Putting Passive Flows to Work in a Portfolio

Published on
November 2nd, 2020
Duration
70 minutes

Putting Passive Flows to Work in a Portfolio

Mike Green in Conversation ·
Featuring Daniel McMurtrie

Published on: November 2nd, 2020 • Duration: 70 minutes

Real Vision viewers should be well acquainted with Mike Green's research into how big passive funds are responsible for many of the “distasteful” dynamics that have perplexed and enraged market participants over the last few years, but they may still be wondering how they can actually use this in constructing a portfolio. In this interview, Green sits down with up and coming hedge fund manager Dan McMurtrie of Tyro Partners to discuss how Dan has managed to successfully implement this research into his portfolio construction and security selection process. They also discuss the power of doing favors, McMurtrie’s unconventional path to building his fund, and how he has used twitter and good old-fashioned happy hours to develop an incredible network of mentors and colleagues. Dan McMurtrie can be found on a twitter @supermugatu and Mike Green can be found @profplum99. Filmed on October 26, 2020. Key Learnings: Investors need to think about who the next marginal buyer is going to be to drive a stock higher, and although this doesn't mean that fundamentals and technicals should be ignored, increasingly flows need to be considered when thinking about security selection. This can result in "distasteful" decisions that go against long held beliefs about value and what should drive the price of a security.

Comments

Transcript

  • FL
    Frank L.
    9 November 2020 @ 04:10
    Mike - Thank you for the interview. I found it interesting. At one point during the interview you stated, "I just structurally don't see a path to reduced passive influence, at least over the next five years." Have you made available your views as to what structurally may change that may lead to reduced passive influence at some point more than five years in the future? If one buys into the dynamic you and Daniel discuss generally, what should be looked out for to understand that this dynamic might change? Seems like a problem for a (very distant) day in the future, but I am still interested.
  • MK
    Martin K.
    8 November 2020 @ 19:38
    So....I should buy some WD-40
  • DS
    David S.
    8 November 2020 @ 19:10
    I am watching for the third time, Excellent discussion. It is changing my perspective to buy more into the passive market. There are just too many things that effect the price of a stock that are market mechanism related and not individual stock related. Thanks for helping me along on this journey. DLS
  • AM
    Andrew M.
    8 November 2020 @ 09:18
    A very insightful interview. Clearly flows matter. I share the same sentiment as a few other commentators. Most of the discussion was focused on the what (importance of tracking flows in the investment process) as opposed to the how (key indicators to be tracking, etc.). Some more color on how investors can go about integrating this lens into their process would be tremendously helpful.
  • MH
    Moritz H.
    6 November 2020 @ 22:33
    Really great interview
  • SP
    Sagar P.
    4 November 2020 @ 07:49
    How does someone go about measuring flows? What websites are a resource of that data?
  • BC
    Brian C.
    4 November 2020 @ 00:46
    Would be awesome if you could quantify this effect when you cut your monthly NAV...asset allocation, security selection, flows! I have no idea where to even start with this but I feel like this could be a helpful too.
  • VD
    Vincent D. | Contributor
    4 November 2020 @ 00:18
    Terrific interview by two my favorite RV people: it should be required viewing in the first finance class of any MBA. I wish I had heard this conversation when I thought all I needed to be a global macro manager was a fancy degree and a couple years as a research analyst.
  • KI
    Ken I.
    3 November 2020 @ 16:18
    Great interview and the one of best argument I have heard for passive investing.
  • SS
    Stephen S.
    2 November 2020 @ 23:36
    This was interesting but I’m not sure I quite got who does a young person go about getting into this industry? Like what qualifications are needed, what do you actually need to do to start a fund?
    • SS
      Stephen S.
      3 November 2020 @ 02:28
      Just thumbs down, no clarification on what the question actually was.
    • MG
      Michael G. | Contributor
      3 November 2020 @ 02:59
      Stephen, I think you’re getting the thumbs down because you’ve missed key aspects of the interview and instead of formulating an answer and asking for feedback, you’ve put the responsibility on others. This was the point. Dan specifically told you the degree is largely irrelevant. He hustled to make his connections and provide them value, toughed through years of low income and less respect, and is now positioned to finally break into the big leagues after developing his own voice. As should be obvious, he’s won a lot of respect at a young age from many who matter. Hopefully makes it clearer.
    • SS
      Stephen S.
      3 November 2020 @ 04:40
      I guess I’m wondering about the actual mechanics of starting a fund. I dunno maybe not in the scope of this interview, or maybe I missed it, but that was the piece I was left wondering how did that actually happen.
    • MG
      Michael G. | Contributor
      3 November 2020 @ 05:46
      Stephen, RealVision is not targeted at those trying to “start a fund.” A very simple Google search will give you docs like this (https://www.managedfunds.org/wp-content/uploads/2012/03/Starting-a-hedge-fund-GrantThornton-Stonegate-Capital-Dec-2011.pdf) which, while dated, remains directionally correct. But the mechanics of launching a fund are literally the least important aspect of this process... and I’d suggest starting a fund is a great way to make a small fortune from a large one unless (and potentially even if) you embrace all the truly important aspects Dan discusses.
    • DM
      Daniel M. | Contributor
      3 November 2020 @ 14:50
      Stephen - my advice for most people (which may not have been clear since I tend to ramble) is to focus on building your network of market, company, and investor contacts. You want to hang a shingle when those people are asking you to rather than hang the shingle and then go try to get them to invest. I talk to a lot of people who have some experience at a few shops but who don't really know anyone decide to launch a fund because they feel their investment skill is good enough to. But this isn't really about investment skill so much as it is running a business. You need to look at a fund as a business. How will you acquire customers? How do you retain them? How do you drive value out of your LPs, team, and collaborators? How do you give value to all of those people. I would recommend listening to Graham Duncan's appearance on Tim Ferriss' show. He discusses this a lot. Even when you can pull off a launch, there are a lot of complexities in incentives and pressures that come. People with fabulous pedigrees and networks frequently fail because they haven't really gamed out all their failure points. A practical way to build contacts assuming you have few is to use the internet and try to collaborate with people. This scales surprisingly fast. Always be looking to improve and monitor what people respond to and what they don't respond to.
  • HH
    HODL H.
    3 November 2020 @ 06:40
    So are his parents and the other guys parents Big LPs? Sounds like they weren’t lacking for fallbacks to take the risk of starting a business like this
    • DM
      Daniel M. | Contributor
      3 November 2020 @ 14:43
      I wish. That would be awesome.
  • KS
    Karl S.
    3 November 2020 @ 00:20
    I don’t understand why real vision keeps bringing on mcmurtrie. He supposedly runs a l/s fund, which has almost no capital (not being a jerk, I wish him luck raising more), who claims to have beaten the market with no docs or even filings on his holdings. And he speaks about markets like a newbie fund of funds analyst. He offers no stock specific insight whatsoever (wd-40 moves because of float? You’d be fired for that opinion at a reputable hedge fund). He seems to exist because of his twitter avatar.
    • MG
      Michael G. | Contributor
      3 November 2020 @ 03:03
      Karl, you have read this wrong. Not sure who you are, but I’ve seen Dan’s docs and the small capital is about to change. In a world without the training platforms and an increasingly ossified cohort of discretionary PMs (I can say that as an appropriately aged dinosaur), he’s a breath of fresh air.
    • KS
      Karl S.
      3 November 2020 @ 03:23
      not sure if my hitting the reply button is replying to MG, which is my intent. Assuming MG is Mike Green, I have the utmost respect for your work and the value you add during these interviews. I'm happy to be proven wrong about Dan, and I have hopes that he can offer some sort of insight that aligns with his supposed expertise. That said, all I have seen is regurgitated bullet points and no discussion of any gravity in this interview and his previous Realvision interview. Appreciate the response.
    • DM
      Daniel M. | Contributor
      3 November 2020 @ 14:42
      Stay tuned!
  • FL
    Fabrizio L.
    3 November 2020 @ 14:09
    thanks a great informative and thought provoking piece!!!
  • DT
    Douglas T.
    3 November 2020 @ 13:39
    I thought this was brilliant. Anything about the mechanics of markets (which are evolving so always need refreshing and reevaluation) is super interesting to me. My favorite line (paraphrase): if you get beaten continuously you can use that as an opportunity to learn from it, and then weaponize that knowledge for your gain. Friggin' nailed it on the head right there for me, and indeed, this is why I subscribed to RV in the first place.
  • RN
    Richard N.
    2 November 2020 @ 21:18
    Would love for Mike to teach us how he looks at flows and how they change from an analysis perspective. I understand his thoughts on flows but I as an academically trained investor have not learned how to read the flows. I am very interested in seeing how you find out what legal constraints, flows, etc. are associated with certain indexes and stocks.
    • MG
      Marcus G.
      3 November 2020 @ 09:01
      I am with you. Would be interesting to get an understanding / some insights, what aspects / circumstances can give you clues on current and on future flows.
  • AB
    Aditya B.
    2 November 2020 @ 22:02
    "If you have 2 or 3 good quarters, the flow cannon turns on." What does this mean? Do these samll and midcap stocks get included in ETFs just randomly after a few good quarters? Is that what happend to TSLA?
  • JH
    Jesse H.
    2 November 2020 @ 21:01
    Interesting and helpful - and very smart guy. Thanks to you both for an excellent discussion. Dan is bang on the money - there is WAY too much intellectual laziness we all tend towards when assessing market dynamics.
  • NR
    Nathan R.
    2 November 2020 @ 20:56
    ergodicity yo. nice interview. thanks
  • MJ
    Marc J.
    2 November 2020 @ 19:39
    Brilliant.
  • NJ
    Nesko J.
    2 November 2020 @ 19:18
    Dan is super smart and very wise guy. Keep inviting him back. We want to hear this generation and what they have to say. Big fan of Mike and his interviews👍
  • JT
    John T.
    2 November 2020 @ 19:08
    Amazing. I always wondered how someone my age could get into anything besides phone sales in the investing world. When March hit I was originally short individual companies, then SPY, then sold it all to be short a lesser amount just on IWM and EEM. I've learned a lot from listening to your past podcasts on why those trades didn't work. My "hedge" at the time of really long gold miners and silver saved me big time, and now I consider those plus bitcoin as my main trades with small long-dated put positions in IWM and EEM, which I mainly keep to ensure that I would have money to spend in a liquidity event.
  • DS
    David S.
    2 November 2020 @ 17:57
    Excellent discussion. It is helpful to see the market through the eyes of a younger, experienced investor. In the old days value investing gave you some assurance a stock could come back after a major correction. Now the flows seem to dwarf the importance of the stock's NPV - a type of “Glass Bead Game”. This gives me hope that entrepreneurs of all types will turn away from the volatility of the stock markets to private capital models to fund their businesses - personal capital, long-term debt, cash flows, pension funds and venture capital. A business cannot spend most of its time dealing with stock market issues. DLS
  • RR
    Robert R.
    2 November 2020 @ 16:47
    Thorough analysis of flows of Tupperware - $TUP (not kidding) is a good example of this conversation. It was $1 in March. Our firm has made a killing this year because of knowing how to understand these flows and the dynamics of how it was being aggressively sold even prior to March 2020.
  • HK
    H K.
    2 November 2020 @ 14:26
    Very good conversation, in the format of light banter but covering serious content. At the same time, I did feel a little more focus on some individual ideas which are distilled to, based on the approach discussed, would have been more engaging. V good interview nevertheless
  • Nv
    Nick v.
    2 November 2020 @ 13:22
    Fantastic. Really enjoyed this interview. If you want a job or a business, solve a problem people have. And build relationships Process > outcome
  • DD
    Dmitry D.
    2 November 2020 @ 13:05
    Really, really good discussion! I'd like to say it is incredible how many people are unwilling to accept the reality (the "not so new normal" for lack of a better word) with regard to shorting various eventual zeroes, but given that it took a very bloodied nose for me to finally do it, I suppose righteousness is a powerful emotion and takes a lot of effort (or pain) to overcome.
  • DN
    Derek N.
    2 November 2020 @ 12:02
    Dan hit the nail on the head with his comments about today being much more competitive. After reading countless stories of how famous traders started in the industry with very little formal background, it makes you wonder if they would have had the same chance today. Great interview guys. Would love to hear Dan elaborate on his risk management lessons learned early on. Not many people have the maturity and wherewithal to manage a couple of billion dollars in the mid-20s.
  • RP
    Raoul P. | Founder
    2 November 2020 @ 11:47
    Dan is really fantastic. Great thinker and approaches things in a unique way.
  • JC
    John C.
    2 November 2020 @ 09:04
    Dan always delivers. Great interview - feels like I just sat in on the most candid lunch conversation between two (significantly smarter) friends. Well done RV