Just watched this old video of a guest lecture by Andrew Weiss (Weiss Asset Management) at the Columbia Business School – Heilbrunn Center for Graham & Dodd Investing (21 Feb 2006). Quick summary of key points below. Andrew made a lot of other points on value investing which I thought was good but quite standard, so I have not captured them below.
- Their large part of their approach is to bring highly technical expertise in valuing tough to value situations to countries where others find too risky to invest. They are experts in the legal system of many countries and are activist investors.
- In most countries outside the U.S., you can call an extraordinary general meeting (EGM) with just 10% of the shares. At the EGM, you can replace the entire board of directors. We look at the shareholder list and see if we can have the votes to replace the board.
- If Goldman Sachs is looking at an investment, we are not.
- We keep commissions and fees to a minimum. We have 10 prime brokers and we switch around depending on who is giving us the best deal. We have someone that scours around and re-negotiates the shorting fees every week.
- Stocks we are looking at, we are only looking at them because we can buy them at 40-50% below the actual market price. You are locked in for a couple of years, it is sort of like buying restricted stock.
- Hedging is a key component of what they do, and they use mathematical models to determine how to hedge, and how risk impacts the original portfolio as well as the hedged portfolio.
- When they buy a closed-end fund, they short the stocks held in the closed-end fund.
- At work, my staff is not allowed to put 0% as the probability of any event. Things that you think have extremely low probability usually turns out to be much more probable than you think.
- The sell decision is the same decision as the buy decision. Every investment is just a contest, cash is also an investment, there is nothing special about an investment called ‘cash’.
- Financial news keep giving you explanations of why the market went up and down every day. You have to accept the fact that there are a lot of stuff that you just can’t explain. A bad explanation is worse than no explanation.
- It is fine to be greedy. There is no supernatural being that punishes greedy people in the stock market.
- Overcome the impulse to react immediately to events. You need to think about it.
- I don’t look for alpha types to hire. I look for neurotics, people with a lot of self doubt, they think about what they are doing. Hires very smart people and train them. Gives very tough logic problems in interviews.
- In most institutional investment companies, people are given a sum of money to invest. These people are extremely risk adverse because they are afraid of taking a loss and losing their jobs, because supervisors cannot tell whether they lost money due to stupidity or bad luck. In my company, we look at why a position made or lost money. Making money when you’re not supposed (e.g. when you are hedged) is bad.
- Got lied to by a fund manager at a Romania Growth Fund in Romania. After that, he always considers what is in the self-interest of whoever he is talking to, and think about what he can do to make it in their self-interest.
- Was invested in a fund called American Income Trust which was a UK fund with 2 classes of shares. There was some ambiguity on which class of shares will get the residual claims. They spoke to the company’s secretary who told them it was class B. They wrote to the investment manager Aberdeen, and Aberdeen wrote an email saying that it was share class B. That was in October. In January at the AGM they said its class A, but Weiss had already sold off all of their class A shares and bought class B shares.
Use of Data
- It is not relevant to use U.S. data from the 1920s to try to understand what is happening to the U.S. today, vs. other countries that look a lot similar to the U.S. today.
- You want to look at markets with similar characteristics to the market you are investing in today, and how those markets respond to various shocks.
- I read a lot and find things that don’t make sense, then I do some kind of economic analysis to see if really does it make sense, then I start thinking about modelling what’s going on here and what kind of opportunities there could be, then I look at the data to see if I miss something, then I go back to the data to do more theorizing.
- Even in emerging markets there is enormous amount of data, e.g. they have 0.5TB of tick data for India.