Differentiation
How differentiated are you guys on your ideas? Sometimes I look at our book and it feels like we have a bunch of consensus-like bets…we have some alt-data or have done xxx expert calls to create our “variant” perception, but have gotten pretty disillusioned with the value add of my fund. For other L/S guys, do you find you’re often doing differentiated / unique work? Maybe for the pod guys - where are you finding differentiation / edge?
I think I started a thread on this a while back (kind of surprised at how much more I know now vs. then).
Not at a L/S, but my thoughts are that for large-cap universe/well known stocks, you have a lot less opportunity to generate super differentiated work, and the bear/base/bull cases are pretty well understood by the majority of the street at a high level. The opportunity comes from being able to zero in on what truly matters, weigh the different cases appropriately, and build enough support to one side or the other (on top of knowing when to ride the cycle/sentiment on a name). Often times its just about when does the market inflect upwards/downwards to the bull/bear case for stretches of time based on underlying trends + extrapolation. So is your bull/bear case significantly differentiated from the consensus bull/bear? Maybe not, but you probably weighed it differently thanks to your evidence.
Every single analyst knows GOOG from a stock pitch perspective, and most people understand the pros/cons of AI and what might happen to search. Differentiated work might mean knowing what the most important threat and opportunity is. So for GOOG , its not only going to come down to nailing the factor/market cycle, and then ad market trends and sentiment/competitive changes from these data points getting extrapolated out (what usually might drive it), but building up a deep understanding of GOOG's opportunity/threat when it comes to AI. In the end, your view might align with a majority cluster on the bull/bear tails, but you generated higher levels of confidence somewhere along this distribution.
There's a classic Japanese novel called Musashi where the samurai Miyamoto Musashi defeats 30 men all by himself. His strategy is to stay mobile and attack the group obliquely rather than head-on. He uses the terrain around him to find the places the group is least likely to expect him to attack from.
I think you have to do the same if you want a true edge in large cap investing. In small cap you're probably good just looking under every stone and making reasonable decisions because the stocks are undercovered. But for large cap you gotta do weird things that few others would think to do.
Talk to experts no one else talks to, focus on segments others are ignoring, go to industry events other investors don't have time for, build your model differently than the sell-side template everyone is using.
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