Warren Buffett said in a Berkshire Hathaway 1996 shareholder letter, “Investing isn’t too complicated, but know what you’re investing in”.
The sentiment behind his words on the importance of understanding an investment by doing your homework still holds true to this day, and it’s something that investor Jesse Felder is a major advocate of. For him, the popularity of passive investing in today’s markets has led to an incredible opportunity.
With so many new investors in the market doing no research at all, he believes that it creates an opening “for those of us who believe in the value of research”.
Felder has been the writer and editor behind The Felder Report, a go-to guide for investment insights on value investing, for the last 15 years. Previously, he was at Bear Stearns before he left to start a hedge fund in Los Angeles.
In this episode of Opto Sessions, Felder discusses the rampant speculation in global equity markets and investors’ voluminous risk appetite, which is something he says he’s never seen in his career.
Listen to the interview:
What’s the top mistake that investors make?
Recency bias [which is cognitive bias that favours recent events over historical ones]. We have a tendency to take recent history and extrapolate it indefinitely into the future, and that is a major mistake people regularly make.
“We have a tendency to take recent history and extrapolate it indefinitely into the future, and that is a major mistake people regularly make”
Where do you go for investment or economic insights?
Jonathan Tepper’s firm, Variant Perception — I do read its work and value it. For me, my most valuable network or resource is those that I follow on Twitter [TWTR]. I follow a little over 100 accounts, and it’s everyone from value investors like myself to technicians and macro investors. That network, to me, is very valuable.
What is your most memorable moment from your career to date?
I think it’s my losses. I’ve had major losses, and I think everybody who learns anything in the markets [knows that] we love to learn more from mistakes than anything else. I’ve had some major mistakes in my career — those are the things that stick with me — and I consciously remind myself of those things so that I try not to make those mistakes over and over again.
[For example] several years ago, I was putting in a big position in Corinthian Colleges, a for-profit, blue-collar career college. Shortly after [Barack] Obama took office [in 2009], his administration decided to put a lot of those companies out of business, and I didn’t appreciate that risk near enough. That was a big loser for me. It’s something I remind myself of regularly, that there are risks that you can’t see — so you have to be aware of that.
What is an investor’s best source of alpha?
I think it comes from being willing to step into the most hated asset class, most hated stock, most hated security in the market. To me, when something is really, really out of favour, it’s usually priced as such so that when that sentiment subsides, people don't even need to get positive on it. They just need to hate it less, and you can make a great deal of money. I do think [it’s worth asking yourself] regularly, what’s the most hated asset class right now? What’s the most hated stock in the market? Because that, to me, is where I find the greatest opportunity.
“To me, when something is really, really out of favour, it’s usually priced as such so that when that sentiment subsides, people don't even need to get positive on it. They just need to hate it less, and you can make a great deal of money”
For more insights from Felder, including what indicators he references when measuring risk in the markets, listen to the full episode on Opto Sessions here.
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