Activist investor
The no-BS rule
If there was one thing I always enjoyed about small financial shops like
Holte Capital, it was the complete absence of internal politics. Compared
with Lazard Frères, where even 22-year-old analysts like me quickly learned
they had to navigate the office minefield to find the best deals to work on,
my hedge-fund experience was simple. If we found meetings a waste of
time, we would stop having them. If wearing suits with colourful bow-ties
or matching pink hats would bring success, we would happily wear them.
We were there to make money for our investors and, as long as we didn’t
break any laws, nobody cared how we went about our day. I would read
articles or books about how the heads of the large investment banks often
represented the cream of office politics rather than brilliant financial ana-
lysts, and chuckled at how appropriately this described my time at Lazard.
Because of the analytical nature of our work the office atmosphere at
Holte was not unlike that at a library or research institute. Our work
revolved around painstaking analysis of often-convoluted businesses, tear-
ing apart opaque financial statements and finding ways to hedge out the
exposures we did not like. This was not a place where traders would scream
‘Dump the sucker!’ or ‘This baby is going to 100!’ followed by the obliga-
tory ‘Yeehaw!’ The situations we looked at did not involve revolutionary
changes in technology or medicine we just did not think we were as well-
equipped as the competition to claim an edge in these trades so there
were few Silicon Valley or McKinsey buzzwords in the office. Instead, you
98 B ec omi ng th e real de al
might hear something like: Once you adjust for the decline in the cur-
rency-adjusted bond values of the already under-funded pension plan . . .’
Since our trades were hedged on an individual basis, this also allowed
me to escape the dull and thankless prospect of giving friends and family
stock tips. People would ask, ‘What should I buy?’ and be frustrated with
the response: Well, if you buy $10 of A and hedge $3 of B and $6 of C
and use gearing to double your long and short exposure, you have a great
trade.’ Soon people stopped asking and I could avoid the embarrassment
of either losing money for friends or having to continuously feed people
asking for more stock tips if the recommendations worked out. After five
years of running Holte Capital, my mother would still ask me if markets
were going up or down and then proceed to ignore me when I told her
that my fund actually tried to avoid caring about that by making returns
that did not depend on the markets. She would sceptically say, ‘I know. I
know. But does that mean you think the markets are going down?’
What I called the ‘no-bullshit rule’ obviously also applied to our trades.
Each trade on our portfolio had to pass these often-repeated tests:
The alternative to this trade is cash, which in certain markets is a great
investment (assuming the bank you save with does not go bust, of
When you come to work each morning, you are effectively buying the
portfolio again. If you started today with cash and no securities, is this
really the portfolio you would create?
Are you guilty of positive affirmation in your trades i.e., are you look-
ing for reasons why your trade is good rather than why it can go wrong?
Do you really have an edge on this trade?
Finding trades and not spreading too thin
As our assets continued to grow, so did our investments in the securities we
held. We had broken down the portfolio into a number of what we rather
pretentiously called ‘trade theses’. A trade thesis was a trade idea or hypoth-
esis that was individually hedged to be market-neutral. We thought this had
the advantage that we would hedge each trade as was most appropriate for
that specific idea. Doing it our way we felt that we would be better able

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