00:44:10 · Deiya Pernas
It's like, okay. What are all the ways that things can go very, very wrong in portfolio management? Well, you know, concentrated positions, especially in illiquid type securities. There's shorting where, you know... Well, there's shorting and, you know, leverage where if the position that you're putting money in moves against you, it could become a bigger, bigger problem in the portfolio. There's average down, which can also be an area of what they call convex risk, where if the position moving gets you, it starts become a bigger and bigger problem because you're averaging down very aggressively. So there are all these areas of pitfalls that you have to be very, very, very careful in portfolio management. You And know, coming from the poker world, you just know that, hey. I'm just never gonna take that risk. I'm not gonna put myself in that situation. And it... It's it's a way to ensure kind of your survival, essentially, no matter what happens and stuff. We can have another 2008 and our portfolio is gonna be fine. Yeah. Sure. We're gonna take a hit, but then we're not... We're certainly not gonna blow up, you know, just because we understand kind of these certain rules and it's very it's very visceral, our application in this course.
00:45:20 · Mikk
[00:45:20] S0: Now when it comes to portfolio management and and in poker, the bankroll management, I mean, if you have this heater, you're you're you're playing well, a lot of tailwinds, hands are going as as expected and and better. You're winning those flips, which you should you should maybe lose statistically. When should you double down or or or what's the conversation maybe with... Between you two, like, okay, a stock is... You knew that... You know that it's... It keeps going up. You've made right decisions. So do you add... To buy more or what's what's the thought process there?
00:46:02 · Deiya Pernas
[00:46:02] S1: So when it comes to averaging down where stock is moving, you know, the opposite way that you thought it might move and you're considering adding, there's two things that kinda come together. And one of them is just kinda just discipline. Like, you have to you have to understand that, look. How much do I add to a position that's going down? You can either add... You you can do whatever you want. Like, let's say, a position goes down 50%. You can put the whole portfolio in it if you want, but it's not if if you're if you're trying to stay alive for the long term, it's not a a good decision because you could end up being wrong and obviously end up lighting all your capital on fire. So how we think about it is we have certain guidelines that we just... We follow. It's modeled after the time and scene... Zeno's paradox where, you know, you have an infinite... Because there's... In theory, you can add add... Average down an infinite amount of times as the stock keeps going down. And then what we do is we usually follow a guideline of, like, Zeno's paradox thing where it's like an infinite series adds up to a finite sum, like, a dollar plus a fourth... Oh, I'm so sorry. One plus a half plus a fourth plus an eight plus a 16 plus a thirty second. If you keep mapping out to infinite series, but if you add all those numbers together, it's a it's a finite sum, which is two. All that being said is that we create a guideline for ourselves that no matter how much we're averaging down, the total amount of the averaging down is our risk is defined. We can only lose a certain amount of money because we follow this kind of Zeno's paradox guideline. So for us, it's just that we average down and each time we average down, we average down a small amount essentially. Kind of how we protect ourselves. Again, this just guideline. We can definitely stray from it if we need to, but we we need to have a very exceptional situation in order to do so. There's a p l... If have a butter bash down, just kinda knowing yourself. I I think a lot of people get fooled by... There's a lot of thesis creep, and maybe some new information comes out, kinda stuff go down. Maybe you didn't think was was in the cards, but it ended up coming to fruition. And then you're like, oh, well, that's not a big deal for x one z reason. So you really have to understand yourself well.
00:48:19 · Deiya Pernas, Dean Pernas, Mikk
Understand when you're fooling yourself or you're lying to yourself. There's definitely a a reflective component of it, which is very important when it comes to after tax. They want to, you know, get proven right eventually, and and sometimes it's just not true. Again, they be willing to take it out and move on. [00:48:37] S2: Yeah. And to add to that, also, the initial position sizing is a very large one as well, because it's really matching the conviction you have in the company, the downside risks you think are present, with the sizing you have in your portfolio, and it works in both directions. So number one, you can let it run longer in the account without having it be an oversized position. And number two, you can you can add to it. And if you're wrong at the end of the day, you you take a smaller loss. So, really, that initial position sizing is instrumental as well. [00:49:08] S0: Now I wrote down something that founders are constantly told to told to persevere, and investors are constantly told not to fall in love with their thesis. So where is the line? How do you know when when the persistence becomes averaging down on on a bad idea?
00:49:08 · Mikk, Dean Pernas
[00:49:08] S0: Now I wrote down something that founders are constantly told to told to persevere, and investors are constantly told not to fall in love with their thesis. So where is the line? How do you know when when the persistence becomes averaging down on on a bad idea? [00:49:26] S2: It's kind of a meta meta game. You have to be aware of your own biases. You have to be aware if if you are wrong about the company. Investors have a tough time saying I'm wrong, and, you have to definitely be aware of that. And, yeah, it's more of a psychological game at that point. But if the risks came up that you you you foresaw and they they they rear the head, then you sell. And if if the company has changed strategy or some other think... Some some other exogenous event occurred, then you then you then you get rid of the name as well. Yeah. It's it's it's a combination of psychological along with fundamentals in the company. [00:50:01] S0: Okay. Now, guys, you mentioned in the beginning you're about to raise a fund soon. Feel free to share more. Folks listening would like would like to know more, and I think that's that's [00:50:17] S2: the [00:50:17] S0: least least I can do to to promote a bit. Because I was the one reaching out to you because I really wanted to learn how you how you analyze businesses, how you think, and, yeah, feel free to share more of what's what's next for you.
00:50:17 · Mikk, Deiya Pernas
[00:50:17] S0: least least I can do to to promote a bit. Because I was the one reaching out to you because I really wanted to learn how you how you analyze businesses, how you think, and, yeah, feel free to share more of what's what's next for you. [00:50:30] S1: Yeah. Thank you. So our whole the whole concept you can find is the structure is aligned so that we earn a fee when we outperform the S and P 500 and the accounts at a high watermark. It's not built around asset gathering, which is why we don't charge enough management fee. It's purely around how it should work. The reason people invest in a hedge fund is either they're trying to outperform an index or some sort of maybe specific hurdle. And you should only get paid essentially if you perform in the way that the investor hopes. So the whole thing is that we make money if we have front end SP. We think we're pretty good at what we do. And we're raising capital to that effect. And this is something that was driven by our reader base, which is like, hey, we got some best capital. Maybe I don't have the time to make some of these trades or invest in some of these positions, but I would like to invest. So it was always in the cards for us to eventually do it. It just raised some money's hard, starting fund is hard. So it took us a bit of time. But yeah, happy with launch, and launch will be effective around October 1. [00:51:42] S0: Mhmm. Now... And folks who would like to find more information, read read more about what you do, where should they write, how they can reach out to you?