Deviant Perception

25 yr fund manager observing greed and fear. Hobbies incl sit-ups, push-ups, capacity for suffering & spotting fishermen from afar.

[Michelle Tandler @michelletandler]

I ride the subway every single day in NYC - and can confirm, it is swarming with people who are mentally unstable.

The city needs to jail people who are naked, urinating, screaming, and smoking on trains.

The city also needs to install real gates.

[Kyla Scanlon @kylascan]

One of the most important things to understand about the moment we are living in

[Jaynit @jaynitx]

Elon Musk reveals the single question he uses to spot liars in interviews:

"When I interview somebody, I really just ask them to tell me the story of their career, what are some of the tougher problems they dealt with, how they dealt with those, and how they made decisions at key transition points. Usually that's enough to get a very good gut feel about someone."

Elon explains what he's looking for:

"What I'm really looking for is evidence of exceptional ability. Did they face really difficult problems and overcome them?"

Then he shares how to tell if someone is lying about their accomplishments:

"You want to make sure that if there was some significant accomplishment, were they really responsible, or was somebody else more responsible? The person who actually had to struggle with the problem, they really understand it. They don't forget. You can ask them very detailed questions about it and they will know the answer. The person who was not truly responsible for that accomplishment will not know the details."

On whether college degrees matter:

"There's no need to have a college degree at all. Or even high school. If somebody graduated from a great university, that may be an indication they'll be capable of great things, but it's not necessarily the case. Look at Bill Gates, Larry Ellison, Steve Jobs. These guys didn't graduate from college. But if you had a chance to hire them, of course that would be a good idea."

He concludes:

"I'm just looking for evidence of exceptional ability. If there's a track record of exceptional achievement, it's likely that will continue into the future."

[Marcelo P. Lima @MarceloLima]

Friedberg delivers the perfect diagnosis of what's wrong with California and the danger of its policies spreading to the rest of the country, which would be extremely anti-American. This clip is a must-watch:

[Deviant Perception @DeviantPercept]

Artificial friction to force AI adoption. Going to see a lot more of platforms throttling basic tools just to keep you captive.

[Hemingway Capital @lfg_cap]

@AlphaSenseInc you are really fucking shameless.

[Dmitry Sky @Sky_Hustle]

Instead of building a forecast from scratch, which is an exercise in compounding guesses, you take the price the market is giving you and gradually work backward: what growth rate, margin, duration of competitive advantage does this price require to be justified?

Then the only question is: is that plausible or insane?

That's a dramatically easier cognitive task. You're not predicting the future. You're evaluating whether someone else's implied prediction is reasonable. Falsification rather than construction, Karl Popper would approve.

And it naturally surfaces the best opportunities: cases where the market's implied assumptions are obviously wrong in one direction. You don't need to know what a company is worth to know that the market is pricing in something that can't possibly be true.

@mjmauboussin has formalized this as "expectations investing" and it's probably the most intellectually honest valuation approach available. It admits what you can't do (forecast) and focuses on what you actually can (judge plausibility).

[Trevor Noren @trevornoren]

Amazing in private equity how the irrational became the standard. A lack of mark-to-mark accountability is a luxurious place to live until reality inevitably forces its way in: "Total return numbers for a big stock market index rely on full datasets of verifiable prices and dividends. When private capital funds selectively report their progress, it is typically in the form of an IRR. 'An IRR is not really a measure of performance,' says Richard Maitland, senior partner at Sarasin. 'It relies on too many suppositions and is often heavily reflective of results in the early years of investments.'"

I dove deep on IRR and the long-term deterioration of PE performance in my "Retailization of Private Markets" report (sample for free: https://t.co/3jQm1P54Tj). Here's a snippet:

"IRR has long been one of the industry’s favorite reference points. To again quote the FT: “It is a mathematical artefact. It assumes every dollar distributed is reinvested at the same rate it was earned. It’s not realistic, not additive, not comparable to market indices—and not designed to be used the way the industry uses it.” Meanwhile, unbiased calculations are held back by a lack of data. By and large, private investors don’t disclose fund returns nor do private companies report performance. In turn, private-market investment return calculations are predicated on extrapolated data and result in wildly divergent estimates.

In an often cited 2005 paper, MIT researchers found that private equity buyout funds slightly underperformed the S&P 500. In 2012, Chicago Booth researchers disputed that analysis, claiming new data told a totally different story—between 1984 and 2008, the average US buyout fund outperformed the S&P 500 by at least 20% over the life of the fund. Then in 2023, Tulane University researchers developed yet another methodology they dubbed “direct alpha,” which compares cash flows—both contributions and distributions—with what the dollars would have been worth if they’d been invested in a public equity index during the same period. Their conclusion after studying more than 2,400 buyout funds: direct alpha was 3.1% using a broad market benchmark and 1.7% based on industry indexes. To quote a Bloomberg synopsis of the finding: “Still good numbers, but for many investors it may be too little reward for locking up cash in illiquid and often leveraged assets for long periods.”

To our mind, the private versus public performance debate misses the point and allocating based on the assumption that private markets outperform is a path to underperformance. The exact numbers matter less than the trajectory of the numbers. And based on many calculations, private market returns are on a downward trajectory."

Learn more about Sage Road Research: https://t.co/Wgwz2xmY1y

FT link: https://t.co/povkKEtMXP

[Marc Andreessen 🇺🇸 @pmarca]

TLDR There is no inner self, you're chasing an imaginary concept, the end.

[Deviant Perception @DeviantPercept]

BDC manager at the gate: “The good news is you CAN leave.”

“The bad news is 95% of you can’t leave yet.”

“The worse news is we don’t know what ‘yet’ means.”

[Danny Moses @dmoses34]

The part that rhymes with 2006-2008 is that Banks were providing warehouse lines to Mortgage Co.'s who would then originate mortgages & Wall Street would buy them, repackage them (MBS/CDO's) & sell them to the world. When delinquencies spiked, the Banks pulled the lines & companies like Countrywide & New Century were left holding the mortgages on their balance sheets and the rest is history. The Banks benefit from lending to Private Equity/Credit in similar/different ways: fees related to IPO's/M&A, fees related to offering/selling these products to retail investors on their platforms, offloading assets from their balance sheets etc. As soon as liquidity is reduced/pulled, it exposes leverage & pockets of poor underwriting. While regulators & investors take comfort in thinking that deterioration in "Private Credit" doesn't pose a significant risk to Banks, it could still reverberate through many other areas of the markets and economy.

[Steve McGuire @sfmcguire79]

The scene at Yale after Trump’s first election, according to @robkhenderson:

[Deviant Perception @DeviantPercept]

The stock you love will break your heart every time.

[Long Equity @long_equity]

Sometimes compounders stop compounding. What lesson do you take away from this?

[George Noble @gnoble79]

"We're not halting liquidity, we're accelerating returns."

Beautiful language. Almost poetic. Reminds me of every press release I read from mortgage lenders in early 2007.

Let me translate from corporate PR to English:

You froze redemptions in November. You tried to force a merger that would have cost investors 20% of their money. Investors revolted. You killed the deal.

Now you're permanently replacing the quarterly tender offer with distributions YOU control, on YOUR timeline, and calling it an upgrade.

That's not "accelerating returns." That's telling investors they'll never again choose when to exit - and dressing it up as a favor.

They sold $600 million in assets at "99.7% of fair value."

But fair value according to whom?

The same managers who told investors there was "no meaningful pressure" on redemptions while $150 million was walking out the door?

The same firm now facing a federal class-action lawsuit for allegedly hiding a liquidity crisis?

And I keep hearing the clever argument that private credit is fine because software companies have sticky revenue, big equity cushions, and sponsors will play nice to protect their relationships.

I've been doing this for 45 years.

And every cycle produces a version of this - smart-sounding people explaining why THIS time the risks are contained.

In 2006 it was: "Housing doesn't go down nationally."

In 2000 it was: "Revenue doesn't matter, it's about eyeballs."

Today it's: "Software companies can't blow up."

Maybe. But private credit didn't blow up because of software defaults.

It's blowing up because of what it always was: an illiquid asset class sold with a liquidity promise it could never keep.

The gates aren't going up because borrowers are defaulting. The gates are going up because investors want out and there's no exit.

When Blue Owl shuts off the comments section on their own announcement, that tells you more than the announcement itself.

When you see one cockroach, there are probably more.

[Warbucks @TheRealJunto]

Dear Generalists,

70%+ of commercial SaaS code is free open source. Multi-billion $ moats have been built on top of free software for decades

If your thesis is cheaper/faster dev cycles kills SaaS, you’re 15 years late. The product isn't the code

[Just Another Pod Guy @TMTLongShort]

If you work on the sellside you should consider putting together the following report:

A) breakdown each sub-sector of services and knowledge work globally by employee count, median and aggregate salary, margins, exposure to U.S. and China

B) breakdown for each the median employees job tenure, worker satisfaction and turnover, cost to train, typical education required for entry

C) breakdown for each the % of time spent on specific tasks ranked by 1 - 5 based on complexity and time spent in a given workday

D) continuous vs discrete nature of the job, typical task duration, and how swappable employees are if someone doesn’t show up because they were sick

E) level of computer and tool use and what % of their job relies on interaction with a machine vs offline tools

F) percentage of time spent interacting with humans and breakout of interface modality. Do they talk to their customers continuously, only at the end of a project or never at all and only submit deliverables.

G) highlight where industries have been perpetually understaffed

I’ll stop there but you get the gist. And yes I bet Claude would do a great first shot.

But this should be in depth and fully researched with industry input and supplemented with LLMs.

I know this already has long existed within the labs. Time for investors to start thinking this way 🫡

[Deviant Perception @DeviantPercept]

And you may find yourself, staring at a 10-year DCF...
And you may find yourself, arguing a 2.5% terminal growth rate against a GPU cluster that never sleeps...
And you may ask yourself, "Am I the capital allocator, or am I just the training data?"

https://t.co/7fW1qCvZ6i

[Fund_GM @Fund_CDM]

One of the murkier truths of investing is that many single stock positions are entered conditional on the market regime at the time.

And that regime is constantly changing.

A high multiple growth stock behaves differently when liquidity is abundant and narrative drives flows than when scrutiny shifts back to cash flow. A cyclical with operating leverage feels attractive when the market rewards early inflection, less so when it demands confirmed numbers. Can be just a stock or market drawdown and there was an opportunistic entry point.

Yet we often defend these positions as if they are regime agnostic. We talk about the company, the model, the long term thesis. But the entry was rarely made in a vacuum. It was made in a specific market environment.

As that environment shifts, the portfolio quietly mutates. You might add a hedge. You initiate another idea to offset factor exposure. Over time, the original idea is buried under layers of adjustment.

Sometimes the better answer is not another tweak. It is to step back and re underwrite the position from scratch in today’s regime.

[Deviant Perception @DeviantPercept]

@TheLAPurchaser Masterclass in clinical liquidation of shareholder trust

[Deviant Perception @DeviantPercept]

100% agree with this take. Market very binary, black or white, no room for nuance at the moment… I think we will come to find that the incorporation of these early AI tools into investment analysis (feeding you back your themes, biases & beliefs) is a big factor driving this.

[Bucket Shop Capital @bucketshopcap]

All nuance being obliterated from the mkt means no one really cares about doing "real work". This is a harsh truth missed by ppl who over-intellectualize analysis. Increasingly more of the mkt is incentivized by a "make $ every day" mandate, which only exacerbates it...

[Kpaxs @Kpaxs]

The answers you seek are found in the actions you avoid.