Long Short Tactics in Rich Markets

Featuring Andrew Macken

Andrew Macken is a classically trained value investor, mentored by short selling legend Jim Chanos and he provides a glimpse inside his long and short portfolio, with actionable insights into stock selection, position sizing and timing. Andrew also lets us in on why his biggest short is in the retail sector and and spells out the massive potential for the leading technology platforms in Asia. Filmed on March 21, 2017 in Sydney.

Published on
30 March, 2017
Topic
Micro, Investment Framework, Technology
Duration
49 minutes
Asset class
Real Estate, Equities
Rating
20

Comments

  • PD

    Ph D.

    7 2 2018 05:00

    0       0

    too much hiding behind "downside protection", "insurance", "value investing", too little substance / original thought process / insight...First off, a good short book needs not only to minimize the risk of the long book but also perform (aka create alpha) which means accurate timing is of vital importance given the inherent leverage in a short position (you can say "I was right" when the security you shorted has a massive run on you and then goes down, yet the outcome is you lost money. While you may argue "but not too much because I sized the position 1.5%", the reality is if you multiply that outcome 20 times in your short book of 30 names, you lose money in aggregate-assuming you don't make a killing in the 10 remaining- which parlays the path for the argument "but I provide downside protection / insurance")...Secondly, "value investing" or "growth investing" are not set it stone dogmas, the reality is valuation is relative. What is a rich valuation for a "value investor" can be stomach-able for another investor base. The objective part of the equation is price=metric X multiple. You might argue that the multiple is too rich yet perhaps you are not focusing on the right metric (Maybe investors care about sales and you are focusing on earnings or EBITDA. It all depends on the narrative, expectations and what investors care about. You cannot use the same "prescription" for everything day in and day out, you need to know what you use when and why. Maybe you are focusing on the right metric but then you say multiple is so rich. Yet relative to what? Is it rich relative to growth for example? etc. etc.) The more meaningful approach in my humble opinion is: you need to have a sense where expectations are and then you need to have a view that is differentiated form the expectations -a view stripped out of dogma, backed up by meaningful research transcribed in the numbers- since expectations are already priced in. For example, H&M short case (discussed in the interview): any trained professional can see that the structurally the business is challenged for a variety of reasons, that is not enough: what is your variance to the consensus estimates? what is your estimates' magnitude of difference from the consensus and why? what is your source of differentiation and why? what is the catalyst that will trigger your view to pan out etc. etc. Saying a security is poor quality / structurally challenged is a good start, but not enough: what also matters is the order of magnitude and the catalyst that will trigger your scenario to play out. A catalyst is vital since a short position is inherently levered which means you might get wiped out / suffer from capital destruction (on the position) in case of a margin call... All of those implicitly imply you need to have an original thought process backed up by research (as opposed to being dogmatic or taking pride in a certain school of investing). That independent thought process is nowhere to be found in this interview unfortunately...In the Gundlach, Gurevich, Friedman, Melkman, Edgar, Grant, Nording, Green interviews, the brilliance of the thought processes is not only abundant but also strikes you as thunder...

  • PS

    PD S.

    3 6 2017 22:52

    0       0

    great interview my grant. i like this guy. i'm already in BABA but might throw in some 10 cent just cuz of the quality of this piece...

  • AB

    Andrew B.

    17 4 2017 11:41

    1       0

    Montaka is part of the Roger Montgomery funds management empire (Montgomery Investment Management). Extraordinary marketing, modest performance. I do like the ideas in the interview at the current time, but there was very little explanation on how they missed some very cheap quality stocks at the low points in 2016. I suspect the valuation framework - despite the education - may be too rigid. Heartily concur with the comments re tons of shorts at present and hard to find longs.

  • EL

    Edward L.

    17 4 2017 03:10

    0       0

    one of the most erudite, open, concise, and engaging presentations to date

  • JK

    Jon K.

    13 4 2017 16:12

    0       0

    Great interview. Smart bloke. Put this guy in a room with Daniel Want and turn the cameras on.

  • JR

    Jon R.

    6 4 2017 15:25

    0       0

    Good interview, very insightful. However, I don't think if a major nation left the monetary union, it's a given that the banks and insurance companies would all need to be nationalized.

  • JV

    Jens V.

    6 4 2017 11:12

    0       0

    Very good interview. Interesting insights and trading ideas from various perspectives.

  • VS

    Victor S.

    3 4 2017 19:51

    0       0

    One of the very few managers who talked about the end of the EU being possible! If LePen wins -odds are more in the 40% -range the chaos will make 2008 look like a bull market. Smart man indeed.

  • JP

    Jason P.

    3 4 2017 16:36

    0       0

    Anyone have thoughts on the VIE structure in co.s like Alibaba. I know if you want to play you have to live with it, but is it worth the risk with VERY nebulous legal rights?

  • AC

    Andrew C.

    3 4 2017 02:41

    0       0

    Sorry, I went too early with my comment. Delete, delete. But still wonder any other sectors?

  • AC

    Andrew C.

    3 4 2017 02:15

    0       0

    Great interview. Interesting for the long-side, he could find 19 stocks from about 7,000; I wonder if they are sector/industry-specific?

  • JM

    John M.

    3 4 2017 00:28

    1       0

    Enjoyed this interview. Good work Grant.

  • NG

    Nitin G.

    2 4 2017 19:48

    1       0

    On of key takeaway was shorts thinking through all the possible risks, their probabilities of occurring and how these risks play out when they interact. And that's the true second level thinking you n

  • RN

    Ralph N.

    1 4 2017 23:40

    7       0

    Great interview, really enjoyed it. Contains also some clear and actionable details. Would love to see even more of these for the short side in future interviews!

  • JT

    Jan T.

    1 4 2017 09:35

    5       0

    Interesting interview, however I hear a couple of times the word downside protection and insurance. Personally the last thing I would do to protect my downside is buying a short or long short fund. A simple put option in this current low vol environment would be much more efficient and lower risk.

  • TS

    Thomas S.

    1 4 2017 05:25

    2       0

    It is likely all the Aussie banks are doing the same thing. How long will it last

  • an

    adrian n.

    1 4 2017 05:04

    6       0

    Dry. Just what you want an analyst to be. Very open and honest and giving.
    Really enjoyable interview

  • RW

    R W.

    1 4 2017 03:50

    3       8

    not to sound overly critical , but 4 years working as an equity analyst doesn't really give him that much credibility in providing a number of fairly obvious macro type observations

  • KR

    Kristian R.

    31 3 2017 10:09

    2       0

    Invest Tencent

  • LC

    Luiz C.

    31 3 2017 09:12

    2       1

    Great interview, interesting clear and concrete. Checking the fund performance on Morningstar Australia... what a surprise... not so good.

  • PS

    Paul S.

    31 3 2017 06:20

    9       0

    For those interested, the Aussie Bank marking to fantasy is likely Bendigo Bank (BEN:ASX)

  • PS

    Paul S.

    31 3 2017 06:14

    6       0

    Thank you for adding an excellent Aussie counterpoint to the AMP 'everything is awesome' chant

  • DT

    Dave T.

    31 3 2017 03:26

    2       0

    Very interesting, particularly in defining alpha and short selling strategy.

  • hg

    henry g.

    31 3 2017 01:35

    8       0

    Good interview. Really like hearing short sellers talk about their thought process. Tencent is an interesting company. I love their Wechat asset. But as with a lot of large holding companies they have some assets you don't want exposure to when investing. Like how they just bought 5% of Telsa and their Movie Business.