Old Fashioned Analysis In An Index World

Published on
June 13th, 2017
52 minutes

Old Fashioned Analysis In An Index World

The Interview ·
Featuring Michael Lewitt

Published on: June 13th, 2017 • Duration: 52 minutes

Michael Lewitt author of The Credit Strategist brings back a fresh dose of reality to markets which have become flooded with misallocated capital from ETF indexication and where funds seems to have lost the ability to do old-fashioned balance sheet analysis.


  • BC
    Bogdan C.
    26 February 2019 @ 20:54
    so relevant
  • EF
    Erik F.
    15 April 2018 @ 00:51
    "Income statement is fake news." Fantastic!
  • PB
    Pieter B.
    23 June 2017 @ 04:05
    Fantastic interview! Thanks a lot.
  • HK
    H K.
    20 June 2017 @ 21:25
    As this topic is discussed with all the stock picking advocates: Why do people continue to allocate more and more into passive vehicles instead of the old fashioned stock picking / balance-sheet reading guys? Because the vast majority (before and for sure after costs) does not beat the index anyway (tons of studies on that). The longer the time horizon the smaller the number. And the chance you pick the one who does and stick with him/her is tiny. Hence, in my opinion it makes perfect sense to focus and spend resources on allocation decisions (if I want to express active views), but expressing those passively. It might be the ignorant decision but at the moment ex ante the one with higher expected return, i.e. at least I receive the market return for sure. Does 'dumb' passive money with no focus on intrinsic value lead to distortions in the long run (and even now already)? I strongly believe and see that it does but until the vast majority outperforms (and arithmetically that is impossible), I rather stick with passive vehicles for the time being. I would be willing to pay for someone who can benefit from those distortions - talking about long only, delta 1 stock picking here.
    • LV
      Liam V.
      25 June 2017 @ 01:28
      They don't outperform , I can agree with that. What they do is protect on the downside, which is what people forget about. Look at the outperformance in down years, rather than the outperformance over the long term
  • TT
    Thomas T.
    20 June 2017 @ 06:51
    Doesn't go to Europe or a concert. He is obviously talking BS.
  • CM
    Chris M.
    16 June 2017 @ 03:10
    Enjoyed this interview. Couple of interesting tips on buys and liked his conversation about how he trades.
  • JW
    JP W.
    16 June 2017 @ 01:16
    Seritage was mentioned by Monish Pabrai (would be great if RV could get an interview with Pabrai). I didn't really find much new information in this interview, more of the same and very broad response
  • GG
    Gerald G.
    15 June 2017 @ 21:09
    I'm going to love watching all the "thumbs down" I get for my rant. It only verifies the denial that has become a fundanmental part of the American psyche over the past decade.
  • GG
    Gerald G.
    15 June 2017 @ 17:18
    There is NOTHING worse than listening to an interview with someone who thinks they are smarter than they are. The reason Trump was elected was NOT because the elite failed the common people. He was elected because the average idiot still believes there is a way to avoid paying for excesses that led up to 2007 and they are desperate for a way out of the mess Americans created for themselves. All the Fed has accomplished with their interventions during (and since) the crisis was to defer payment for these excesses into the future. Now, instead of accepting the inevitable hardship that will have to come before any real progress can be made, Americans are still looking for a way way out. This is what "moral hazard" looks like and once trapped in this cycle there is no way out. There is no way out because the willfully blind arrogance that led people to believe that "moral hazard" was some kind abstraction to be ignored when convenient is now even more deeply entrenched. Listening to Levitt talk about Trump as though he's some kind of genius shows just how deeply the self delusion goes. Sure, Trump is a genius but, it's not because he has the formula to save the day, it's because he is capitalizing the ignorance, stupidity and arrogance that has taken hold of American society. BTW, ETF's are also NOT the problem... they are another symptom of "moral hazard". The Fed's interventions have convinced everyone that they will not allow the markets to correct and, if markets only go up, why bother picking stocks? The very fabric of Capitalism is being distorted and, IMO, is in the process of being destroyed. Again, this is what "moral hazard" looks like. You've brought it on yourself fools!.
    • DB
      Darko B.
      20 June 2017 @ 05:56
      There's nothing worse than reading a comment on an interview from someone that thinks they're smarter than everyone, including the interviewee. Listening to Gerald talk about Levitt as though he's some kind of genius shows just how deeply the self delusion goes. Please....save us the ego trip. If you were that clever Grant would be interviewing you......but he's NOT.....that tell's us everything we need to know about Gerald and his unintelligent comment
  • HJ
    Harry J.
    15 June 2017 @ 14:53
    Ok I sold vrx. I'm sick about the loss
  • BB
    Bob B.
    14 June 2017 @ 17:44
    What sis the Sears spinoff he was talking about Sarataj??
  • VK
    Vladimir K.
    14 June 2017 @ 15:52
    I didn't quite get what is his options strategy. He sells ATM straddles on SP500 and "hedges them in the same way". how is that? He buys puts? LEAPs?Buys calls? turns straddles into Iron Condors?
    • JL
      J L.
      14 June 2017 @ 15:56
      Immediately had the same question, on watching again I get the feeling they make a judgement call and buy them back at a later date. Sounds less systematic to me than it perhaps sounds.
    • FS
      Fred S.
      16 June 2017 @ 04:18
      You can hedge with long OTM strangles either in the same expiry, or shorter term.
    • FS
      Fred S.
      16 June 2017 @ 04:18
      You can hedge with long OTM strangles either in the same expiry, or shorter term.
  • BB
    Bob B.
    14 June 2017 @ 11:16
    So how do Tesla and Amazon compare there were many critics of Amazon back just a few short years ago
    • JL
      J L.
      14 June 2017 @ 12:01
      problem with tesla is that it will face hard competition and doesn't benefit from the winner-takes-all priviliege
  • JL
    Jacob L.
    14 June 2017 @ 11:13
    I'll be the odd man out here and perhaps overly harsh but I expected more substance, less emotion and more openess to the fact that he could be wrong about stuff. For someone who is a numbers guy, how can one say the markets should drop based on a terrorist attack by some delusion individual? Afraid to go to Europe because of that? Well, if one TRULY is a numbers guy it would make a ton more sense to fear getting shot in the US and driving (anywhere in the world) than dying in a terrorist attack where the deaths are infinitely smaller. Not a view I'd expect from an analyst. As for Tesla how about just a tiny bit of openess to the possibility that they will grow into the valuation? It is a very binary story and they may very well fail to live up to expectations and I'd bet on it as the more likely scenario too but to write off the other view as simply immoral "sellers of stock" rather than giving people creditfor actually believing the model 3 and the gigafactory will be the game changer is a bit over the top for me.
    • TM
      The-First-James M.
      15 June 2017 @ 14:06
      Michael clearly said his wife is scared to go to Europe. That doesn't mean he is.
  • JV
    Jason V.
    14 June 2017 @ 10:09
    A real privilege to listen in on that conversation. An intelligent, well-informed and vastly experienced investor, telling it like it is. Refreshing, educational and enjoyable. Another excellent interview.
  • JG
    James G.
    14 June 2017 @ 10:01
    The reason why ETF's are attracting massive investment flows is because of their low fee structure in a low return environment relative to active fund management. The unintended consequence of this is deeply overvalued large cap stocks that have benefited from indiscriminate ETF purchases. Dont look at this as a disaster, just a wonderful market anomaly to exploit by shorting using long term deep out the money puts on those names. Ridiculous implied volatility levels makes this trade even cheaper to execute.
  • CH
    Craig H.
    14 June 2017 @ 09:20
    Many of the interviews raise the issue of passive investing e.g. ETF's and it makes a lot of sense, but I recently read a piece on Central Bank intervention through covertly buying shares to prop up the markets. The article is by David Haggith at The Great Recession Blog and titled "Is The Central Bank’s Rigged Stock Market Ready To Crash On Schedule?" Very very thought provoking.
  • CH
    Calvin H.
    14 June 2017 @ 03:30
    Good interview..I am anti-Hillary but am surprised he thinks Trump is so smart. Also Opiates are problem, but if you want to connect the dots ... try this https://www.youtube.com/watch?v=CvNGpdPdQCk&app=desktop
  • BC
    Brian C.
    14 June 2017 @ 01:38
    I agree with almost everything this very smart gentleman says. That being said I would never step in front of a freight train i.e. would not short Tesla. I certainly wouldn't buy the stock. This thing could run much further than I have funds to keep a short position.
  • ES
    Edward S.
    13 June 2017 @ 22:50
    Pretty sure CIM is over book.. But great interview anyways!
  • WM
    Will M.
    13 June 2017 @ 22:42
    Excellent interview. His newsletter is great. Love his credit experience and generally agree with all his views. Currently considering moving into the 3rd Friday Fund. Don't follow Sure Money though as it feels a bit pushy and repetitive.
    • FS
      Fred S.
      16 June 2017 @ 04:13
      Haven't seen any writing by Mr. Lewitt on SureMoney since mid April. Was wondering if he was OK. Glad to see he is. Always love to hear what he has to say.
  • CP
    Chris P.
    13 June 2017 @ 20:59
    One of the best interviews yet-- Michael is unusually insightful, and can distill the current investment climate like few others. What I find depressing are the number of people who feel compelled to comment on every guest's politics. When I listen to a person this smart and clear thinking, that hardly seems relevant. Furthermore, why would you want to offend a guest who is openly sharing his thoughts and ideas. Needless to say, this applies to whether the guest is conservative or liberal.
  • AH
    Andreas H.
    13 June 2017 @ 20:31
    Good luck with a TSLA Short, I also do not think, that Tesla is a great value play, but shorting? The pain trade is up, for Tesla, for the market, the squese has just began...
    • AH
      Andreas H.
      13 June 2017 @ 20:39
      I am pro Trump too ;-), he will lift the market big time and its wounderfull to see how the mainstream loves to hate him... Here my value screen, just to show off: 50% (mktcap + DbtTotQ - (CashPSQ * ShsOutMR)) / Eval(EBITDAq>0,EBITDAq,NA) 50% (mktcap + DbtTotQ - (CashPSQ * ShsOutMR)) / Eval(FCFQ>0,FCFQ,NA)
    • LA
      Linda A.
      14 June 2017 @ 04:48
      TSLA is a hard short & I would not touch that as big money is in there supporting the stock. Ron Baron is always touting his infamous target calls on TSLA. Mark Cuban with his call on Amazon being cheap- bubble territory in my opinion. Good luck to them- adieu.
  • RA
    Robert A.
    13 June 2017 @ 20:05
    While I don't always agree with Michael's outspoken Political views I am a satisfied investor in his conservatively managed Option Stategy Hedge Fund (that is actually hedged). There are 3 things that help me sleep well with Michael's stewardship of my money; I don't worry about "style drift" with Michael, Michael is a real Credit heavyweight and there is no one better to invest the cash collateral mandatory holdings required by the Fund structure, and finally, and most importantly to me----there are and will be times when a strategy will breakdown and fail to work as anticipated due to a plethora of unkown factors---and when THAT happens I am confident that Michael will figure it out early on, shut the fund down, return capital to the investors and await the next opportunity.
  • LA
    Linda A.
    13 June 2017 @ 19:30
    Love Credit Strategist - he is rational and a realist. We are in this epic bubble caused by criminal bankers. I don't know how this will end. The Dow went from 6,666 to 21,300 -what an epic run while devaluing our dollar, robbing savers, creating distortions, rigging the silver/gold mkts, ruining the economy (retail businesses, states- Puerto Rico, Illinois - more to come) all in an effort to prop up banks. Man, I am so angry that we have actually taken funds out of the banking system. The block chain may be the doomsday for a majority of banks. Take action people & become your own central banker.
    • WM
      Will M.
      13 June 2017 @ 22:17
      Linda - becoming your own central banker has a tactic ?
    • LA
      Linda A.
      14 June 2017 @ 04:27
      Hi William, Not having all your assets in their banking system. Holding gold, silver coins, owing real estate & running a business.
  • HJ
    Harry J.
    13 June 2017 @ 17:21
    This works. Now what do the older folks in Florida do for current yield? Waiting for a rebound in yields seems to be a fools errand. By the time yields return their funds could be depleted.
    • LA
      Linda A.
      14 June 2017 @ 04:34
      I assume a reverse mortgage, home equity loan (if they own a home), go back to work or have their children support them, welfare. Just a sad state of affairs- u work all your life to end up with being robbed by the criminal banking syndicate of the so called "best years of your lfie".
  • MA
    Matt A.
    13 June 2017 @ 17:04
    Combining the views explained here on Tesla with the latest episode of RV's podcast Adventures in Finance, I think we are gearing up for a real downturn in autos and especially Tesla. Add compounding effects like self-driving technology to the picture along with generational changes such as the indifference in owning a car and things start to look very glum.
    • LA
      Linda A.
      14 June 2017 @ 04:40
      What kills me is that Ron Baron comes out on MSM & takes credit for his call on Tesla's target of $350- $400 this year & $1K /share by 2020. I thought these managers were supposed to have a fiduciary trust with investors' money. Man this guy is some risk taker.
  • MN
    Mark N.
    13 June 2017 @ 16:49
    Not fond of the new camera angle, I'd like to see the interviewer more often... ...though I'm sure Grant likes the new angle. ;-)
  • SS
    Sam S.
    13 June 2017 @ 15:56
    Now that was a candid humble yet confident interview. Well done. Great ideas, conviction and a number of basic principles that will be validated in the future. Love his comments on Trump, Baltimore, Illinois. Thank you!
  • JL
    J L.
    13 June 2017 @ 15:52
    never underestimate the amount of hipsters out there
  • EH
    Eric H.
    13 June 2017 @ 15:49
    good interview and funny guy. great stuff!
  • MP
    Michael P.
    13 June 2017 @ 15:40
    Good insight broken down well.
  • TM
    The-First-James M.
    13 June 2017 @ 15:11
    Just wish Michael had never got involved with Agora...
  • MS
    Mark S.
    13 June 2017 @ 14:40
    Solid interview from someone who has a clear understanding of the markets and the risks due to massive debt overhang and central bank control. Unfortunately his recent writings have suffered because of his Pro-Trump political ranting.
    • dd
      darrell d.
      13 June 2017 @ 17:33
      Pro Trump or not ... great interview.
  • GB
    Grant B.
    13 June 2017 @ 14:10
    High quality. Great insights simply explained.