. Well, they're also hidden assets for bondholders if those assets are realized, the rating, the credit rating of a bond may improve. So I'll go over that in a second. If you're an equity investor, you get the economics of that value. So you get a higher upside. But bonds tend to be rated. And the rating agencies, booties and S&P are the leaders do a really good job when they're issued of rating AAA, AAA, single A, BB. That's an order of ranking from best to worst. That's all investment ranking. Now, high yield starts at double B, single B, triple C, and then, of course, our famous default. If you can find a company that got downgraded from investment grade to high yield and then is going to work their way to become investment grade again, you can make a lot of money because the spread between what you're being paid and”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Before we do financial engineering. Now, what are my risks to the downside? What are my risks to the upside? How much of those risks are macro and exogenous that are really And then there's the business risk, your competitors, the industry. Is it changing? If you were a company that made thermal paper for fax machines, not such a great business today. And then there is the execution risk. Can this management team lead it? So going back to my steel example, you can have the brightest, best management team in the world, but you still have a steel company. There's only so much they can do. By the way, management is important, but in equity, people really look at who the leader of the team is. They really say who is running the company. I'm investing and putting a heavy weight on that person. I try to use the word bet because I think there's a big difference between betting and investing. In bonds, you just want to know you're going to get your money back. You just want a competent team that's not going to mess it up. There's a big difference. So you can now start seeing the distinguishment between how an equity investor might think and a bondholder might think.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“This is way down the bottom capital structure. There's usually a lot of debt, it's usually in growth, equity stories, or private equity, meaning LBOs, and they are looking to get equity type returns in a lender's position where they're senior to the equity. And you have preferred stock, which may be perpetual and not have to pay you dividends. So it's sort of the worst of all worlds. You don't get any of the economic spoils and you're stuck. You're what I call a suckee. You're the new suckee. Or you could have a preferred stock that has real teeth. You can get word control. They have immaturity. And then you have equity. So I think it's important to think about all of those aspects when you think about the debt structure and when you analyze a company, I think the easiest thing to do is figure out what you think the company is worth, the total company, unleavered, right? Everything stood with leverage. Whether you're an equity investor or you're a lender, what is the company worth out?”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Have, I have a mortgage where I have a first lien on all the equity of your subsidiaries. Then you have, I have a lien on property, plant equipment. Those are all versions of secure debt in various ways. And you can have a first lien and a second lien where the people with a first, by definition, get a interest in the beginning. And the people in the second get the residual value of the collateral. And then you have unsecured debt. This is just debt they owe you. There's nothing backing it. So people automatically assume if you have a secured debt, it's always fine. But that's not true. Just like a house, as we know from 2008, you could have a secure loan and find out that you lose money because the homeowner owes more money than the value of the house. It's upside down. Happens just like that in corporate America, happens like that in asset-backed securities, happens like that in mortgage-backed securities. But there's unsecured loans. Then there is what we call mezzanine financing.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT
“Who's more senior than the other and who has first fibs on the business or the assets in a distress situation, but in a non-distress situation, in a company that grows and flourishes, and you don't need to have first dibs, you don't need to worry as much about ranking because it's doing well. You're just a source of capital. So that's an important part. Within the debt structure, corporate debt, there are all kinds of things. There are private loans that banks do every day to public and private companies. They issue working capital loans secured by receivables and inventory as the world evolved. They now syndicate or offer those out to other lenders. They can be offered in structured products like collateralized loan obligations, CLOs, or collateralized debt obligations like CDOs.”
2021-09-24 · We Study Billionaires · TIP381: High Yield Masterclass w/ David Sherman · IDENTIFIED FROM THE TRANSCRIPT