Opinion

Felix Salmon

Joe Weisenthal is right about the Ira Sohn conference

By Felix Salmon
May 25, 2011

Joe Weisenthal says I’m wrong about the Ira Sohn conference. But that doesn’t mean he thinks that David Gaffen is right. Gaffen reckons that people go to these events so that they can trade in and out of stocks in the space of 10 minutes. Weisenthal, by contrast, sees value somewhere else entirely:

It’s not often that you get to hear the thought process and reasoning employed these financial professionals. Within the broader scope of financial media, you hear a lot of managers and pundits making their arguments in broad strokes, with lines like “We’re bullish on US banks because of low rates, yada yada yada…“And that kind of stuff really is useless. But these are professionals who usually have portfolios of just a handful of stocks, who have done a tremendous amount of research on each one before pulling the trigger, and frequently they do have original insights.

So you shouldn’t go out and by MBIA just because a manager likes it. But if you’re looking for original thinking on stock selection, the speeches, presentations, and letters of big hedge fund managers is frequently some of the best stuff around.

This is a good point. The best way to extract value from Ira Sohn presentations is to concentrate not on the stocks that the hedge fund managers are talking about, but rather on their methodology. At the very least, you’re likely to learn a few ways of looking at a company that you hadn’t thought of before. These fund managers, then, can improve the way that investors do their own research on companies, even if they’re not going to be delivering up great investment ideas on a plate. Use their methodology on a stock which none of them are looking at, and you might just be able to find a hidden gem.

There’s another way to look at the fund managers’ investment techniques, and that’s as a way to evaluate the managers. The idea here is that the managers who have the smartest techniques are likely to be the best managers to invest in. On this front, I’m far from convinced: as I told Gaffen, the analyses presented to the Ira Sohn conference are really sales pitches more than they are transparent views into how hedge fund managers think and invest in the real world. For all their joined-up thinking at Ira Sohn, most successful fund managers in reality use techniques which they would hesitate to admit to in public.

But in any case, you’ll never get the important nuance about how these fund managers think from reading news reports about the conference. So I still don’t see the point in sending a bunch of reporters to cover it.

Comments
2 comments so far | RSS Comments RSS

I tried to comment with this exact point yesterday (but your Reuters-powered comment bot destroyed it…).

If just a few individual investors attempted to do as much research into ANY of their investments as these guys do, we would have a lot less money lost on poor trading by the little guy.

The methodology and thought process is highly valuable.

However, I STILL have a beef with you Felix.
“Most successful fund managers in reality use techniques which they would hesitate to admit to in public.”
What.
The.
F@ck?

Please, PLEASE tell me where you have garnered this important non-public info on hedge fund managers.

Do you think they LIE to their investors? If so, that is pretty damning and you should probably help out your FoF friends by letting them know who is lying to them.

Do you think the investors KNOW about these non-public techniques but are happy to go with them?
In which case, why keep them non-public?

In my experience of working for three very different funds and in interacting extensively with my peers/competitors I am pretty sure that anyone claiming to do any bottom-up fundamental value based investing use EXACTLY these techniques.

In short – citation needed.

Posted by TinyTim1 | Report as abusive
 

“Most successful fund managers in reality use techniques which they would hesitate to admit to in public.”

Felix, oh, c’mon.

Just because most people aren’t winning in the market doesn’t mean nobody is. These winners aren’t fairies and leprachauns — there are a number of them and we know many of their names.

Just because someone is making money, they must be a crook?

You can read many many years of Warren Buffett’s letters if you want. There are dozens or hundreds of ways of analyzing whether a company will do well over the long haul found in his letters and speeches alone. All legit and this just from one man! If you work really hard and keep just his openly shared strategies in your head all at once, you will do very well.

Warren Buffett has been outstanding but he is not alone; a significant number of other managers are smart enough, creative enough and hard working enough to outperform over the long haul.

Hedge fund managers, with the possible exception of Rennaissance Technologies, aren’t day traders anyway. Day trading doesn’t work well when you are so big that you move the market.

Well, these men certainly don’t need your approval to be winners. Most people are humble enough to feel very grateful when smart people share their ideas. Buffett’s annual meeting is full of such people (many very good investors already) who aren’t too proud to admit that they have much more to learn.

So what motivates these people?
(1) Ego. If you are one of the smartest, most talented people around and few people know it, that is not much fun.
(2) Attract more investors, I agree.
(3) Light a fire under your good ideas. If you have a great idea, buy some shares, and don’t tell anybody, it may take a long time for the market to discover these insights. If you help investors see what you saw, that could be a trigger to help move the stock.
(4) Take criticism. If your grand thesis has holes you didn’t see, its better to have smart people tell you then to suffer losses in the market later.

Posted by DanHess | Report as abusive
 

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