Lee Ainslie: How To Incrementally Improve Your Investing Odds

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During this interview with Invest Like The Best, ‘Tiger Cub’ Lee Ainslie explains why successful investing is not about finding a magic formula, but about incrementally improving your odds. Here’s an excerpt from the interview:

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Ainslie: I always felt investing is really a matter of doing everything you can to slightly improve your odds. In other words, you’re not going to find this magic algorithm or magic bolt. No one else has thought of an aha, I got this huge advantage now no one else has.

But it’s can we do a slightly better job of gathering information. Can we do a slightly better job of interpreting information. Can we do a slightly better job thinking about risk? And all those little slightly betters, I think add up to be our core advantage.

So just to give some examples.

We typically only have 3-5 investment positions per investment professional. I think you’ll find that ratio as a fraction of what you’ll see elsewhere. So right there, we’re talking about a level of due diligence that’s quite unusual.

You combine that with the fact that we have much longer holding periods than most long/short funds. On the long side, we average 17 months, on the short side it’s 13 months.

So people focusing on fewer positions and yet interacting with those management teams for a longer period of time helps us not only improve our understanding of that business but again, developing real dialogues with those that can give us insights into that business competitors as well as customers.

We use quantitative research in several ways. Every portion of the investment cycle is informed by quant at Maverick. And then even outside of all that, over the years, we used to hire people to go count cars in parking lots.

Now we do that by using satellite imagery. I remember one company in particular, which was an extremely successful short, we ordered something from them once a week only so we could look at the PO number, which told us how many POs they processed in the past week.

There are all these things we’ve done to try to have a slight advantage, and our objective, I can’t say we’ve always fulfilled it, but the objective has always been to never be at an informational disadvantage to another public investor.

Because of our depth of resources, because of how long we hold positions, there’s really no excuse for that to happen.

Now it does, obviously, but to me, that’s one of the most important differentiating advantages. I combine that with the depth and experience of the team. So the entire investment team is 29 individuals. On average, they have 14 years of experience. Importantly, 10 of those 14 years have been within Maverick.

It’s a team that has worked together for a long time, and if you look at our 6 senior decision makers at Maverick, 21 years of experience, 16 of those years within Maverick.

So it’s that talent, that experience, combined with a better set of tools and hopefully a better set of information, there are competitors that lead to what we hope ends up being superior results.

You can listen to the entire discussion here:

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Article by The Acquirer’s Multiple.

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Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is also the founder of Acquirers Funds®. The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.