David, thanks so much for doing this.

>> Yeah, thanks for having me.

>> You started off as a professional poker

player

>> before building out Militia Capital,

your hedge fund that, correct me if I'm

wrong, has done over 40%

annual growth rate? What's been the

story in getting to this point?

>> Basically just been this wild ride of um

applying like what I learned in poker,

you know, to building a good track

record. I focused on performance. Um,

sort of thinking in the in terms of

bets. No. Um, I'm really just looking

for uh so in poker there's this term

expected value.

Um, and so your goal in a bet is to make

sure that you have a good positive

expected value before making it. And so,

um, in poker, the way you get good, or

at least the way I got good was I

systematically went through each type of

bet I would make, and I'd figure out

like what was not making money, what had

a negative expected value, and I just

systematically cut those out. And so, my

investing learning process was the exact

same thing. Um, you know, I don't need

to um boost my own ego and prove that my

idea will be right in 30 years. Um, I

just look if the idea is not making

money, you know, within months or, you

know, a couple quarters, I I'm wrong as

far as I'm concerned. And I'm going to

get rid of that type of bet completely.

And instead, I'm going to focus on the

types of bets that have a positive

expected return overall. And, uh, what

I've noticed, you know, other fund

managers not doing is getting rid of

those losing bets. And, you know, there

is that saying, um, you know, you'd

rather be right than make money. and and

that's just totally the case. And um and

poker will beat that out of you. You

know, if you're um wrong in poker, the

the feedback loop is so quickly that you

get in um you know, within even a

session, you made so many bets

um you know, that right away you can

start to feel it. Then after even a

month or two, the sample size is quite

good. Not not perfect, but you know, a

decent guess. And um and so I have way

more reps that way than most fund

managers do because it takes years to

see, oh, you know, I shouldn't have

stayed bullish oil for 3 years. And some

guys are still bullish oil right now.

And maybe they'll be right. I don't

know. But, you know, I don't I never do

this in investing. I don't stay wrong on

some idea I have. So, I think that's how

I've done it. And so, you you were

playing poker in Thailand for a little

bit. Um what was the moment when I guess

you started getting curious about um

about equities, commodities? What did

that look like?

>> Yeah, so basically um I was playing um I

was like one of the the better players

in the world by 2015 16. Um and then one

day sort of these really good players

showed up who were even better than me.

And I didn't realize what that was at

the time, but people actually figured

out how to use um like a bot in real

time.

that would play not perfect but nearly

perfect poker. Uh the game was being

solved around that time. And so um you

know I I realized, oh man, like

something's happened here. I'm not

winning money at poker anymore. It

wasn't that bad right away, but I could

see that the writing was on the wall,

even if I didn't even understand why. So

I stopped playing um around then. And

then

um I had some money saved up from poker.

I before I was just in the S&P 500.

Uh I sort of believed that market was

efficient like everyone else uh or most

everyone else. But um so I my whole goal

back then was to sort of do the academic

idea which is that if you can uh

increase the risk you're taking, you'll

also increase your return. That's that's

how they teach it in school. So I was

like, "Okay, great. I'm fine with risk

takingaking. you know, if I can get an

extra percent or two a year return,

that's fantastic. So, that was my whole

goal from the outset. Uh, but then as I

researched um how to do this, I reached

the opposite conclusion. It was actually

um the more risk you take, the lower

your expected return is in investing.

And if that whole backbone of this

academic way of thinking about investing

is wrong, then you know what else is.

So, I I

>> I just kept learning from there.

One of the things I remember you saying

because I listened to you on another on

another podcast and you said that you

read this paper called um betting bet

against beta. I have it written down in

front of me. What was what were the core

lessons that you learned from that that

paper? Yeah. I mean that paper just

refuted

um everything that they had taught. And

so if you collectively had one type of

uh investment that would underperform

and you have another type of investment

that will outperform, then my idea back

then was as simple as, oh well, I'll

just, you know, get long the ones

that'll do better and short the ones

that'll do worse. It's of course not

quite that simple. Um there's no free

lunch that big, but um

so at first all I did was just exactly

that though. I just went in and shorted

the uh higher beta stocks that seemed

pretty bad and I bought the lower beta

ones. And then, you know, you sort of

learn from there what works and what

doesn't. You learn other market

anomalies. You learn about uh good short

selling strategies. Um so you just sort

of keep piling up new strategies on top

of that.

And so from that point, I guess where

did your learning take you? So from this

paper to trading almost everything. I

mean, I think I was reading your I think

it was either your I think it was your

audited report on your website and I saw

all sorts of different asset classes

traded. I even saw a prediction markets

bet and I was very curious about that

and we can get into that later but it

just seems that

you know David you taught yourself a lot

and I want to understand how that

journey actually progressed I guess.

>> Yeah. I mean I I just I just try

different things. I I try anything, you

know. I didn't even know how to bet on

interest rates, for example, in 2020.

Um, and so in that example, it was just

as simple as, okay, so I asked some

friends, hey guys, how do I bet on

inflation being possible? You know, what

what are the odds that people are going

to pay for this? So, I just wanted to

see what it was. I didn't even really

intend on on betting, making the direct

bet, right? I was sort of more curious

about how this would fit into the other

bets I was making at the time. And then

one of the guys in our chat was like,

"Oh, you know, you can bet on this thing

called the Euro dollars futures option.

This is kind of esoteric thing, right?"

I had no idea what this was. And then I

was looking at this. I'm like, "Well,

wait a minute. This is is this right?

This this says that if we get inflation

within a few years, this thing will pay

200 to one."

And I was like, "What do you mean 200 to

one? what what are we talking about

here? You know, and I don't even know

what this was. I actually didn't know

exactly how this instrument even worked

in this CA case. So, that was my whole

concern was there like am I just

misunderstanding? Surely I'm missing

something, right? This pays like 5 to1

or something maybe, right? Or but you

know, I just sort of learn how the

product actually works and sure enough,

it was like 200 to one. So, all right,

now I'm a macro investor. You know, I'm

going to play some of these. I bet I

think I risked half a percent or 1% or

something on that you know it's like

okay um and I you know I wasn't once the

uh asymmetry went went away I sort of

closed a lot of it too early because it

started repricing by mid you know by

2021 really and I'm not a macro guy I

don't really know anything about macro

investing

so once it got to you know like

um 20 to1 it was a lot less interesting

um and by 10 to1 I'm like okay I don't

really know enough here to to really

have a read on the situation to know

that this is a good bet intuitively. I

don't think you you don't need to like

you know you you don't you like ask

normal people right like hey um if you

could make this bet on inflation you get

paid 200 to one I think norm would be

like oh yeah okay so you really didn't

need to be like a genius you just sort

of had to find it and think about what

was going on and um that I do that kind

of thing all the time in investing I

just look up what I think is uh you know

extreme extremely lopsided bet and then

once it passes I don't think about it

again. So, you know, another fund

manager might from that point be like,

"Oh, I'm now this hot shot macro

investor or something." For me, that was

not the case. I was like, "Okay, I I

looked at a few macro things from there,

but I was like, no, this seems pretty

competitive. These guys are smart.

They're playing their competitive game

here. I'm not going to get involved."

Um

but but yeah, if you can just find

anything to bet on, um you know, in that

prediction market example, um the Camala

Harris, um Donald Trump, that wasn't

what that one was about. And

you know, it's basically right near a

coin flip right before election day. And

so in that case, I just zoomed out and

said, "Well, wait a minute. here you had

um

Camala Harris wasn't even the candidate

and she had like only a couple months to

even prepare and so that's like already

pretty difficult to believe you zoom out

and think about it like wait a minute

you know two two months nobody even

really likes the lady you know a lot of

people do particularly hate Trump right

but but okay so so okay coin flip I'll

bet on that

uh similar kind of logic.

>> Yeah.

>> And so I guess what you've said there

and and I think this is the case for for

every great investor. They look for

asymmetric bets. They try to um have a

you know a basket of those. So say a

hundred um ideas that that they they

deem asymmetric. Um

how do you go? What's your process for

finding those bets? Um what does that

look like?

>> I just look at new ideas all day. So, I

sort of have a curated list of guys I

follow on Twitter. You know, they don't

really share that much alpha anymore,

which is kind of sad. I think nobody on

Twitter really does anymore. Um, but I

have my sort of internal group that I

talk with. That that that's always been

a pretty small percent of it, though.

Really, it's just as simple as I'll I'll

start like looking through tickers one

by one.

Um, and then I'm just trying to

understand, okay, well, what is this

company? What do they do? Does the do

the financials look interesting? That's

the biggest backbone of what I do. I

don't really focus on the other types of

uh bets we talked about too much.

Mostly, it's just individual companies,

which are nice because they're sort of

uh they're all correlated to the market,

but besides that, you know, they they're

pretty uncorrelated bets. So, um, you

know, one of my better calls was I was

actually short Nvidia in 2023,

uh, going into the May when the people

started realizing just how big of a deal

AI would be. And I, back then, I was

just short because I thought I was

shorting like a crypto miner.

>> Um, but then I got, you know, I got

pretty blindsided by this, uh, their

earnings result in May 2023. I was like,

okay, well, what's happening here? And

then I took time and I, you know,

understood what the technology was. I'm

like, "Oh, this could totally work." And

then I a couple months later I posted,

you know, Nvidia could be like the most

valuable company in the world. And then

that ended up happening, you know. So it

was just about understanding this

technology in that case and what they

actually have and who can compete with

them. And that was a pretty simple one.

>> At any given moment, how many positions

do you have in the fund? We've got uh

well we have my my partition and then

we've got other portfolio managers now.

Um all combined we have 1,200 positions

today uh overall fund level but my own

partition is about 350.

>> How do you understand each of those 350

names? Well, I guess how do you hold

that in your in your memory?

>> So the um the longs are really an easy

side. So that part of it I don't think

is impressive at all. It's just like

once you figure out a company is good

and you you know it's got a simple

thesis that you understand what what

everyone understands is different but

for me I understand that airports for

example that's a pretty simple business

they just benefit the more people that

travel the more profit they make it's

not like

>> it's not like an airline which is um

really complex dynamic business very

capital intensive airports are really

simple

um so it's easy for me to see how this

business can keep growing growing at say

5% a year long term. They're not going

to have any competition really because

airports typically there's one per city

maybe two. Usually if there even is a

new airport, you know that implies

really good things have happened, right?

It means that the demand has gotten so

damn big that your your investment has

already killed it like four times over.

So this is a really painfully simple

thesis. So, we're long I'm long like um

like seven airports, airport companies

worldwide.

Um and after I've convinced myself of

that thesis, I don't even really like I

don't read the earnings reports. Even

every like twice a year, I'll go through

and make sure that um you know, in fact,

the passenger growth is going up. Um so

that that's a pretty straightforward

example. Or another similar one would be

the natural gas pipelines.

Um, in this case, it's almost like a

utility. They're providing gas basically

to natural gas power plants. They now

have two new tailwinds in America

because they're going to export more gas

to Europe and they're going to supply

more power plants to AI data centers.

So, even without those new tailwinds

though, they seem at least reasonably

priced to me. You know, they're yielding

like a 7 8% dividend and uh those are

robust earnings. it's well covered. Um,

and then if you have any sort of new

tailwind on top of that, it's easy to

see how this this one will be, you know,

more like a 12% return. Um,

so yeah, longs like that are are really

simple that they really are. um or like

Japan as a whole, that's another theme

I'm long today where the corporate

governance is improving and the Japanese

government keeps doing things to force

um these small companies to treat their

shareholders better and they're really

taking real and it's not just a show and

it's a clear pattern and companies are

actually reacting. It's not like I'm I'm

theorizing that this might work. it's

like already very clearly working today

and so I'm just betting on a large

basket of those types of companies just

to play that theme really. The valuation

and things already look good too of

course but

um so yeah on the long side it's these

sort of themes that you can ride for

years or hopefully even like decades you

know I think in the airport example that

might be the case. Um

and then you know the only thing you

have to watch is valuation. if they get

way too expensive, then you have to sell

and find something new. But that doesn't

happen that often. So,

um, and then shorts are are a lot

harder. So, on shorts, you're trying to

think through there's like a lot of

different types of shorts, but like, uh,

an obvious example is this company's

just going to fail. It doesn't have any

good possible future to it. I think um

like I think cable TV is like this, you

know, like linear television. It's like

I don't it's almost weird that the

stocks are still trading because they're

so obviously screwed. Um but like

companies like Charter seem like in big

trouble to me. I've been shorting that

one on that really simple idea that

cable TV is bad. Um,

and then other types of shorts, it's

just um, like let's say they have really

poor management or like management's

even just dishonest and outright

stealing the money, which is a lot

different. So, some some types of

management are stealing in a different

way. They sort of uh, they get called a

fraud. And I don't actually like those

types of shorts because it's a lot to

follow. And these types of man

management are very um skillful at

pumping their um

at their story, right? And then that

means the stock could run up on you a

thousand% pretty easily. So I'm actually

not interested in that type of

dishonesty. I'm more interested in like,

oh, okay, so the business is stagnant.

Nothing's happening. Management keeps

paying themselves enormous bonuses. They

still have a a private jet they're using

all the time. you know, the shareholders

paying for that. Um, or like another

type of dishonesty is just an empire

building. Not like they're trying to

hype up a false new story, but they're

trying to um just do acquisitions for

the sake of managing even more and

solidifying their job even more. Um,

and once you figure it out, like in that

case, a management team is bad. Uh,

those are really long-term.

um you can just sort of stay short that

management team um for years. You know,

often these guys will keep their jobs

for decades. Um

you know, so

yeah, there there's just so many

different types of shorts, but you know,

as I've done this longer, I like to do

the longer term stuff, and you just uh

then you can have ideas that work for

years, which is how I've been able to

get way more diversified.

Um,

yeah.

So, it seems to me that at Militia you

like to bet on these long-term trends,

these these mac these themes that you

think play out for I mean, you've just

said it for years and years and years.

when I speak to let's say

pod analysts or people who've worked at

pods

um the mindset I feel is quite different

in that they are um constrained to a

particular sector and even within that

sector it's it's a couple names knowing

those in and out and trying to uh make

money every month or so every month Um,

I guess what are your thoughts on the

differences between those philosophies?

On your end, it's looking at the big

picture. On their end, it's scrutinizing

every little detail and then them

fitting into this

larger business. How do you think about

that? Yeah, I mean I've been kind of

critical of the pod shop model in other

interviews I think and some like someone

uh Twitter, but

yeah, I think that they're playing a

game that benefits from a relatively

smaller scale and then nowadays they're

so big. I actually don't think that

their whole super short-term focus can

actually work mathematically.

Um, so I don't think for that reason

it's good. I think the way it used to

work was kind of smart. Um, I'd say the

biggest benefit of what they do is it

doesn't let them stay wrong just by by

default. So, at the start of the

interview, I mentioned um that that's

the thing that gets almost all

fundamental investors, guys like me, is

that um they'll just stay wrong, you

know, like let's say that their long

charter and then their story just keeps

morphing over the years from like, oh,

it's this long-term wonderful growth

thing to like, oh, it's facing like a

somewhat of a headwind, but the multiple

so much better. And nowadays, I talked

to one recently, smart guy, very smart

guy. But I think a lot of these people

are smarter than me. I mean that like

genuinely, but they they just tricked

themselves and like now the story is oh

well now it's priced for um only a 2% a

year terminal decline or whatever or

sorry it's now priced for like a say a

4% a year terminal decline, but I think

it's more like a 1 or 2% or whatever.

And for me I'm just like man, do you not

even see the data? Even if you're right

that it is only 1% which this is cable

TV we're talking about. Okay. So even if

you're right though, like this is just

never going to even play out well. And

obviously what happens is over the years

these people

sort of um move the goalposts around and

they want to be right. They don't want

to admit that they were wrong and take

the loss or whatever. And the pod shots

can't do this. Like they will actually

get fired pretty quickly if they do. Um

and then if they're focused on well

what's actually working over the next

month and that's their timeline, then

they actually will change their mind

constantly, right? I think that that's

by far the biggest benefit of what

they're doing. So, uh, but is it

actually an optimal way to invest at

all? I don't think so at all. Where do

you see the future of

the hedge fund business? So, you're a

smaller fund. Um, even though you've

grown a lot recently, I was looking at

your AUM growth and I was like, "Wow,

this is crazy." Like, good job. Right.

Um and then uh but you see these

articles of call it the four big hedge

funds you know your citadels your

millenniums uh they've just gotten

bigger and bigger and bigger and

it just seems like with that

scale as you've said it's hard to find

it's just harder to find off right it's

just harder And so where do you see the

future of the business where you have

these guys growing? Allocators love them

because no one is going to lose your job

if you allocate to to one of them,

right? You're like it it's fine even if

they're down or even if they

underperform, right? It's you're no one

like no one is going to fire you for

investing, you know, allocating more

money. Um how do you think about that?

Like where do you see the future of the

business going?

>> Yeah. So, I think one of their um

mistakes is trying to charge like a

performance-based fee on that kind of

AUM. And they've been really successful

as multi-managers and everything, which

that aspect of what they're doing is

brilliant. I copied it. Uh but this

thing where they're letting the AUM grow

so big, um it's it's actually good for

their own bottom line, too, I guess, to

their uh credit, right? I mean, they're

just kind of printing money. Um I think

just their management fee alone is over

a billion dollars a year. And then

they're uh they call it a performance D,

but you know they're it's almost like

not that diversified. It's basically

just almost like another management fee.

And so, you know, they're collecting a

few billion dollars a year each one of

those shops just sort of every year,

year after year. So, for the guys

running it, I guess that's brilliant. Uh

for me, I I don't like it. I find it

distasteful to sort of um take the money

from everyone else and sort of put in my

own pocket. Uh, I can see I can sort of

understand the temptation of doing that.

Um,

but I'm not going to. So, you know,

that's why I don't just endlessly raise

money. I could at this point I could go

raise a lot more in the hedge fund

structure. Um but instead what I'm

intending on doing is like having a more

vertically integrated financial services

business where we um have a much lower

fee layer uh using ETFs. Um and then

basically

there's other like layers on top of that

we can add to create more value for us

and that's by cutting out various

middlemen. So, for example, the broker

dealer business um is really

interesting.

Um

especially for like levered investing,

which is what we do, you can really save

a lot of costs there. Um and basically

my idea is if we can get the cost down

to nearly zero and then we charge let's

say a long-term like a 1% fee on an ETF

structure, that's like really long-term

once you're way bigger. then it's a lot

easier to actually add value for people

in a real way on a 1% fee layer with

zero middleman than it is to have, you

know, this in practice, it's more like a

four or 5% a year fee. Um, with still

paying middlemen on top of that. Um,

so longterm, that's sort of what I have

in mind to do here. It's it's it's kind

of a big project to pull off, but

because you you need like um a lot of

legal compliance people to make sure

there's no conflicts of interest that

you know the assets are being treated

properly and you also need um like a lot

of portfolio managers

uh still. So you need the multi manager.

need to sell the portfolio manager on

this idea that hey, you should run this

lower fee thing. Even though you'll

probably not make quite as much money as

the citadels and things, you should do

it anyway because it's the right thing

to do. Um, I think it's easier to sell

people on that if basically you're

telling them that you'll be able to

raise them a ton of money using the same

brand. So that way from day one they

they uh get a huge fee, right? And then

also you'd offer like a lot more real

ownership versus the companies like

Citadel, they don't actually pay the

talent what they they deserve to. I'd

pay them, you know, most of that 1% fee

would actually go to the guy running the

money. Um, so I I basically plan on um

yeah, I'm really trying to reinvent how

this whole thing's done with uh lower

fee, no middleman sort of business.

um versus,

you know, like let's say that every time

these guys get, you know, their set of

sports tickets and everything for for

for free, like someone's actually paying

for those kind of perks, you know, our

company will have none of that kind of

crap. Um,

you know, so

that that's how I'm seeing it. And I

think the brand value alone once you get

people to trust that you're adding this

big edge and then money can kind of

automatically that's kind of uh already

wonderful for the PM especially if he

believes in the sort of ethical side of

it like hey we shouldn't we shouldn't

just fleece pensions and things out of

uh you know billions of dollars a year

like that's how I see the other

multi-manager jobs today.

>> When did you introduce PMs into your

business from running it solo to now?

Uh, I got the first one at the start of

2024. He's a guy I've been following for

a few years on Twitter. Um, and then the

second guy, um, I actually met him the

first time in person in 2019, so I sort

of knew he was a long time ago. And then

now we're trying another couple. We're

starting a new couple really small. Uh,

and I also found them on the internet.

So,

and so talk to me a little bit about

that business. What is it? What what

product are you trying to create?

>> Well, I just wanted to be a

multi-manager smaller scale hedge fund,

which is how the edge has been possible.

I've sort of repeatedly said the small

scale is what allows for such a big

edge. Um,

so yeah, I mean, if we can just get

people to agree to that at the hedge

fund layer, then the way um it's even

kind of a selfish thing if you just put

in a spreadsheet and see how it works

out if your your compound annual growth

rate is super super high. Just the way

your own carried interest compounds is

kind of insane versus like a lot lower

fee at a lot lower compound annual

growth. It's um

you know it's it's not actually people I

think are shooting themselves in the

foot even trying to uh grow endlessly.

Um

so so yeah this layer of the business is

really just as simple as let's have a

huge edge let's charge you know kind of

a regularish hedge fund fee for it and

then if you prove yourself in the hedge

fund then we'll we'll make you the

larger scale more marketing oriented ETF

uh vehicle instead and each PM would

have his own ETF. Wow, that's a really

interesting structure.

How's that been playing out for you so

far? How's it been going?

>> Well, the PMS are going great. They've

been killing it. I can see what they're

doing. I think it will scale pretty

well, so I don't see why it couldn't go

in an ETF structure.

Um, yeah, if they keep doing well, we'll

launch them their own ETFs probably in a

year or two.

um because the the ETFs are, you know,

it's still a very new idea to put a

hedge fund in into an ETF. So, we don't

actually know that uh confidently how

well that'll even work mechanically yet,

for example. So, I want to be a little

patient there and see what happens. But,

>> and for the fund for the funds that

you're building, are you how do you

think about risk management? Are you

doing the whole like are you hedging out

all the exposures?

Um, do you not view risk in that way?

I'd love to hear your thoughts.

>> Yeah, I think that the the pod shops get

way too neurotic about it, like they

basically want the factor exposure to be

zero or I've heard some through the

grapevine now that they're easing up on

that for their good guys to actually let

them have some kind of I don't even know

if that's true. Um, but

you know,

I I see it like um,

you know, you want them to be able like

you want the PMs to manage their own

risk in a way that seems good just by

itself.

Like, so I want to make it so I'm

watching the risk on my side, of course,

but I want it so that none of my filters

are are sending a big alarm signal,

right? And so if the PM has let's say 6

beta to the AI factor, that's totally

reasonable. Like that's fine. You can do

that. But if on the other hand, he's

like running three beta to the AI

factor, that's just a no-go. And I like

honestly if a PM is doing that kind of

thing,

I don't even think I'd step in to try to

get them to correct it too much. Maybe

maybe like a little bit. maybe like

maybe he's got this one blind spot. But

if I notice they're just doing this kind

of thing even somewhat often where it's

just totally reckless.

Uh then I would just end their their

deal, right? But so far the two PMs I've

picked, they don't do anything crazy

like that at all. They have their own

good risk management system as far as I

can tell as its own whatever. However,

they're seeing it personally. It's

already pretty good. And then my layer

is like everything's fine, too. And

then, of course, you have the the

broker's layer of risk management on top

of that. So, yeah, basically three

layers. And as far as I can tell,

everything's good on every layer.

And yeah, as for for pure factors, man,

I'm pretty sure this is a mistake. You

know, some factors are good to be long

and some factors are good to be short,

and that's totally fine.

>> Yeah. I mean, yeah, one of the questions

I do like to ask a lot of the pod guys

who come on or even just in person is

I mean, the market tends to go up. Um,

if you believe in the AI play by

definition, you kind of should be long

the AI factor. Uh, momentum tends to

work um, year after year after year.

obviously crashes sometimes, but

the thing I'm always curious about is

why not just include those in the

portfolio? And the answer they typically

give is that they don't believe that

they have skill in predicting those,

which I can kind of see. But what I see

more so is the guys on the top, you

know, the guy the center book, the guys

who see every single PM, I think they

can somewhat gain. And then I think the

factors and hedging all those out, it's

just good for building a product that

the allocators like, right? And um I

would like to get your I guess I'd like

to hear your thoughts on that. Why do

they hedge them out? Do you think that

neuroticism

um is just a consequence of them getting

burned before? Um would love to hear

your thoughts.

Yeah, I think the the biggest reason by

far is they have too many guys and so

they're neurotic about risk both factor-

wise, but the other key one is the tight

stop-loss wise as well. So, they're

really extremely tight on risk. And

that's cuz their whole platform is built

to say, okay, well, we can just sort of

let you can basically let anyone try and

then just see sort of see what they do.

And it the way they've structured it,

there's not any way that someone can

game it on beta. That's one of their

concerns, right? They're worried that

this guy's going to ride a factor bet

that can be kind of trendy and he'll

take advantage of us that way or he'll

take way too big of a risk. He'll take

advantage of us that way. Um, so they

don't actually under I my opinion is

they don't understand actually what

their people even do. It's almost like

they have a black box and they have a

rule set where things actually can't go

wrong is how is how they see it. Um,

but I think um,

yeah, I actually don't think it'll work

long term, but I guess we'll see.

No, we certainly will

>> because the thing is for me, I actually

understand my guys. I understand what

they're doing. Uh, I have a good I don't

I can't do what they do, but it's

adjacent to what I'm doing enough. So, I

actually understand it. Um,

and I can see that they're diversified

and um, they're not just doing something

crazy. They're not taking advantage of

me in some way.

And that that's the key thing. Like the

one of the new guys I'm backing, he's

very very bullish on AI and basically

his own portfolio. Uh, I'm interested in

backing him because his short book I

think has good alpha probably, but his

long book is just like it might as well

just be long in the S&P 500 or

something. That's almost how it is or

QQQ.

Um,

it's almost like why are you even

building a long book? Why don't you just

see why you just get long the index

then? But um you know, in that case, I

told him like, "Look, we're going to

start you small, but you know, in order

for me to ever upsize you, you're going

to have to learn how to um make

differentiated bets or at least control

your beta, you know, quite a bit because

I don't want to pay for beta. I'm not

interested in guys like one beta uh to

the general market. I don't think anyone

should pay for that." So, I think

I think that that extreme is bad, but I

also think the pod chop extreme of zero

is also bad. Um, especially especially

at the individual factor level. I think

that's where they're making a key

mistake

because if you're saying, okay, well, we

really shouldn't be paying you for like

S&P 500 beta. That can kind of make

sense. I I'd respect that. But there's a

lot of beta within that, you know, like

if a guy's bullish on oil, then he

should be long. whatever point for the

energy

uh factor.

>> David, you're super unique in that

you've taught all of this to yourself,

right? Um,

if there's someone watching this right

now who I guess maybe they're a student,

they're looking to make a very

unorthodox career transition and they

want to sit in your seat, which

taking a step back seems ridiculous how

your career's progressed. What advice

would you give and how did how would you

go about learning this skill of

investing? Yeah, everyone has a

different um

like a different um way of thinking

about things. We're all sort of

hardwired a different way. Uh you can't

fight that. And so one thing you can't

do is just sort of try to copy what

someone else is doing.

Um like like a big failure mode is just

everyone wants to be Warren Buffett.

uh of all that's like half of all funds

is just people trying to mimic Warren

Buffett. Um so you know I'd say don't do

this like you have to actually figure

out how you see the world. You need to

block everybody else out like really and

try to think through okay what can I do?

What can I figure out that's unique to

what what I'm

you know to my own talents at to my own

etc. Um

and then

there there are a few like rigid things

you you can learn like a more rigid rule

set like you shouldn't you know mix

leverage and concentration. You

shouldn't mix you know you shouldn't

take like stupid risks. You should

control your draw downs to some extent.

Pod shops take it way too far but the

math is really clear. You don't want to

have regular 30% draw downs cuz each

time you do you need a 50% win to get

even. you can't do this. Um so once you

learn those really basic that sort of

basic correct framework though you want

to apply your own

your own methods completely and I would

just say

just keep finding things to bet on and

then put it in a portfolio and like a

few 5% bet or whatever and then move on.

That's on the long side. But on the

shorts, they have to be smaller. But um

and then just keep finding the next one.

And then watch how it plays out over

three or six or nine months. And then

you know if it's not working,

take a good honest look about why it's

not working. Don't just say, "Well, I

must be right anyway, even though the

market's saying I'm wrong."

Yeah. Some of these guys, some of these

guys on Twitter, man, it's weird. It's

like their their track record is so bad

and they're still giving the advice of

like, "Oh, well, it's gone down more

against you, so you should be buying

more." It's like, "No, man." Like, the

fact that the market has gone against

you, it actually means something. It's

like one of the strongest tells there is

actually. Um,

especially like over a diversified

basket of things. If if like a bunch of

your bets are going wrong, you actually

have to figure out at least half of them

or more that you need to cut. and figure

out some new idea because you were

probably just wrong. And if you just do

this over and over and over again,

um I think you can actually get the

experience you need to even have a

chance at succeeding.

Um versus, you know, you think you've

done super deep research on these four

stocks, you're going to be long all four

and then, you know, who the hell

actually even knows? And I just see guys

doing that all the time and it fails. So

yeah, just get in a ton of reps.

Stay humble, you know, don't stay wrong,

follow a reasonable risk controls, not

super tight, but reasonable.

Um,

yeah, that's pretty much it.

The advice that's given to junior

analysts in an institutional setting or

aspiring junior analysts is work on your

modeling, pick a sector, cover a couple

stocks, run a book,

and

everything you're saying seems to be

somewhat contrary to that because by

definition,

you were saying find out your unique

edge by picking something and I guess

learning the general skill set of an

analyst. You are

trying to force another skill set on you

that maybe

is a base level that you need. What are

your thoughts on that traditional

institutional path for forming

outstanding investors long term versus

a more unstructured way of learning

where you are continuously reflecting on

your own personal strengths and how that

can translate into edge in the market.

>> Yeah. The whole the whole way they do it

is just wrong. Uh and it's not like my

opinion. It's like none of them have an

edge, right? So the whole institutional

way of doing it, it um it seems

responsible, it seems serious, which is

why I think it even goes on like this.

Um

you know, as long as um

I mean these institutions, they're not

really in the performance business.

They're not even really trying to

perform well. I I would argue what

they're what they're trying to do is is

sell a serious seeming product to a

committee that's running a pension or

whatever. That's their entire business

model. And those pensions would be way

better off just buying the S&P 500. Um,

so I guess to those people I'd say look

if you want to be in the marketing

business and you want to figure out a

way to sort of get your claws in and

take siphon away some of that money. Um,

then sure follow that path and you know

if you went to Harvard and you know you

feel like you can uh be a salesman using

that credential especially that

credential is key. If you don't have

that credential I would say just don't

even bother trying to go down that path.

you will always fail almost always

unless you're exceptional marketing. Um

but yeah, if you're going to become a

professional marketing person, you know,

I would just um I'd say almost just like

pretend like you have to pretend like

you're doing the model and everything.

That's part of the job. But man, you

could just have Chachi PT write up some

slot for you and then you could focus on

like building up your marketing skills.

I per for me, I think it's

reprehensible. I would say don't do it.

just go do something useful. Um,

but yeah, if you actually want to learn

to beat investing and have a real edge

and add value for people, don't listen

to what they do, what they're saying

because it it never works. None of those

guys have an edge.

I want to go deeper into that. So, you

mentioned the kid who graduated from

Harvard, right?

um he has the institutional pred he has

the pedigree. He can get into one of

these elite hedge funds institutions,

right? He can learn the institutional

investing way. He can be the salesman.

He can wear a suit and he can um he can

talk about factors and exposures and and

and wear the

um and about these these sophisticated

products that he can sell to

institutions

relatively easily in in a

straightforward way. Um but he's not

there yet. You know, he's he's still

let's say he's in his senior year,

junior year, and he tells you, I want to

be a great investor. I want to be um not

Warren, not Stanley. Um but I want to be

like my own unique

unique person and then and and and

really build up this skill from zero.

Where would you tell them to start?

>> Yeah, you get on Interactive Brokers.

You put in whatever 5,000 bucks or

whatever you can scrape together. You

could put in even a,000 bucks. I mean,

why not? Um,

I don't know what the minimum is for a

margin account if you wanted to get into

short selling. I think that might be

five grand. So maybe you for a buffer

you want more like 10,000 bucks. It

can't be that hard. Go get a summer job

and get 10,000 bucks and put it in the

account and then just like learn to bet

small on things and you you know you

don't have to you're not even really

trying to make money from this exactly.

What you're trying to do is learn how to

have an edge and make the, you know, if

you can win at 30, 45, 50% a year on a

small account, that's a pretty good

sign. It's very doable. Um, you have a

huge edge with a small account. You're

you have a you can get in and out of any

position literally instantly for no

cost. There's no friction at all. Um,

it's the greatest way to learn. And

yeah, you just bet on like try to find

like 30 genuinely different like long

ideas. So it's not all just AI, right?

Because you could say like Nvidia and a

bunch of other semiconductor stocks, but

that's all the same bet, right? So you

really want to find like 30 different

things long to bet on. It might take a

year or whatever to figure that out. But

if you're really serious about it, man,

you should just sit there and non-stop

15 hours a day is a competitive game. If

you're not if you're not loving it to do

it 15 hours a day within the first

month, just give up. You're not going to

win. Not you're not you'll never be a

great investor. U but if you're happy to

do it 15 hours a day and then it'll take

you a month or two to come up with a

list of 30 long ideas. Most of them will

be horrible, which is fine. And then,

you know, if you're find building a

short book and you have like um you

know, you have like 0.5% short positions

or even a little smaller and you want to

find 50 of these and that'll take

another few months. Um and then yeah,

you just learn by doing and and if you

have that sort of like a 50 position

portfolio on or 80 position if you can

get up to it, it's very hard to juggle

it, but the money amount is so small,

right? That's the key of this. If if you

like lose, who cares? you like lost a

few thousand bucks. It's like nothing.

It's like cheap tuition. So

that's what I would say. Just don't

don't do models. Don't don't read

academic theory. Don't try to see how

the supposed professionals do it. Just

try tons and tons of different bets.

Don't stay wrong and try a ton new

different bets and do it over and over

and over again. And by the time you have

like 500 or a thousand reps in, then

you'll start to have an idea if you you

can even have a chance at this. And

you'll actually have a real chance of

generating real edge doing it this way.

>> And let's say he does that or she does

that. Put the reps in um a year, right,

of of absolute focus.

Would you from that point try to work

for a money manager like yourself who

would give him the freedom and you know

he has a track he's young his um his his

intellectual mode is expanding. You can

tell he's hungry. Um would you try to do

that? Would you try to do it the

oldfashioned way? I mean old I say

oldfashioned but um it's just that no

one can no one it's very hard to do this

today. I mean, no one really does it

today where you you raise money from

friends and family and you kind of build

up this hedge fund that that you started

out of college. I guess my real question

is once you've put those reps in and

that training and you think that you

have edge and I guess you can prove it

with your track, what would be the next

step for you?

Well, I tried to build my firm in a way

where I actually said, okay, what

percent of the economics would I share

to make it so if I was in that person's

shoes? That's actually the question I

asked. And I that's why I came up with

the answer. I'm giving them 90% once

they meet partner after three years. So,

I think I've created a deal for any guy

who has a genuine edge uh to come work

for somebody like me. So, on the

economics part of it, I think that's way

better actually than running your own

fund. you don't have to deal with

fundraising or administrative costs.

It's actually just a straight up good

deal. The only downside of this model of

joining me would be um you're trusting

one person, right? So, in in in your

case, your counterparty to your

everything you're doing is one guy. And

the the big benefit of um is uh of uh

starting your own fund and doing that

friends and family and and doing what I

did. Right. Today we have like almost

100 limited partners and the largest one

is like 10% of the fund's money. So that

means even if I pissed off a whole bunch

of my LPs, I'm going to be just fine.

I'm going to be staying in business. It

doesn't it doesn't actually matter. I

have a very robust business that way. So

that that's the only reason to go off

and do it on your own. It is a good

reason, I guess. Um you can also have

your own sort of final say on risk

controls is the other big one. um level

like if you wanted to go get more PMs or

you have a different idea about risk

than I do because um ultimately I

control the risk, right? That's um my

key role here is figuring out um if

people shouldn't

do something and so

so yeah, I think if you do have an edge

though, if you have an edge and you just

write about it and you like just write

it like like you're role playing, you're

you're saying, "I'm a fund manager.

Here's my letter. And this is what I

basically did in 2019, right? I started

writing these things in uh quarter 1,

2019.

And um

and yeah, I promise if you have an edge,

people will find you. They will. And and

people like on the internet say, "Oh,

you can't do it. It's not possible."

This and that. These people don't exist.

If you have a good solid edge, like

actually the the the closest guy who's

like got kind of a raw deal is this

Upslope Capital on Twitter. He's a

really smart guy and he he has a small

edge. Uh or like not even that small.

It's like a pretty decent edge, you

know? He's like he's better than most

real fun bun managers, but he's not just

he's not quite there yet, you know? So,

he's kind of like in this this crappy no

man's land where that guy probably

deserves more success than he should be

getting right now. I actually that

that's actually kind of frustrating to

me. I think about it once in a while,

but besides him, like everyone else I

know that has had a big enough edge is

doing reasonably well. Plus, I mean, he

even that guy, he has a small fund. It's

not like he has nothing, you know? It's

still like he probably should be getting

compensated more and everything, but he

still has freedom and he still makes

some, you know, decent amount of money

doing this. So, it's not even the end of

the world in that case. So,

you know, yeah, I think if you just go

off on your own, have the balls to do

it,

you know, I I think good things will

happen if you have an edge. I wouldn't

worry about that.

I really like what you said

about

putting in the 15 hours of work every

day. And if you don't want to do that,

that being uh I mean a pretty strong

indicator that this game isn't for you.

>> Um for sure that's a good filter because

95% of people will quit right there.

Like if you don't

>> even higher

>> didn't look at if you didn't look at

Yeah. Even higher. So, if you didn't

like look at stocks, dine hours, go to

sleep, and you want the first thing you

want to do when you wake up. You don't

even want to make coffee first. You

maybe only do it because you know

they'll probably make you work faster,

you know, like the first thing you want

to do is start reading more. That's

that's how you know that you even should

be doing this. If you can't do this um

at first, I'm not saying you don't have

to keep this pace forever. Um,

you know, it's probably even detrimental

too to uh because you stop you're not

balancing things. But at first, like by

far the first thing to do is just learn

as many companies and situations as you

can. And yeah, if you don't have the

drive to do it, just give up, you know,

go either go be a professional marketing

person or or you can try to work in the

um there's not enough people working in

um the support roles. That's a kind of a

a quiet thing about the investing

business is uh

like most of the these professional

middle office or professional compliance

firms prof

um mercenary they don't actually care

about what they're doing but if you

could find like um you have a sincere

passion for some aspect of investing

services I think that can also be

another interesting route for people who

want to work in the this industry but

besides that so you know you have you

know genuine edge that's a workaholic

thing. You have the marketing aspect

which I I don't suggest you do it but

you know some people want to do it just

in that case realize what your role is

or work in support which is severely

underrated and I think there's a lot of

uh opportunities there for people who

are passionate about investing but maybe

you didn't have quite the talent or

quite the drive to do it. That third

route I think could be a interesting

path for people to look at.

I want to hear more about the support

roles because I think everyone wants to

sit in the investment seat. Everyone

wants to be Stan Ducken Miller or Warren

Buffett or even among mathematically

minded people. So I I'm I studied math

and physics from undergrad. I'm doing a

master's in financial engineering right

now. Everyone wants to become a quant.

They see the bonuses, they see the the

salaries, the internship salaries, the

first year salaries at Jane Street, at

Optiviver, at Citadel, and they go, I

want to sit in that seat. But like

you've said in most cases I mean the

quant equivalent of the 15 hours a day

is still 15 hours a day just doing quant

work right or and so

>> about that game but it's the same thing

I think. Yeah.

>> Yeah. Yeah. No exactly. Exact. I mean

it's the same level of obsession right.

Um but what you've said there about

support roles I've never heard that. I

don't think that stuff like that is

probably talked about enough because I

think we have too many people trying to

get into these very limited number of

buyside seats and people who were really

just interested in this because all

right they saw the bonuses they saw like

a couple reels on Instagram or some Tik

Toks about Jim Simons right but but tell

me what are those support roles and I

guess we talked about what is the type

of person that thrives in one of these

investment seats. What is the type of

person that thrives in one of these

support seeds?

>> I don't actually know um enough about

that to answer that confidently. I'm not

good at this to be honest.

>> Fair play. Fair play.

>> In my own hedge fund, um finding like

I'll put it if I put like a a job

opening for an analyst role, I'd get

like 200 resumes in a day or more

probably. It'd just be absurd. But if I

put like, hey, I want like an operations

support person, you know, I get like

two. Okay. So, that that just shows you

where the opportunity is. And then a lot

of hedge funds, it's a more cushy kind

of a boring job where

um the hedge funds pretty predictable

business, you know, especially for one

that manages risk well. These things are

in business for decades. Usually,

there's not almost anything to do and

you're going to basically be playing

social media all day. Um, so but if you

do a great job and you're really

reliable and responsive and you make the

portfolio manager's job easier, they're

they're they're never going to fire you

and they'll probably overcompensate you

compared to like a similar job. you

won't get the yeah the the huge

performance fee that everybody wants and

you won't make millions of dollars a

year but you could probably get yourself

in a pretty good two 300 grand a year

job there from a maybe maybe especially

if you like work for um a smaller up and

cominging firm a bit lower salary at

first and then they probably you know

get your rate up and there's just not

that many people looking actively for

those jobs there's nobody's proactively

saying how can I make the portfolio

manager's job easier there's so few of

these people or like even even like the

higher level people like um

trying to keep it anonymous here uh but

there's like some CFOs who did a very

mediocre job in my opinion for some

other funds for for instance and they're

not even doing anything for these funds

and I don't think the fund manager even

realizes it where the CFO could be uh

adding value in more ways if they'd

spend more time sort of um thinking

through broker relationships for example

or thinking through better ways to

structure certain types of trades. For

example, the really large shops do it

well, like the Jane Streets and

everything, but the smaller fund

managers, I think there's a room there

for a guy who's willing to be more

proactive and not just um you know, wait

for LP wires to come in or do a few

redemptions a month or whatever. That's

sort of what most of those people's job

is and it's basically nothing. But

there's a lot of dead time there and you

can actually figure out ways to add

value to the firm there. And if the firm

manager uh is smart, he'll recognize

that like, oh, he just saved us like $2

million a year in financing costs or he

figured out this cool tax thing which is

going to defer, you know, 20% of the

LP's taxes a year and that didn't even

cost us anything, right? A good fund

manager will probably reward you at

least decently for that. And you could

be making, you know, a few hundred,000 a

year, even a bit more. Um, and I've just

been doing this all by myself. And it's

shocking to me. I'll talk to other fund

managers about these kind of things. And

the other fund managers just aren't

doing any of this. They're not even

thinking about it. They're just like

letting these free lunches go away to

these middlemen.

Um, and then I I mentioned earlier I

have this plan to build like my own sort

of vertically integrated operation. And

that's a way larger role than a typical

person would be at one of these funds.

the in in my firm, the job won't just be

collect a wire, you know, fill out these

compliance forms and work with the

auditors and sort of busy work kind of

thing. Uh, in my firm, they're going to

be figuring out, well, how do we

actually structure this in a way that's

going to maximize our investors edge?

And there's no way I can juggle all

this, right? It's just too much. You

have to like know who the 50 brokers in

the world are. You have to understand

what types of services they're good and

bad at providing and why, how that's

changing over time.

Um, and then in in my firm, it's going

to, you know, if we we end up launching

our own broker dealer, of course, that's

going to be its own kind of large

workload, too. And so, I'm I guess part

of this is a little self- serving and

saying that, yeah, I'm looking for

support people who want to be really

truly passionate about it. Um, but I

think there's room for improvement in a

lot of other funds, too. And that's not

as intense as what I want

>> from running your fund, from hiring the

two PMs, from

looking for support people now as well.

I mean in the past as well. Um

I guess from working with people in the

investing industry,

what's one thing,

one skill that the best people have that

is so unbelievably underappreciated?

>> You mean for the portfolio manager or

for uh who?

>> For for the PM. I guess for both even,

but for for the PM first, I guess,

>> just think originally, man. Like, you're

not going to you're not going to have an

edge copying some Bin Twit idea. You're

not going to find all your ideas on

there. You just need to like look at

ideas genuinely by yourself. Do the

work. You know, I think it's good to put

your ideas out there because maybe

somebody will mention something that you

didn't realize. But you you shouldn't

just like listen to what they're saying.

There's a lot of naysayers and

everything. A lot of people who say why

the thing is broken because they're

quoting the sellside research or you

know things like this or the the the

perma bears will just say all of your

ideas are bad on the long side for

example. Um you just need to block all

that out and just do your own thinking

truly do your own thinking. Have your

own ideas. You know there there's a you

have a very unique brain and you you

have to use it that way. That's the only

way to beat the market.

>> I love that. And

what you said there about the sellside

research. It's funny. I mean, whenever I

ask someone for advice on how to start

investing, they say, "Do not read

sellside research because I mean, I've

only got recently gotten interested in

in the whole like in in in fundamental

analysis and how that works." And yeah,

everyone tells me sellside research like

they they will say whatever to get you

to to like their ideas.

Dude, it's just junk. I mean, I I know

because like one of our portfolio

managers had that job for a while and he

said his boss would just tell him what

he wanted the answer to be and he had to

come up with the report to justify the

answer that way then go sell the stock

and that's all you're reading there. And

this is and then so RPM is is like he's

like passionate about what he's doing.

Um but you know like

most of the people at his job they

didn't care. they just like nodded and

went along and they were happy to have

their, you know, decently well-paying

job. Uh, they're going to make up

whatever kind of nonsense. And it's just

like reading a word salad from a

23-year-old who doesn't actually care

about investing or the company or

anything. And why do people spend any

time on this, man? It's crazy.

And if there's a final piece of advice,

and I think we can end here. If there's

a final piece of advice that you would

give to um

to to students who who who want to get

into this game or or people looking to

make this transition, what would it be?

Just another thing I guess.

>> Yeah. Figure out what you're going to

do. Like if you want to perform well,

just focus on that. If you want to focus

on marketing, focus on that. And if you

want to focus on the operation side,

which means, you know, you could even go

apply for jobs at a broker dealer trying

to help them that way, for example.

Um,

you know, then do that. Um,

and you know, have an idea of like, do

you actually want to do it? If you don't

actually like want to do it, there's

going to be better ways to make money

anyway. This is a really competitive

field. Um

so yeah know what you want to do and

then actually like do it and then have

an honest feedback loop and say can you

do it and if not you should move on. You

know most people won't make it in this

business and but it's always good for

people to try. So everyone should try

but you know try doing what you're doing

and then if it's not working you know

find something else to do. You know,

there's

it's kind of sad these people who sort

of um are bitter and angry and they they

post about it all day on Twitter about

how, you know, they didn't like that

they didn't get the job or they saw some

other co-orker they thought they thought

was stupid who's succeeding and

everything and then they're all bitter

and angry and their whole identity is

wrapped up in this. Like, you don't want

to be one of those people. So,

yeah, figure out what you're going to

do, try doing it. If it doesn't work,

move on and do something else. That's

it.

Thank you for keeping it simple, David.

And thank you for coming on Open.

>> Yep. Thanks for having me, man. It was a

good time.