YouSaid · the spoken record

Geoffrey Batt

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64
first
2019-04-09
most recent
2019-04-09
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1
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podcast

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  1. “The next big thing and to try and find what that is, the first thing you want to look for is a place that everyone thinks is awful. And in 2007, when I decided to do this, that was Iraq. The war the way it was being portrayed in the mainstream media was going horribly. It was hard to turn on a television or pick up a newspaper and not see coverage of Iraq that was extremely negative. Now, it may be that that's justified if there's very negative coverage of, say, North Korea or something, it may be accurate. But what you want to do is test the accuracy of the claims that are being made. So I thought, all right, well, Iraq is about as negative a place as you'll find or perceptions of Iraq are about as negative as you'll find. Let's see if that maps onto reality. I started looking at very basic macroeconomic data and also data on security, how many people...”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “situations by working with Dan. Dan, after he graduated college, I think this was in the early 80s, he went straight to China and was teaching English as a second language in China and then got a job at a broker, some British brokerage firm, WICAR, I believe, that was trying to get involved in what were the emerging markets of that period in Hong Kong and Taiwan and Thailand and so on. And they were just starting to boom. Sudan got involved in the financial markets. That way, the guys who were running the brokerage firm that he was working for, they were making their money investing in frontier markets of the 60s and 70s, like Japan, for example, or South Korea. So you had this older generation that taught him what to look for. And then I was fortunate enough to meet him, and he taught me what to look for. So after working with him for a while, I decided that I wanted to go out and find”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “I guess I'll start with that. As a student, I was studying philosophy and I had no interest in financial markets whatsoever. I was hoping to become an academic. And I think I took a graduate seminar or something on Leibniz. There was this guy in the class. Everyone in the class was smart, but this guy was smarter than everyone. And you could just tell that he was like a unique thinker, which is just very interesting. And we would talk after class. And I got to know him better. And I later found out after about a year of knowing him that before he started doing his PhD in philosophy, he co-founded the first fund that invested in post-Soviet Russia called Firebird, along with Harvey Sowekin. His name was Daniel Cloud. He asked me if I'd be interested in leaving philosophy for a little while and coming to work for him and learning about financial markets. So that's how I got involved. And I learned how to search and to seek out these sorts of transformational.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Game over. Exactly. You get steamrolled by the largest LP pulling. I mean, I found that our LPs are very sophisticated people. They tend to be fund managers themselves. And many of them ask that question. But I'm not sure the average LP would think to ask that question, but it's critical.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “I thought about that. That's adjacency risk, right? You're invested alongside all of your other LPs, if you look at most funds, when they start, there's some big seed investor. That seed investor maybe puts in 50 or $100 million. And then you have other LPs coming in for like a million or something. So you could have one LP that is half the fund or more than half the fund. If that LP pulls.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Yeah, it's just not right for me and what I'm trying to do. So I think that for people who want to get these types of returns, it's either they have to do it on their own or find a fund that won't take institutional money or will take very little institutional money as a percentage of AUM.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “An event like that, which is pretty, yes. I would say that if you want to sort of capture these types of returns that you can find in frontier markets or in an emerging market that's going through this extraordinarily positive transformation, the transformation is going to take a very long time to unfold and there's going to be all kinds of setbacks along the way. You need to have an investor-based that can be there with you when things look awful. And I just don't see institutional investors in that way. I see institutional investors as a very skittish group. And I don't mean to speak so pejoratively about them.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Not a good headline, no. I mean, the only briefly positive thing about that headline was the price of oil went up, but that happened to be a peak and then collapsed afterwards, which was sort of a double hit over the head with a sledgehammer twice. But the market pretty quickly collapsed after that news broke. And it was probably the most difficult two weeks of my professional life trying to figure out what was going on and what this meant for thesis. But once we figured out that the way ISIS's capability was being reported in the mainstream news was greatly exaggerating their capabilities. And we were able to determine that there was zero chance that they were going to take Baghdad and more importantly, from our point of view, that they had no chance at all of penetrating into the south where the oil is. We were able to go to our investors and explain very objectively what was happening. And they added. We had net inflows into our fund.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “Care at all about looking foolish if they put money into my fund. And then a year later there was some kind of major political event that freaked everyone out. They didn't have to go to a committee and explain why they made this terrible decision or what appeared to be a terrible decision, if anything, if the market reacted in an exaggerated way, if it sold off more than was justified by the event, then they would be inclined to add.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “You don't get paid off on it, right? And if it doesn't work, you're probably going to lose your job. Or at the very least, you're not going to get promoted and it's going to be a demerit for you in your career. So what I realized very early on is that that type of investor was just not at all what I needed. What I needed was a fund structure that was going to be as stable as possible. I thought of the fund as a bank pre-FDIC, pre-Great Depression that the stability of my LP base was going to determine whether or not the fund itself was going to have a chance to succeed and capture those types of returns. And that meant that I had to seek out high net worth individuals and family offices where the people you were speaking with had agency. They were able to determine themselves without consulting anyone whether or not they wanted to make the investment. I guess critically they didn't.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “If I've had any insight that's of value to other people thinking about starting a fund, is that early on in the history of Euphrates, I realized that this sort of investment was not going to appeal to institutional investors, even if institutional investors were interested in what we were doing, it wasn't the sort of money that we wanted to manage precisely for the reasons that I just mentioned. There are certainly institutions that take a long-term view that will give you five years or so to generate a good return for them. But I would say they're more the exception and not the rule. And in fact, what you're dealing with with institutions are investment committees, these groups of people who make group decisions, and they're faced with extraordinary career risk. If you sit on the investment committee of some institution and you're allocating capital on their behalf and you bring the idea of Iraq to the committee, they're going to look at you.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “Where you have nothing to show for your investment. So it's incredibly challenging in most funds, the way they're structured today and the expectations that most investors and hedge funds and mutual funds have, I'm not sure that it's possible for funds to capture those types of returns given the constraints that they face. You have some funds that are reporting performance on a weekly basis. I guess mutual funds are reporting performance on a daily basis. But if your hedge fund is a long-term investment for you, it might be six months, maybe a year. And if your LPs are fund of funds or people who themselves are having to report performance to their investors on a short-term basis, they usually pull their money from you at the first sign of trouble, and it just makes the structure of your fund very unstable and that kind of instability makes it almost impossible to ride out.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “In a constructive or positive way. Now, that's an extreme example. I don't think anybody could really hold on to an investment for that long a period of time. But you look at other markets that have done maybe not 100,000 percent, but maybe 3,000 to 5,000 percent. And what you typically find is that there's this lengthy period where sort of nothing good happens to your investment. But at the same time, you're enduring a great deal of volatility in the country, whether it be political or economic. And you can get to certain situations where things look really dire and you start to question whether you've made a terrible mistake, you have to be able to have the temperament and the conviction and the analytical ability to see through all of the fear and emotion and really try and figure out what's happening and whether the investment still makes sense and sort of accept the fact that you might have a decade long period.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Just looking at the history of markets and asset classes that have produced these sources of returns, the first thing that stands out is that it requires an extraordinary amount of patience. Time is a major component of it. By time, I mean these sorts of historic equity readings that produce these returns can take 10 to 15 years to generate those results. If you take the case of Japan post-World War II from, say, their bull market more or less began right at the beginning of, say, 1950, 1951, and it lasted until 1989, and it's still below its peak today in 1988. But that's almost 40 years. And I think it produced a 100,000% return in dollar terms. But over that 39, 40 year period, there was maybe a decade when the market did nothing. People in the West were questioning your sanity if you were talking about Japanese equity.”

    2019-04-09 · Invest Like the Best · Geoffrey Batt – The Nature of Transformational Returns - [Invest Like the Best, EP.128] · IDENTIFIED FROM THE TRANSCRIPT · source