Hi all, I'm wondering if you could point to some funds that invest over a longer time horizon, ie underwriting 2-5 year investment theses. My current job has a longer term orientation, and I don't think I'd be good at the 9-24 month style of investing that is common at a lot of funds. Am I SOL, or are there a decent number of funds that are more long term oriented?
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isn't "long term" just an excuse for underperformance/not being able to find stocks that beat or miss earnings (the real skill that is valuable)? everyone else knows a company is great business or stock cheap
9-24 month is considered extremely long term now and even that is rare. don't know more than 2-3 funds that are willing to take a 30-40% drawdown (either absolute or relative to an index/factor basket) because in 9 months the stock is higher, much less 24.
you are also not maximizing capital to make high IRR. if another name in coverage universe is inflecting, why not sell your position to own that name especially if the momentum is on your side or chart looks coiled vs a stock with a weak chart/catalysts. flex capital up/down helps mitigate long drawdowns and reduces vol
2-5 even more rare and basically a unicorn. also the longer the hold the more exposure/risk you have to macro, factor, tilt vs. capturing the idio move
finally issue with v long term funds is you end up learning about 2-3 stocks. It’s great to read the 1988 10K on Berkshire but that is low value add compared to learning 10 stocks at the same time. Also prevents you from being wedded to positions. If you have written 50-100 pages on a stock and own 10% and something structurally changes in the business you are likely to not sell because you a) need to find a replacement and b) justify keeping it based on anecdotes of how great the company is based on prior scuttlebutt (which may have changed, eg kodak was an awesome business until digital camera came on, and someone could justify owning it even then because Kodak made their own digital camera, it could pivot to new tech, etc even though the competitor advantage had changed to a different plane)
I would push back on this. A 2-5 yr investment thesis doesn't necessarily imply a 2-5 yr hold period. If you can be just a little more prescient than the market and identify a big catalyst 4 years out (a tech transition, for example), you should buy the stock and sell it once other investors catch on and the stock re-rates. Given the way information disseminates in markets, you could harvest that upside within 3 months.
If you're always chasing quarters and you cover 100 names, you literally don't have the time or resources to read about this new e-beam welding tech that might revolutionize nuclear energy, for example. And that's fine, because going down some rabbit hole is not PnL-optimal in the short term. But there is alpha for investors with more patient capital who can spend time looking around corners that others choose not to.
Thanks for your comment. I am a junior at a more LT oriented fund and am trying to figure out my investment philosophy / what kind of fund I want to work at.
To me, long term investing theoretically makes a lot of sense. If you can model out a company 5 years, figure out what the business will look like / how much earning power it will have / what multiple it should trade at, then I feel like that can be your thesis absent any identifiable near term catalyst. It makes sense to me that if you can identify big divergences between market value and intrinsic value, it can work to just wait for this gap to close as earnings compound / capital is returned / the market recognizes this divergence. If this is the nature of your thesis (and you're right), it works out whether the market starts agreeing with you next quarter or in five years. I think in some cases you don't even need sentiment to change -- if you buy something at 10x that you think is worth 14x, you get compensated with higher capital return even if it never rerates.
My impression is that a lot of capital is flowing out of the medium to long term and into the short term, as multimanagers seem to be the only public equity strategy that actually works while the SM model is starting to look broken and LOs bleed assets. In theory, shouldn't this make longer term investing increasingly viable over time, as more capital is devoted to pricing assets over the next 6 months and less is devoted to pricing assets 5 years from now? Is there something I'm missing with this line of thinking?
Longer term funds are those “smart beta” pseudo-active asset managers like Dimensional, Avantis, Invesco, Russell, etc..
The actual investment professionals are just button clickers who follow a process developed by some quant decades ago. Not exactly an exciting or intellectually stimulating career.
1) Make a post about wanting longer term investment firm
2) Random pod guy says longer term firms suck
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