Gabriel Grego’s Warning: The Structural Forces Making Short Selling Harder Than Ever [In-Depth Interview]

In recent years, much debate has centered on value investing, whether it still works, and if it has to evolve to continue working. Short selling has also been at the center of significant controversy, but we managed to catch up with one well-known and reputed short seller who once focused on value investing.

In an interview with Hedge Fund Alpha, Gabriel Grego of Quintessential Capital shared his views on both, along with his strategies, both long and short, and his lessons learned from investing in his first stock.

Although Quintessential Capital is a name usually associated with short selling, much of what Grego does is long passive investing and targeting blue chips, where he tries to use the same rigor and discipline, especially in the due diligence they use for short selling, to try to get an edge in their passive investing.

Meet Gabriel Grego

Grego founded Quintessential Capital almost 18 years ago. Before that, he worked in investment banking. He’s originally Italian and came from the small but ancient Jewish community in Italy. 1In 1999, he made his “Aliyah” and became an Israeli citizen. Grego did so out of pure idealism and volunteered for  an elite IDF Paratroopers Brigade.

Recently, he’s been studying physics and mathematics to incorporate what he learns into his investing expertise.

Grego’s first stock

Grego bought his first stock when he was 13 years old, in 1988, picking up some shares of Sony on a tip he overheard from a conversation between two bank executives during his bar mitzvah. One comment caught Grego’s attention. One of the executives said he thought the yen would “go through the roof.”

Impressed by that statement, Grego went to his father and told him about it, asking whether they should invest a little bit.

“My dad says, ‘Yeah, maybe we can buy Sony.’ Sony was at the time a Japanese stock. I was familiar with it because at the time, the Sony Walkman and the Sony TV were almost the equivalent of what Apple is today,” he explained. “And so I thought it was a great idea. And I think less than six months later, the entire Japanese stock market and the yen collapsed. And it took them 30 years to recover or something like that. So I lost my bar mitzvah money or a very large part of it. And that was a great teaching.”

That experience taught Grego not to listen to any stock tips, but rather, to do his own due diligence and try to understand what he’s doing, moving only when he has an edge.

Seeking hedge funds to invest in

Ten years later, he graduated from university, landing his first job at an investment fund. Even then, he was sure investment bankers had a specific method for what they did.

“They were trading, they used to say, but I didn’t understand exactly what they were doing beyond a little bit of technical analysis and maybe reading analyst reports,” Grego added. “And that made me extremely skeptical. I said, this doesn’t sound like a way to make money. And in fact, they went on and lost money later on in that fund after I left basically. So I had not touched the market again for a while — until I came across something that seemed to me like a system that was supposed to work. And this happened when, many years later, in 2005, I was working for a fund of hedge funds.”