Darren Farber - The Business of Defense - [Invest Like the Best, EP.417]

My guest this week is Cliff Asness, the managing and founding principal at AQR Capital Management. 20 years after its founding in 1998, AQR manages $226 Billion dollars across a number of quantitatively based investing strategies. Cliff was an original quant researcher and he has long been one of the financial writers and thinkers that I look to for education and for inspiration. I distinctly remember reading one paper in particular—value and momentum everywhere—somewhat early in my career and thinking: this is the kind of research I want to do forever. You can always tell when talking to Cliff or hearing him speak that he just loves researching markets. There is a deep intellectual honesty in his work, and a respect for thinkers at different ends of the market spectrum, from Gene Fama and Ken French, to Jack Bogle, to Dick Thaler and Robert Shiller. Our conversation is about all things quant—past, present, and future. Cliff touches on many of the big issues facing quant investing and tells some great strong along the way. I hope you enjoy our discussion. Let’s dive in. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes 1:47 - (First Question) – Favorite superhero 2:43 – Why ‘Ka nama kaa lajerama’ is part of his twitter profile. 3:38 – How portfolios have shifted the way they use factors in a portfolio 10:15 – What are good questions clients are asking right now             13:24 – Contrarian Factor Timing Is Deceptively Difficult 15:40 – Does technology impact investing strategy 22:14 – When to share information vs keep it proprietary for clients sake 26:40 – How their research process is governed 31:14 – How they will incorporate machine learning into their process 34:21 – What they will do when red flags show up 37:01 – Wackiest question from a client 41:47 – The Three Sharpe Ratio Strategy             41:53 – Liquid Alt Ragnarök 48:10 – Does his thinking change when it comes to asset allocation vs portfolio building             50:17 – Parallels Between the Cross-Sectional Predictability of Stock and Country Returns             53:01 – Sin a Little 57:14 – Trends in fees and pricing 1:02:43 – Thoughts on private equity markets 1:11:03 – Common attributes of really good researchers 1:13:21 – What is he most curious about right now 1:15:43 – What excites him outside of finance 1:17:00 – How much he discusses his work with his kids             1:18:35 – The Devil in HML’s details 1:19:36 – Kindest thing anyone has done for him   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

13 Marras 20181h 25min

[REPLAY] My guest this week is Peter Attia, M.D., whose mission is to understand and improve human lifespan and healthspan (or quality of life).  Reading Peter’s research, you find that there are many similarities between health and investing—ideas like compounding—which we explore in detail. We spend a lot of time on mind, body, spirit and performance as it relates to living a better life. Of particular interest is the strategic problem that we face when studying longevity. As Peter puts it in our conversation: we are the species of interest, but we can’t conduct the kinds of experiments on humans—randomized trials, with control groups—that we apply to solve other big problems. So we have to back our way into a better understanding of longevity and quality of life. To that end, we discuss what we can learn from studying centenarians, the problem of progress in science, a drug called Rapamycin (which Peter believes could be revolutionary), eating, the importance of muscle mass, and the idea of distressed tolerance.  We emerge with a framework for thinking about health and well-being which can hopefully help us all live longer, better lives. Please enjoy! For comprehensive show notes on this episode go to http://investorfieldguide.com/attia For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag Posts From Peter Attia That You Should Read Do Calories Matter How You Move Defines How You Live 2016 Update Long List of Questions Answered: Part 1 and Part 2 Links Referenced The Scientific Method-Richard Feynman Knowing Versus Understanding-Feynman again Books Referenced Barbarians at the Gate: The Fall of RJR Nabisco Diffusion of Innovations Good Calories, Bad Calories Show Notes 2:31  – (first question) – Getting Peter to define the concept of wealth and how it might have changed in his life 5:01 – How do you increase the number of really good people in your life. 6:50 – Looking at the relationship between healthspan and lifespan and a chart that Peter created on this specific topic. 11:11 – Drilling down into the different dimensions and aspects of this chart that could be most important for people, especially how compounding plays into our health. 16:57 – The difference between strategies and tactics that will help you extend lifespan 17:54 – The Scientific Method-Richard Feynman 21:41 – Different types of intermittent fasting 28:59 – What role does repair play in health 34:17 – Barbarians at the Gate: The Fall of RJR Nabisco 36:01 – Looking back, what health trends today will look absurd 36:19 – Diffusion of Innovations 39:24 – What are the primary benefits of weight lifting 40:21 – The importance of glucose disposal 45:07 – Good Calories, Bad Calories 46:31 – What is the state of progress in the scientific community 52:14 – Peter is asked about how he guards against getting too attached to old beliefs 1:01:51 – A look at how performance relates to healthspan 1:03:34 –Peter’s first great auto-racing experience 1:09:17 – Looking into Peter’s medical practice and understanding his thinking that goes into helping people 1:18:11 – The most memorable day in Peter’s career 1:22:31 – The kindest thing anyone has done for Peter Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

6 Marras 20181h 29min

My guest this week is Ryan Caldbeck, a private equity investor who wants to bring quantitative rigor to the private markets. Ryan is the CEO of Circle Up, which uses a system it calls Helio to identify attractive investments in early stage consumer brands.  While I am of course a fan of quantitative investing, I also know from experience how much harder private markets are than public markets when it comes to the transactions themselves. We discuss this and many other potential roadblocks to bringing models to private markets. Using many individual companies as examples, Ryan explains some of the major predictive factors they’ve uncovered in their research. We also discuss which parts of the private markets might be infiltrated by quant processes first, and which may never be.  I expect many more to go on a journey similar to Ryan’s in the years to come. They serve as an interesting example for ambitious investors out there. Please enjoy our conversation. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes 1:39 - (First Question) – Formation of Helio 6:57 – How they handle the relationship building needed to make investments in private markets 10:26 – Why consumer and retail are interesting spaces to apply their quantitative approach in private markets 12:54 – Searching for new relevant data 16:14 – How do they stay ahead of the commoditization of uniqueness             16:21 – Pattern Recognition and Machine Learning             17:24 – Sam Hinkie Podcast Episode 18:00 – Dominant predictive factors in this world 21:05 – Which is more important, relative value or rate of change 21:48 – What does the data say about online sales vs offline (being in a store) 23:30 – Variable that consumer investors think matters but it doesn’t 24:53 – Valuing companies and accounting for mispricing’s             25:36 – Michael Recce Podcast Episode 26:41 – Goes through the process using Liquid Ivy as an example 28:46 – Most interesting sub-categories 29:33 – Future for this model             32:10 – Albert Wenger Podcast Episode 35:19 – Other categories outside consumer and retail interest Ryan 36:28 – Biggest challenges for CircleUp as a business 38:46 – Handicapping their earnings expectations 41:36 – Take on the VC/PE landscape 43:03 – The types of models that are most interesting to the team 45:05 – Quantitative elements of brand that are most interesting 47:30 – Most unique brand and distribution strategy he’s come across 53:27 – Who has influenced Ryan the most 54:37 – His personal values 55:51 – More people who had an influence on Ryan             56:05 – The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business 57:07 – Thoughts on goal setting at the company 59:29 – Unchangeable factors that shape their long-term vision 1:02:01 – Most interesting individual conversation as part of this journey 1:04:02 – If he could only keep one dataset, what would he keep 1:05:09 – kindest thing anyone has done for Ryan   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

30 Loka 20181h 10min

My guest this week aspires to be the Larry David of investing, and we discuss why. Howard Lindzon is hard to categorize. He’s primarily an early stage investor right now, but he’s participated in all types of investing. He describes himself as a trend follower and always has a unique take on popular topics.  In this conversation, we cover his investing history and his take on the fintech investing landscape. What I’ll remember most is the idea that we should focus on what is happening versus what we think will happen or might happen. There is a Peter Lynch like quality to some of Howard’s thinking, and a willingness to embrace the weird that I find very appealing. The few times I’ve met Howard, I’ve smiled or laughed most of the time, which is about as nice a thing as I could say about someone. He’s a good example of why I like this podcast format. His investing style bears literally no resemblance to my own, but it got me thinking about a lot of new things. I hope you enjoy our chat. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes 1:42 - (First Question) – Why he wants to be the Larry David of investing 2:00 – Why his investing style is best described as trend following 4:05 – The biggest inspirations/influencers on Howard’s investing 6:39 – What made his second mentor, Fred Wilson such a great investor 9:52 – Formation of Wall Strip 12:33 – Why weird is so important in his investment philosophy 14:56 – Understanding his investment philosophy through his investment in Rally Road. 21:02 – His assessment of the fintech space 28:54 – Why fintech pushes away from human nature 30:50 – Major trends in fintech that have his attention 35:02 – What stands out about the teams at these companies he invests in 36:37 – Thoughts on fractionalization plays             36:44 – Capital Allocators podcast episode             36:54 – Venture Stories Podcast 40:03 – Any major trends that are changing and worth attention             42:06 – The Tipping Point: How Little Things Can Make a Big Difference 43:26 – His take on the media landscape 45:10 – Kindest thing anyone has done for him   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

23 Loka 201849min

My guests this week are Ali Hamed, Brian Harwitt and Marc Porzecanski who work together at CoVenture Credit. When I first had Ali on as a podcast guest, we discussed the many aspects of what his firm does, ranging from venture, to crypto, to credit. We glossed over the lending side of the business, but having since learned a lot from them on the topic, I was excited to get the chance to talk with members of their credit team for today’s longer exploration of esoteric high yield lending. I am always proselytizing the value of investor education, s this week we have a podcast first. The CoVenture team has prepared a long series of posts that correspond to our conversation and go even deeper into the topic of credit investing. You can find them in the shownotes at investorfieldguide.com/credit This is entirely differently from any conversation I’ve shared before, so I hope you learn as much as I did. Please enjoy my discussion with team CoVenture Credit. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes 1:42 - (First Question) – The formation of their unique credit business 7:09 – Their advantage in seeing both the equity and credit side of their investments 10:23 – Looking at the Returnly deal as an example 14:07 – How they view these deals and are able to sustain them as long-term investments 18:09 – Their interest in payroll deduction lending 20:08 – Finding unique types of default risk 21:31 – What stands out in a platform that makes CoVenture want to take a deeper look 26:43 – Most interesting types of problem they have come across that they have yet to do a deal in 31:35 – What is going to change to make for more thoughtful underwriting of subprime lending 35:51 – Major structures of asset backed lending 39:49 – Whether the home serves as an interesting playground for credit opportunities and whether people will own anything again 42:44 – Mark’s experience working at a huge firm vs his experience at CoVenture 44:31 – How does the current credit cycle impact their view 47:04 – Lending against bitcoin 50:06 – Who is interested in these loans against bitcoin 50:57 – How to set interest rates against a weird asset like this 53:00 – What are the key determents of success in this business 1:02:27 – Kindest thing anyone has team for the team 1:03:52 – How to treat people that you pass on   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

16 Loka 20181h 9min

My guest this week is Saifedean Ammous, author of the book the Bitcoin Standard. This was one of the more interesting conversations I’ve had in the world of cryptocurrency, primarily because we don’t talk about Bitcoin or Crypto until 25 minutes into the talk. Instead, we focus on history, economics, sound money, low time preference, and gold—all interesting topics. Saif’s thinking on cryptocurrencies other than bitcoin—which is that they are worthless—is unique and thought provoking. His reasoning around why gold shouldn’t be compared to the returns generated by assets like equities was also compelling. If you’ve followed my Hash Power episodes, this is a new a differentiated interpretation of Bitcoin as a technology for the store of value use case. Please enjoy our conversation. Hash Power is presented by Fidelity Investments   For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Show Notes 2:10 - (First Question) – Explain Sound Money 4:25 – Examples of hard vs easy money 7:36 – the even money trap 9:36 – The benefits of hard money vs today’s standards 14:05 – Why this interests him             14:16 – Gold Wars: The Battle Against Sound Money As Seen From A Swiss Perspective             14:56 – Democracy – The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order 16:17 – Correlation between time preference and people’s ability to succeed in life 19:59 – How money markets worked in the late 18th century vs today 27:57 – How he came across Bitcoin and how he thinks of it as a digital gold 35:42 – How will the world transition to a sound money standard 42:15 – The impacts of hyperinflation on crypto currencies 45:04 – The idea of a orderly upgrade of the world currency 48:20 – His thinking on alternative coins 54:05 – What it takes to compete with bitcoin 1:01:43 – How he diversifies 1:04:35 – Stalling bitcoins demand 1:06:11 – Does he apply his thinking of lower time preference elsewhere in his life 1:07:09 – Kindest thing anyone has done for him   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

9 Loka 20181h 11min

My guest this week is one of my best and oldest friends, Jeremiah Lowin. Jeremiah has had a fascinating career, starting with advanced work in statistics before moving into the risk management field in the hedge fund world. Through his career he has studied data, risk, statistics, and machine learning—the last of which is the topic of our conversation today.  He has now left the world of finance to found a company called Prefect, which is a framework for building data infrastructure. Prefect was inspired by observing frictions between data scientists and data engineers, and solves these problems with a functional API for defining and executing data workflows. These problems, while wonky, are ones I can relate to working in quantitative investing—and others that suffer from them out there will be nodding their heads. In full and fair disclosure, both me and my family are investors in Jeremiah’s business. You won’t have to worry about that potential conflict of interest in today’s conversation, though, because our focus is on the deployment of machine learning technologies in the realm of investing. What I love about talking to Jeremiah is that he is an optimist and a skeptic. He loves working with new statistical learning technologies, but often thinks they are overhyped or entirely unsuited to the tasks they are being used for. We get into some deep detail on how tests are set up, the importance of data, and how the minimization of error is a guiding light in machine learning and perhaps all of human learning, too. Let’s dive in. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes 2:06 - (First Question) – What do people need to think about when considering using machine learning tools 3:19 – Types of problems that AI is perfect for 6:09 – Walking through an actual test and understanding the terminology 11:52 – Data in training: training set, test set, validation set 13:55 – The difference between machine learning and classical academic finance modelling 16:09 – What will the future of investing look like using these technologies 19:53 – The concept of stationarity 21:31 – Why you shouldn’t take for granted label formation in tests 24:12 – Ability for a model to shrug 26:13 – Hyper parameter tuning 28:16 – Categories of types of models 30:49 – Idea of a nearest neighbor or K-Means Algorithm 34:48 – Trees as the ultimate utility player in this landscape 38:00 – Features and data sets as the driver of edge in Machine Learning 40:12 – Key considerations when working through time series 42:05 – Pitfalls he has seen when folks try to build predictive market investing models 44:36 – Getting started 46:29 – Looking back at his career, what are some of the frontier vs settled applications of machine learning he has implemented 49:49 – Does intereptability matter in all of this 52:31 – How gradient decent fits into this whole picture     Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

25 Syys 20181h

This week, to mark the two-year anniversary of the podcast, I offer a quick summary looking back and forward.

18 Syys 201812min