YouSaid · the spoken record

Harin de Silva

lines on the record: 69
first: 2021-06-04
most recent: 2021-06-04
sittings or episodes: 1
sources: podcast

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“So the underperform three to four out of ten times. So you think of a coin, if you have a sixty percent chance of winning, you can get a bunch of losses in a row, even with a 60 percent chance of winning. So, the degree or underperformance and the length of periods or underperformance can be really, really long. And that, I think, has not been adequately communicated to people who are investing in these strategies. Because the other thing is factors have momentum. And this is only recently coming to the fore where people are talking about it. And this is something I'm like.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has been positive, so I expect it to be positive going forward. And that, I think, is one of the misunderstandings with FAFTA investing, because when you pace a quantitative bet, the first thing that goes through my head is what's a hit rate, right? Because when I tell you something is going to outperform, the first thing you need to be doing as an investor is to say, okay, how often is that going to happen? My conjecture is that even the best factors will outperform six or seven out of ten times. So you can think of that in months, meaning it's going to miss”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“you'll find that that satisfactor is actually completely useless in explaining whether a group of stocks went up or down because it's just random. On the other hand, small cap, as you mentioned, is actually really useful in terms of if people are running away from risk, usually small cap companies do really poorly, they're running towards risk, as they've done a little bit in the last three to six months, small cap companies really generally do well. The correlation isn't one, but generally regardless of the environment, there is a difference in performance in large cap companies versus small cap companies. And the same versus value, the same in sort of quality related factors. Now, the expectation that people form on these factors is they look at the long-run return, you know, from a farmer French study or elsewhere, and then they say, wow, this factor on average.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, so I really look at it from two dimensions. One is the factor matter, right? So does the factor describe what's going on in the market? And what I mean by describe if you look at the factor, can it tell you whether a group of stocks either outperforming or underperforming? So to me, the sign doesn't really matter in the first dimension is, is this factor meaningful? So just to pick up a random factor, you could pick a factor as where the name of the company is in the alphabet.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, when you say factors underperform, you're saying the return to the factor was not the expected sign. Is that the thought, Barry? Well, you know, the...”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Then it became low beta, and as we went through this last crisis with energy consumption falling, they became high beta once again. So it really is sounding a little bit geek-like, but it's fascinating to watch the evolution of companies and industries because it's not as simple as, oh yeah, low beta stocks are dividend paying utility.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because the biotech company will often have two or three patents and it's going through a process for regulatory approval of the drug. So it's not really moving in the market at all. So a stock like that, very often you see those in low beta portfolios. So it really is, I mean, it's kind of fascinating to watch this. And if you look at sectors, for example, I spend more of my life studying this anomaly and anything else. But if you look in the 60s, energy was low beta. Nobody really cared about it. It was almost utility. Went through the oil crisis in the 70s. It became very high beta because with OPEC, it sort of started moving the market. Through the 70s and 80s, oil companies were very high beta. When the market was dominated by the seven systems,”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's no longer in a little beta portfolio because it's mega cap and it moves so much with the market. But when people think of a low beta portfolios, the other thing you see often in low beta portfolios that you've got to be very careful with is biotech companies.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And you go, no, no, no, no. That's not electric utilities. A little bit of stock is a stock that doesn't move with the market. So early on in its cycle, Amazon was indeed a low beta stock because what was driving it was this idiosyncratic return related to doing business in a very unusual way. As the company evolved, it became increasingly a beta one stock and now it's a beta 1.2, 1.3 stock because it's a very, very large cap company. It's a very large component of the economy. And it's no longer a very geosyncratic return. So, if you're looking at our portfolios, you'll find that companies that are now very high data, for example, even Tesla, was actually in a low beta portfolio four years ago.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, right. And what the farmer, all the work that farmer and French did showed was that Lobeta stocks have actually the same return over the very long run as high beta stocks or beta one stocks. And what's really fascinating is if you look at low beta stocks, we know that when you first tell people, they tell you, oh, yeah, low beta stocks, oh yeah, that's just Amazon. Sorry, that's electric utility.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“It'll go up Go down less in the market exactly. And if you put them in a portfolio, obviously if you buy a portfolio of low beta stocks, say beta is a 0.8, they'll actually move less than the market. So portfolio will go up less than the market and go down less than the market. But what it also means is that because you're 100% invested in equities, you get the equity risk premium so the long run return of equities with a lot less volatility.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically, a little bit of stock is what we mean by a little bit of stock is a stock that doesn't move a lot with the muck.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Then a portfolio of high beta stocks or beta one portfolio. And I was really fascinated by why A, no one focused on it and most people didn't think it was really that interesting. So what I call what's now referred to in our team as a low volomy is this idea that if you build a portfolio low beta stocks, you get a much better shop ratio, a much better return risk ratio than the market portfolio.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that factor to me was probably the one that was, I call it the most neglected factor because I was working My PhD thesis in the early 90s when pharma and French came out with this paper that basically said, if you want to describe what academics kind of call the cross-section of returns, in other words, which stocks go up and which stocks go, that value or book to market and stock were very good at explaining it and that beta did a really poor job and that high beta stocks had the same return as low beta stocks. To me, everybody, when they read the paper in 92, focused on, oh yeah, there's a value premium and a small cap premium. And what I found really curious was, wow, you can build.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, I think there is a barrel. I think it's the same idea of kind of what makes this work. And it may be even a biased view because as an engineer, you'd think there's always a way, there's a formula or there's a way to quantify something. So obviously if I had a history background, are you thinking it was a manager? Their process as opposed to something they were doing that was focusing on this factor. So I think the engineering aspect really kind of affected the way I looked at the problem.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, explain a lot, and I kind of ask myself the question, which obviously wasn't related to the project I was working on, is it the manager or is it the factor?”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so I was 25 years old and I got to visit something like 300 money managers in person. So you'd go to the money manager, you'd listen to their story, and you'd try to capture in a quantitative way what they were doing. And that's when I first got really kind of interested in factor investing because I realized that, you know, you'd go and talk to, for example, a bunch of growth managers. And talking to them, you'd realize that all the ones that were doing well at that particular time will focus on a particular factor. So not only were they growth focused, they may be, for example, focused on earnings acceleration. And those were the guys who were doing well at that time. And then you'd go talk to the value managers, for example, and you'd realize, wow, the only ones that are doing really well are the ones who are focused on, for example, dividend yields. And that's when I realized, wow, you know,”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was interested in finance because I saw a lot of similarities between finance and engineering, which was the ability to kind of design products, design strategies and the idea that you could build something and actually put it to the test really appealed to me. So that's why I initially went to the University of Rochester to study finance. And study finance there for several years and then started working for a consulting firm called Analysis Group. And I was by another stroke of good fortune got assigned to a project for Merrill Lynch in the mid-80s where we were picking managers to go into the Merrill Lynch Consults program. If you remember that program, but it was one of the first rap programs”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, apart from watching that episode of the graduate as a kid where the advice to the guy was go west, young man, that was kind of the original inspiration. But I really, you know, growing up in Sri Lanka, it was traditional for people to go to school or university in the UK. And so I studied as an engineer undergrad and had the misfortune to graduate in 1982, which was the height of a recession. And at the time, I had two choices. I could go on to graduate school or I could go back to Sri Lanka. And, you know, Sri Lanka was in the middle of a civil war at the time. So the choice was not difficult. And I made the decision to go to graduate school at the University of Rochester to study finance.”
2021-06-04 · Masters in Business · Harin de Silva on Portfolio Management (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source