Thread by @investing_lion

Just finished watching a great interview with @yliownyc at Capital Allocators. Thank you for bring it to my attention @EugeneNg_VCap.

I wanted to share with you some of the insights and gems that I highlighted from Yen Liow investment strategy and framework:

“I think that time arbitrage is the most powerful weapon you have in markets, on top of skill. It is an amplifier of skill. The cost of high performance is volatility, it is also the provider of it”

“I define the right tail as 5 and 10 periods of 20%+ compounded returns. What I found is that only 14% of securities above $1-billion market cap could do it, and only 3% are able to do it for 10 year rolling periods.”

“Three types of right tail strategies:

1. Compounders: Monopolistic or oligopolistic structures for long time

2. Secular between cyclical: Commodities framework w/ demand shock and delay supply response

3. Quality transitions: M&A framework consolidates to improve quality”

“We prefer to focus on compounders. There are multiple types of compounders, from hyper growth to lower and steady growth and anything in between.

For us, we only focus on horses that have durable growth rates in the 20-30s%, which is a type of GARP"

“The hardest part about being an investor in a high quality compounder is that it requires to build patience at a system level to wait for great businesses to become cheap. It is very rare."

"Otherwise you need to be able to predict 3-5 years out and have the boldness to hold through volatility to see your thesis play out.”

“There is a massive difference between investing in high and low predictable environments. We invest in monopolies and oligopolies. By definition, those are higher prediction environments.”

On handling downside volatility:

"There is a difference in opportunity and risk in downside volatility, for us it depends on what drove the volatility.

There are three types of downside volatility: Macro, Factor and Idiosyncratic."

Three types of downside volatility:
1. Macro - Quality of the business is unchanged.
2. Factor rotations - If earnings power intact, it is a flow driven issue.
3. Idiosyncratic - This is the single security problem that you have to address."

"One of the most important skills in investing is taking the loss. I think that is the difference between a professional and an amateur.

This is a business of error reduction.

Knowing the difference between the opportunity and risk in downside volatility is everything."

"Markets are efficient most of the time, if you need lots of ideas to be able to beat the market, your odds are significantly diminished."

"My source of strength comes from the quality of our businesses, the quality of management and the quality of our research team."

"My source of patience comes from earnings power. I can see that everyday our portfolio is compounding at 20-30% year on year.

I know that if I do nothing in years time the intrinsic value of our portfolio will be materially higher."

I separate out price signals from performance on our portfolio. We focus on earnings potential, we cannot control performance in the short term.

Our portfolio is typically 20 positions with the top 10 typically account for 80% to 90% of the portfolio.

“There are three A’s in high performance teams: Authenticity, Autonomy and accountability.

Stars need the room to make mistakes, learn, perform and be held accountable because A players like to play with A players.”

“Just because you know what the right thing to do, doesn't mean you can do it. Barriers to entry in this business are low, barriers to excellence are incredibly high.

You have to use authenticity to know your temperament and skill, to adjust your investment strategy."

“It is really hard to execute consistently over two decades. If you do not have equanimity in storms, you can't make good decisions.

The most important insight I have ever had is we understand the essence of why we are authentically aligned with our strategy”

“Outside of work and family, I try to read 70 to 100 books a year 🤯. My most important daily habits are journaling and meditation.

I meditate 20 minutes first every day and right after that I journal for 20-30 minutes to consolidate all my thinking.”

Favorite book:
“Genghis Khan and the Making of the Modern World'' by Professor Weatherford. It changed my life.

I think it is a top 5 investing book of all time. You cannot do extraordinary things doing ordinary things.”

- Added to my read list -

Worst life pet peeve:
“My number one is wasted potential. It kills me when there is talent and it lacks the fire and ignition to go after it.

Life doesn’t owe us anything, it is a privilege to have the opportunity.” 💯

Worst investing pet peeve:
“Arrogance and false confidence. When we place a bet, we are saying we are right and the whole world is wrong.

You either be humble or be humbled, the first is a lot whole cheaper than the latter.

False confidence is deadly”

Sorry for the long post. I loved the insights and I think they can add value.

Thank you @yliownyc for sharing your knowledge with the community. All the best!