Travis Wiedower

Just got done updating my investor deck so some of this is fresh on my mind. 1. What is the overall framework for your investment process? First off, I only look at $1B market caps and under (mostly <$300M really). The fewer Wall Street analysts looking at a company, the greater chance I have of having an informational advantage. But even more than that, small companies are so much easier to analyze, fundamental research is simpler and I have much greater access to management if I want it. Next, I only look at companies where management has significant stock ownership, especially in relation to their annual income. This doesn't guarantee competence, but it greatly increases the chances of them caring about the stock price. Within that universe of small companies run by managers that own a lot of stock, I'm looking for stocks that I think can realistically double or triple over the next 3-5 years. I think that growth potential creates a margin of safety in an of itself. From there I create a concentrated portfolio of my top ideas. Of course a lot of fundamental research, industry analysis, etc is involved in there. 2. What are your activities daily, weekly, monthly, quarterly? Keeping up with portfolio companies whenever new information is released, keeping up with watch list companies on an occasional basis (some regularly, some I check in on 1-2 times per year). Seeking out new investments is a never ending process. I look at investor blogs, VIC, occasional screens and I enjoy going through large lists A-Z (such as all OTC stocks). 3. What are some things you spend a lot of time on? All of the above? I guess everything in investing is a never ending process--always keeping up with current holdings, seeking out new investments, etc. I read a lot of books which are usually directly or tangentially related to investing. 4. What are some things that gets you frustrated. Management teams that take advantage of shareholders. Even though I am almost never in these companies, it pisses me off to see situations like SODI where management has this us against shareholder mentality.

+whatever. If I'm seriously considering investing in a company I'll listen/read the last few years worth of calls. One thing I think these are especially good for is getting management's outlook for the next 1-3 years (and I don't necessarily mean guidance, just general stuff). If I listen to calls from 2-3 years ago I'll take note of predictions/outlooks they made and then see how it came out. Good way to judge how conservative or aggressive they think.

Meh, Einhorn gained 53% on a 9 year investment. Not exactly something to write home about.

Only in situations where a stock has increased quite a bit to fair-ish value but I'm not selling yet. As said before, taxes can be a major point here. If a stock is up a bunch and has reached fair value, but there's not long until long-term gains are reached, why sell? IB does all this automatically and yes, performance reporting is basically weighted averages from all client accounts. If a money manager reports 15% earnings in a year, there's a chance one of their clients is up 5% and another is up 25%--all depends on when they put money in.

I don't want to get too far off topic in reference to your first question, but in general I don't have that viewpoint. To take that viewpoint to the extreme, I heard another investor claim one time that you should only sell a stock if you're going to short it :o I'm more of the opinion to let my winners run until I find something to replace them with (unless they get too overvalued of course). If a stock increases to fair value, I'm happy to keep it until I have something else to buy. And of course there are tax effects which do matter. LP taxes are passed pro-rata through to the individuals. Correct. For all intents and purposes, HFs and SMAs are basically doing the same thing, HFs just make it easier. In SMAs, clients who open accounts (or added money) at different times are always going to have slightly different position weightings. It's always possible to rebalance, but those small differences often make simple one-click changes not really possible. When all money is pooled together in one fund the buying, selling, rebalancing, etc is much simpler. My point was only that the SMA structure is more annoying than I expected, not that it's inadequate or anything like that :)

I use IB (which I love btw) and one-click ordering is great but there's more to it than that. One problem is new clients coming in when positions have increased significantly. So I'm on boarding a new client here soon and my biggest position is up a lot this year. I'm perfectly comfortable holding the stock for now, but not wanting to buy more. So my new client will start with a pretty sizeable cash position since I won't be buying that stock for him. That client will also have a purchase date several months later than other clients in the rest of my positions. Alas, situations can arise when some clients are paying short-term gains and some long-term. I only have a handful of clients but it's already annoying to make changes because one-click ordering just doesn't suffice much of the time. Don't get me wrong, SMAs are great for starting out but as soon as I get to the $4-5 million AUM range I will be transitioning to a hedge fund. I can't even imagine managing 20-30+ separate accounts. As BG said, this structure just doesn't scale that well.

Hating separate accounts more than I expected to is my biggest surprise so far. I started my RIA in February and it's certainly cheap and easy to get up and running, but separate accounts is not an ideal way to run an investment firm. If you have a couple million+ in starting capital I'd recommend a hedge fund.

Do you have children? Your lack of pathos suggests that you do not. You can use statistics to argue for a lot of things, but to suggest that school children being murdered in class is 'no big deal' because we need self driving cars is being almost laughably callous. You misunderstand his point. It has nothing to do with having children or being callous, rather it has to do with rationalizing resources to the things that will have the biggest impact. Of course children being murdered in class is awful and no one is going to argue against that. His point is that things like school shootings get sensationalized to the point where government focuses too many resources on them in relation to the damage actually caused. Can't blame the politicians, the average citizen doesn't understand statistics and cries for more to be done to stop these events from happening. To better illustrate Pauly's point, take a poll of your friends asking "Would you rather stop school shootings forever tomorrow or have fully autonomous cars by 2025?" It will be well over 50% that choose school shootings, when in fact that would save farrrrrrr fewer lives than having autonomous cars in ten years.

Interesting. I believe one of the Freakonomics books gets into this kind of stuff as well. One of the examples they give is after a highly publicized suicide happens, suicides across the country will spike and then gradually return to normal levels. People who normally may be on the border of committing suicide suddenly are convinced to by a public figure doing so.

Just an update: The Flag as Irrelevant feature on Google Alerts seems to be working great. Haven't had any stupid Zack's (or similar) updates since I discovered it last week.

Oh the certainty of the greater good. How wonderful. Perhaps you should talk to these individual workers directly and explain to them how their job loss is for greater good. I am sure they will appreciate your concern and explanation. Of course the majority of them won't. That has absolutely nothing to do with my point though. If you prefer inefficient companies with larger work forces over efficient companies with smaller work forces, that's fine. I do not. The Carl Icahns of the world should keep on keeping on in my opinion. Yes, but bettering the planet as a whole doesn't always mean bettering a small subset of peoples' lives. Basically everything has negative consequences. Bill Gates is widely regarded as having a positive influence on the healthcare and livelihood of Africans, but I've read recently about some negative consequences of the changes he's made. Those individuals may not be happy with what he's done, but I'm confident his overall influence has been massively positive for that continent.

This is basically the nature of capitalism. In the short-term a lot of individual workers are harmed, but it's best for the overall economy and the greater population over the longer term.

You can do RSS feeds for any company through EDGAR so SEC filings is easy. Can also track Form 4s for insider traders. For news stuff, I subscribe (usually RSS) to the company's press/news releases, most of this is through the company's website. Also, I just learned you can flag Google Alert stuff as irrelevant and then in theory it learns over time what you care and don't care about. So the past couple days I've been flagging all Zack's notifications as irrelevant, hopefully that problem is solved here soon.

Kind of off-topic: I'm currently reading Damn Right! (biography about Charlie Munger) and at one point his partnership was 60% invested in Blue Chip Stamps--didn't realize he was THAT concentrated. The partnership's returns were great for the ~13 years he ran it but it wasn't a smooth ride. He had two years of 70% growth and two years of 30% losses. Anyway, I don't have much of a point, just thought of this thread while reading the chapter earlier.

Solid stuff. I liked his advice to look at odd lot tenders when you're 100% invested and not finding anything interesting--maybe you're getting an itch to do something, getting bored, etc. Odd lot tenders may only be a couple hundred bucks and meaningless to the AUM but it's a good way to keep your mind busy and you feel like you're "doing something" as opposed to just looking at (and passing on) overpriced stocks all day every day (which does get old after a while).

Fee structure is something I think about a lot as well. The best idea I've seen (and I may try to use it in the future) in terms of alignment of interests is 40% of the difference between my returns and my benchmark. For example, I only invest in small caps so the Russell 2000 could be a reasonable benchmark for now. If that loses 5% this year but I gain 5%, I'd get 40% of the difference so +5% - (-5%) = 10% * 40% = 4% of AUM. Problem is many investors wouldn't like having to pay in a year that, for example, the benchmark loses 20% and I breakeven because then they end up paying me 8% of AUM and now they're down money on the year. I think it's very fair for all parties and is the best way to align interests though.

Oops didn't notice the release date. You should update this thread once you get a ways into it. Interested to hear how it is.

About halfway through it, very interesting so far. Not too surprising that better-than-average forecasters share these specific personality traits. Kind of funny the inverse correlation they found between fame and forecasting accuracy--CNBC needs to do a segment on these findings ;) Have you read the book they keep referencing, Superforecasting?

I don't know about super recently, but in the past year or two he was trying to raise money ($100M+) to start another hedge fund. No idea if it took off or not.

I don't think you need that particular feature for your RIA bank account. I've used Chase business accounts for multiple businesses and have always liked them. Bank account opinions are tough though because very few people have used that many. I used to use 5/3 but didn't like them so I switched to Chase and I've done everything through them ever since.

What a cast! Looking forward to it.

Guy Spier basically said this recently when someone asked why he only invests in bigger companies. Also mentioned better corporate governance and that outright fraud is basically non-existent. All very valid points but this is exactly why small caps are more inefficient because fewer investors look at them for various reasons. By the way, who claims investing in mega caps is better? Buffett has been saying for decades that BRK will never get the same returns he's posted in the past because AUM is an anchor on returns. Many other managers have said variations of the same thing: as their AUM grows, returns have to moderate because they can no longer invest in the smaller companies. Of course there are tons of individual big companies that have crushed the market (almost by definition actually, how do you think they got that big?), but that doesn't prove the large cap space as a whole is easier/better than small caps.

Amen. This is something that continues to confuse me on a regular basis. I think the major reasons are: 1. Finding small companies is more effort up front. If I wanted to invest in Valeant, I could go read a massive thread on this forum and probably a thousand news stories elsewhere around the Internet. If I want to invest in $100 million dollar companies the general public doesn't care about I have to put much more effort in (doing screens, combing through OTC stocks, etc). The payoff is that these small companies are easier to value when you do find them and are more inefficiently priced. I don't expect casual investors to give a damn about finding small companies, but this forum should be biased towards serious investors and it's still heavily dominated by large cap investment ideas. 2. Investing in bigger companies is cooler and gives you a lot more to talk about at dinner parties. I told someone just last night that I run an investment firm. His first question: "That's awesome, so are you trading on a daily basis on where the market is going and stuff?" His next questions were about certain big companies/macro events and my opinions on them. When I explained my strategy and that I'm invested in small companies he's probably never heard of because they're more inefficiently priced he changed the topic of conversation shortly thereafter :(

Very cool! I always thought it'd be neat to own a stock certificate from the very first public company (Dutch East India Company). There's a few floating around, here's a story about one that was found a few years ago: http://www.bloomberg.com/news/articles/2010-09-10/antique-share-worth-as-much-as-764-000-found-by-dutch-history-student

A big part of investing is understanding how the world works and all the companies and players in it. Charlie Munger talks about this a lot with his mental models. It's important to spend time learning about a wide variety of people and businesses that may not have a direct impact on investment returns. Those things can help you understand one more small piece of the world which is ultimately a positive. And learning about extremely successful people can never hurt.