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Ricky Sandler

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64
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2024-08-22
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2024-08-22
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  1. “Instrument investing. And people talk about like the theme du jour. We want to buy AI, the GLP1 losers, the GLP1 winners. How about a business? How about an individual company? So what I would say to you is that this creates more dislocation, as you said. It creates different trading patterns. So it's not easy because you have to retrain your mind and your process to say what I see in the screen today doesn't matter. It doesn't mean anything. It's not a signal. It's only opportunity. The market is creating greater opportunities, but it requires investors to, number one, change their mindset and recognize that the price setters are doing things for reasons that have nothing to do. They're selling your stock because it's technically unprofitable growth. Doesn't matter that the fundamentals are getting better. It doesn't matter that in 18 months it won't be unprofitable. It only matters that it fits in a bucket today.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Thematic investors, it's systematic investors, it's retail investors. And so the makeup of the active investor community is significantly different. And so on most days, the price action you see in a stock is being driven by somebody who is not doing bottoms-up research. I'm not saying that they're throwing darts at the board, but they're doing something because it fits in a camp. This is a small cap cyclical and now because the Fed wants to cut rates, I want to buy small cap cyclicals. Or this is a large cap defensive and I want to buy large cap defensive because the economy is slowing and they're doing things in big swaths. I don't want to own unprofitable growth. And so I'm selling all unprofitable growth. And it doesn't matter whether it's a flying taxi that's never going to make money or an 80% gross margin software company that is technically unprofitable because it's reinvesting efficiently in its business. We see all this investing done in kind of, I call it blunt inch.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Yeah, I don't think they're broken. I think they're quite different. And I think in the mid to long term, they still work. I love David. He's brilliant. He's a friend and a great investor. But our view is that markets are very different and the people setting prices over the short run are very different than they were. 15 years ago, the marginal price setter was a bottoms-up investor. So markets 15 years ago were 25% passive and 75% active. And most active investors did bottoms-up research. Fast forward to today, that 25% index is now 60. So David's right about how big indexes have become. They are accepting prices. But the bigger change is also that the 40 now relative to the 75 is not bottoms-up stock pickers. It's quant investors. It's pod shops that are trying to make money in every one, two, three week or two month period of time.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Value creation growth, a re rating, we make 50 or 100%, and then we turn our capital to what I call the next mispriced durable business. And I think that repeatable process is something we've always done. Now, that has adapted and evolved as markets have changed and we can get into the market structure changes, which I think are the most consequential theme I could talk about is how different markets are today. The price setters in markets, vastly, vastly different than they've ever been, and very important for fundamental investors to understand that.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “You know, I would say over the 25 years we've been in business, we have had to markets the world. Business has changed a lot. I talked a little bit about how we've pivoted our business to what allocators have wanted, but we've also had to adapt our process and our approach as markets have changed over the last 25 years. In general, we are still doing exactly the same thing we did, which is trying to buy good businesses and stocks that are cheap. And those two concepts are very important because I think we get the opportunity to make money in two ways when we do this. We get the opportunity for the business to compound and value at above average rate. So time is our friend. And then we have some undervaluation, some discount, something that's misperceived about it. And we get an opportunity for a rerating. And over our history, our success has been typically owning things for two to three years where we get a couple of years of...”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Secondly, the higher cost of capital for businesses to actually operate make industries more rational. So no longer do we see profitless companies just destroying businesses. So it adds more rationality to the economic factors that affect businesses. So that's good for fundamental investors. So now we have valuations going to matter and fundamentals will start to come into play. And then lastly, we're now also getting short credit rebate. We're getting five percent on our shorts. So you're getting paid to wait. So I think higher interest rates are good for shorting on several levels. It's not clear to me that people have come back to it with the same vigor. We still feel like a number of peers and others, short indices, baskets, and single name shorting, scaled infrastructure, it's hard business.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “At a lower price. And if the stock goes up, you have less upside and a bigger position. It's easy to sell. The opposite happens on the short side. And so things get bigger automatically when they go against you and risk constraints come in. So you got to be really thoughtful about portfolio construction. So it's not easy. We have 110 short positions. You need a scaled infrastructure to have 110 alpha generating short positions. That's hard for people to do. So I think that's one of the reasons that we haven't seen quite the resurgence. But to your point, higher interest rates help in a lot of ways on the short side. So first of all, we are now discounting the future at some rate. So no longer can you tell me this company is going to do 50 billion in 10 years and you could discount that at zero as if 50 billion is coming tomorrow.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “I believe the opportunity set is great. I'm not sure that everybody's gotten back into the single name shorting. The meme stock craze, the retail-led rallies, the short-covering rallies, the new market structure still makes it not easy. You need a really thoughtful portfolio construction, really thoughtful portfolio execution. It's not just about the ideas. Volatility works against the short side. It helps the long side. If a stock goes down and you're long it, you have a smaller position and more upside. It's easy to buy.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “Else that is lower fees than this lucrative business I have. And I think also in order to really do 150-50 well, you need to have a scale shorting infrastructure. Shorting is hard. This is something we have stayed committed to in the”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “It's a great question. You know, I think we have been, you know, the world and markets have evolved over our 30 years in the business and we've had to evolve in two ways. We've had to evolve the business. So to this point, I think as allocators have changed, we've said, hey, we're going to disrupt ourselves. Yeah, one and a half in 20, our fees are one and a quarter and twenty. But one and a half and twenty absolute fees, that's great. It's really lucrative. If you can't get it or allocate us on something, we could either be a smaller version of ourselves when a lot of the peers that I start in the business with are no longer managing money. I feel like I love this business. I want to do the right thing for my employees, for my investors, and keeping a strong and stable business is important, even if it's less lucrative. And so we're a bit disrupting ourselves, but you're moving to where the market is and keeping a business strong. So I think some of my peers maybe have felt like I don't want to give investors something.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “That's the thought process. So we picked the MSCI world, which is half of it's the SP 500 anyway because we do global, but we charge a 50 basis point fixed fee. And then 30% of the alpha. So if we don't beat the market, you pay us a pretty low fee, 50 basis points. If we crush the market, you pay us what we're worth. It's a fair sharing of fees and a good alignment. And so there's a huge pool of capital that already wants to be long the market, right? The 70, 30 model, like a lot of full risk. And so people in that full risk want. Passive index. They want long only. They want private equity. They want venture. So we're playing into that world, but we can generate very significant alpha, both with a long stock picking and our long short spread.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “But now we have two opportunities to generate alpha for investors. There's the alpha on our lungs. What we would do if we had 100% long portfolio. And then you add a 50 by 50 almost neutral sleeve on top of that so we can generate value from our long short spread because we have an extra 50 points on either side. And that's a product as allocators of increasingly bifurcated their portfolios. They want full risk on one side and they want uncorrelated on the other. They don't want this thing as much in the middle that long short equity had been. We launched the Longfund 12 years ago, alpha extension a little over the year ago, realizing that as a business, we need to give allocators a product that fits what they need. We can pick stocks. And our long short hedge fund has done great over 25 years, but it's framework, it's fee structure is something that allocators have increasingly said, I want something different. And so 150 by 50, it's always 100%.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Yes. So I think that will be our highest absolute return portfolio over time. The roots of us are the long short hedge fund. I would call that healthy, gross, moderate net exposure type portfolio. Call it 130 by 85, kind of 45 net, 2250 gross use stock picking to generate good absolute returns but reduce systematic risk through shorting. And that has variable net too. So there have been times where we've been 10 or 20 percent net and there have been times like post-COVID where we went to 100% net long. So we have flexibility and then most of the time we tend to run it pretty much in the middle of the fairway with those exposures. 150 by 50 is more of a long replacement. It is for the investor who's already chosen to belong the market. It is always 100% net long.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Is that a good scripture? I think that's good. And then even when things are going well, if you can do a good job with long, short spread, that shorting isn't going to hurt you nearly as much. It allows you to be levered to your lungs. So we've always run with a portfolio where our long side is typically over 100% gross long. We bring that down with the short side. So you get extra leverage to your lung and you could still outperform the market over the long term, even while only having, let's say, 40% net exposure to the market because you can generate long short spread and you can be leveraged to your long. So a combination of a model that allows you to do solidly when markets were good and outperform them over time, maybe not in the very, very short run if markets are going to be up 20% in a given year. But if the market's going to be up 10 over the long term, we could outrun that, but also be able to protect capital so you can be offensive. And that was part of the way you could outperform on full-time.”

    2024-08-22 · Masters in Business · From GameStop to Meme Stocks with Ricky Sandler · IDENTIFIED FROM THE TRANSCRIPT · source