YouSaid · the spoken record

Wesley Gray

lines on the record: 77
first: 2016-06-24
most recent: 2016-06-24
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Momentum. Exactly. It just puts supply into the market when maybe the fundamentals should be the stock should be worth $100 and it starts at $80, but it can only go to $90 because as it starts moving and who wants to be the last guy owning it on the highest peak fear”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Bad news, the evidence in general seems to suggest that momentum is more of an underreaction to positive news that's being signaled in the price. But because people are overconfident in their own information set, even though the price keeps telling them, yeah, and there's disposition effects, you know, you're supposed to let your winners ride and cut your losers short. What do people do? The opposite. So there's a lot of kind of organic fake supply that comes on the market for high momentum stocks.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It turns out there's two competing theories. Like we're talking about relative strength momentum, which is the classic kind of stock selection momentum that academics discuss. And that the preponents of the evidence is that it's an Underreaction to positive news. So value is an overreaction”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is, but it's hard to arbitrage, which we can discuss. But what values driven by we think, and by we I mean like the academic research community is an overreaction to bad news. Essentially they throw the baby out the bathwater on average. Momentum”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure Yeah, so really the way we look at value and momentum in particular is there are really two sides of the same behavioral coin. So if you look at value, one of the arguments for why it outperforms is obviously could be more risky and we can't discount that. That's surely one component. But there is a mispricing component, we think. And that's what that is.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Definitely 100% because we want to look for the what is the real signal here, not the noise, and let's just focus on that signal. And what we found is that in financial markets, frankly, nothing's changed. Human behavior is pretty constant and incentives specifically like this principal agent, delegated asset management problem, those are two constants and they derive a lot of predictions about what works and what doesn't work. We keep coming back to the same themes. Value buy cheap stuff. Momentum, buy relatively strong stuff and trend. Be in good trends. And everything we look at at having memorized like most of these databases at this point, it's those three simple muscle limits usually drive all other perturbation of anomaly or factor or whatever the heck people are looking at.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, there's an element of that, but the other element is understanding that when you start going down the model creep situation, it's like the old game where the kids, like the little girl first says, hey, the princess kissed the frog. And by the end of the circle, it's like, you know, Spider-Man beat up He-Man. So it's a total different story. And it's all because you have small little changes where you end up in a total opposite place you wanted to end up in the first place. So when we build models and when we think about it, it's very, very time intensive and R&D intensive up front to build the simplest, most robust model we can.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So I probably can't speak on behalf of all quants because, like, every walks of life, there's a lot of varieties within that segment. In one corner, when you talk about a quant, you think about the physics PhD who's never read a finance book ever. He's data mining, building crazy models in C++ and doing whatever they do. That's not the type of quant analysis that we bring to the table. We're essentially economists that are trying to think about how the machine works and we just leverage quantitative analysis and tools to basically allow us to conduct what we consider like scientific method as best we can. So we have competing hypotheses about how the world works. We grab data. We test these competing hypotheses and we're always trying to get better evidence-based investments. Evidence-based investing. It's not just let's data mine because we've got better computers and more physics PhDs.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I think it's a lot of times, like coming from a PhD, University of Chicago, everyone's rational. This is how the markets work. And yeah, they're probably right. But that fails to consider humans. And there's humans operate in the economy, not agents, rational agents. So I think just like when we go to a situation like Iraq, on paper, yeah, go bring them freedom, democracy, and they'll become like America and everyone will have a, you know, white picket fence and three kids. But then you start realizing, wait a second, there's cultural issues here. There's human elements. Same thing in finance. Yeah, you should go buy cheap stocks and do what Warren Buffett does. Why doesn't everyone do that? Well, because there's humans involved in finance.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Go shoot him. I'm gonna go shoot him because that's freedom. And you guys don't do that in America. You're not really that free. You're still constrained by civil laws and all these other things. And the idea that when you give us freedom, you somehow are going to help us out. No, you're destroying all law and order and anything that resembled a society here.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. You got it. So, the idea that you can bring us freedom and democracy, and that's a great thing and you're helping us, no, you're giving us anarchy. And everyone has a house with 1AK and 30 round 762 MAG. And guess what? If there's not enough police, if I don't like my neighbor.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Americans are crazy. They tried to explain to me their perspective. And a perfect one is okay, so you guys want to go bring democracy and freedom to the Rocky people. And you've done that. But here's the problem. When you let a country of caged lions totally free out of their cage, you don't give them freedom and democracy. You give them anarchy. Because you guys in America have a lot of implicit structures, either legal, culturally, or trust. Like, we're tribal here, guys. Like, we don't have a lot of that kind of ether in your culture there.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the biggest insight I got, actually, and also it's a lot of the things I cite and embedded is just my conversations with the actual Iraqi people about why they thought we were so weird and crazy and the things that we did they.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Not easy to do, and I would argue it's very, very time intensive and costly. And that's fine as a decision, but let's weigh that against the potential benefits. And that book just really opened my eyes to understanding, I would say, just Arab culture in general and how the way they think about the world is just so much different than us. And then the idea that we can impose our ideas and how we think about the world on them. It just doesn't work. And I have an analogy here. It's like, you know, it's a fish trying to tell me how to breed it underwater. Like I understand I need gills and understand I need to get oxygen, but it doesn't work for me. Like it's just, we all understand each other kind of, but we just, it's not going to work. And that was the biggest insight why I had to share it because it changed my mind about the whole thing 180, about why are we here and is this really a positive?”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“What it was is, you know, I remember before the Iraq war had Colin Powell show us that little white bottle that you're all going to die. And I was like, you know, this has kind of maybe a survival war. This is pretty important thing. I'm a buyer. I'm a believer. And then, you know, so Winning and Marine Corps, not really for that reason. I just want to do my service. But I thought, hey, this is a mission that makes sense. You know, it's a win-win for America and hopefully for the Iraqis or what have you. But then after actually living and being embedded with the people, I started to realize that, you know, culture matters. And we're in this war now. We're really taking on a 50 to 100 year commitment because we're going to try to change culture.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So, what we do is we leverage a lot of, I guess you call them technologies in academic literature where people have built up statistical constructs to try to predict who's most likely or red flagged as being a manipulator, fraudster, or potentially going to be in a financial distress situation. And we just, at the outset, say, hey, if you're extreme red flagging on any of these sort of things, you're not even going to be in our potential.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Classic value trap. The value trap. Yeah, you catch the falling knife, as they call it on the way down. Basically, there's two or three ways you can think about permanent loss of capital. And these are one would be like a fraud or manipulation. So if it comes out that the business you thought that was making a billion dollars a year is actually making zero, that's going to be a bad news for equity holders. I would guess. Yeah, same thing with manipulation. Like, oh, we thought we had this. Now we have this other thing. And then the other one that's obvious is financial distress or bankruptcy. You can own the best business in the world. But if you're an equity holder and this firm is in distress, the debt holders might end up owning that great company, not you as the stockholder.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“The principal agent problem and also just emotionally, it's easy to own high quality securities. But when you look at it objectively from like an evidence-based standpoint, just as an independent analysis tool, we think quality is not that valuable and it doesn't make any sense it would have edge. Where cheapness everyone hates these things. They're hard to own. It's crazy. They're hard to hold. There's a lot of pain involved. And unfortunately, just like in the Marine Corps, no pain, no gain, FBC holds in financial markets, unfortunately, as well.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Independently, no, because there's a few reasons why everyone knows Google's great, Facebook's great, Procter& Gamble is great. So what's the edge? And then secondly, it's also easy to buy those names Someone to recommend them, so it's not”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“With strong balance sheets on a risk adjusted basis and from a betting standpoint are better than cheap stocks with bad balance sheets.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ascertain that there historically have some indication of being a good business, but then current financial strength is now a ten-point checklist where we want to make sure, are you going to survive the next few years, i.e. are you making money? Are you paying down debt? Are you repurchasing stock? Is your current ratio improving? It's literally like a pre-flight checklist. So are you a quality business organically? And do you have the current financial stature to live for the next few years? So eventually hopefully you can get revalued up to not be a value stock anymore and hopefully be a growth stock in the future.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Amongst the cheap equity. So given we're in the cheap bin, which are securities that obviously there's something going on, and that's why they're cheap, we have a table, like the, we call it the quality table. There's two legs to it. There's understanding the fundamental quality of the business, and there's another thing called current financial strength. So in assessing economic moat, we try to objectively ascertain, is this company a good business? How do we do that? We look at things like long-term geometric means on return on assets or return on capital. We look at long-term free cash flow generation, profit margin dynamics. Like if you have 50% margin year in year out, that's probably good business. And we want to quantify the quality of this business to essentially generate returns, hopefully in excess of their cost of capital. But that's not enough. That's leg one because we're dealing with cheap stocks that have issues. So we can one.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So stepping back, it's really important when we talk about quality in the context of investing to understand given it's already cheap. So with value investing, the way we look at it, you have to be buying the stressed cheapest securities in the market. Only within the cheap does quality start to help add value. So if you just look at quality as a standalone characteristic of a security, it's unclear that it adds any quote unquote alpha edge. It's all about looking at quality given you're in the cheap stocks everyone hates.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“And hold it for a long time. Hold your nose when inevitably it totally underperforms for potentially multi-year stretches. But at the same time, how can we implement this process in an objective, disciplined way such that I can pull out monkey brain from making bad decisions, you know, from trying to be a stock picker? Because I learned my lessons basically on that.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So I had started out with this being a total Bible thumping Ben Graham intelligent investor stock picker. I did that for 10 years. My own personal money. And thank God I had the opportunity to eat a lot of humble pie along the way. And I was thinking, you know what? This whole Warren Buffett Ben Graham idea makes total sense to me. But after you get engaged in the activity of stock picking, you realize that you get very emotionally involved. And even if you understand the biases, you've memorized Kahneman's book, even if you know it and you know how the biases influence you, you start to realize you still can't control against the biases. So I thought, hey, you know, fundamentally, value investing makes sense. Buy cheap stuff. Everyone hates. Great. The problem is hold it.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I think it's just like in the military, you try to train as close as you can to fight and have ultimate faith and confidence in the leadership and the decisions and the process that you believe in. And when you have that, I'd say belief in what you're doing and you really put a good faith effort into working on that when you hit chaos if you believe in your training, you're more likely than not to stick with that process.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“You have stand operating procedure and you train to that standard just like in financial markets, I think a lot of the time, like let's say there's a 50% drawdown in your portfolio. Your gut reaction is sell everything, but that's not what you should probably do. So you need to have a process or something in place before you hit chaos. So when you're actually in chaos, you're react in a more rational, I'd say, logical way. And I think you see a lot of that between military and investing.”
2016-06-24 · Masters in Business · Interview With Wesley Gray: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source