Evan L. Jones > Quotes

“Information is an advantage. Many people think they have to have unique information that no one else can get, but often it is simply that you may know what the information means while others do not. The information may also be readily accessible, but others did not bother to ask and you did. Channel checks are also driven by the specific expectations and concerns stated in the investment thesis. This all takes time and effort, but is the best path to a repeatable and sustainable outperformance.”
― Evan L Jones, Active Investing in the Age of Disruption

“It is often relatively easy to find companies that are being disrupted and will eventually disappear, but they are not always easy to short and make money. The flawed business model company may have potential acquirers, they may have new management teams excite investors for a turnaround, or they may negotiate desperate partnerships to keep the company alive. All these things can make the stock price spike from very low valuation levels and cause material losses.”
― Evan L Jones, Active Investing in the Age of Disruption

“A number of Fed governors have discussed their expected ability to “talk” the markets back into stability without having to make actual rate cuts. They have come to believe that the recent history of investors hanging on every word and parsing every phrase of their releases will always continue in the future. Today they can move markets upward with a phrase about “remaining vigilant and supportive,” as investors buy on any sign of Fed dovishness, but there is no guarantee that this will be the case in the future.”
― Evan L Jones, Active Investing in the Age of Disruption

“However, the biggest risk to mean reversion investments and contrarian investments is a paradigm shift. There is no mean reversion if the industry changes.”
― Evan L Jones, Active Investing in the Age of Disruption

“Importantly, process does not mean stagnation. An investment process should change, adapt, and evolve. If it is not evolving the investor is not learning. The process does have to be stable enough to analyze outcomes well, but when those outcomes provide new insights the process should change. Good detailed process should lead to the frequent analysis of decisions, which should provide insights into enhancing the process.”
― Evan L Jones, Active Investing in the Age of Disruption

“Disruption and paradigm shifts occurring faster than business cycles leave investing with a contrarian or mean reverting thesis open to large losses. When there is a higher probability that an industry is being disrupted, reversion to normal is less likely to happen.”
― Evan L Jones, Active Investing in the Age of Disruption

“A manager needs to think about concentration in relation to the specific universe. If you are an emerging markets manager with 5,000+ liquid companies, you can go higher than 25 companies and still gain benefits from diversification. Understanding your alpha goal and the correlations of the companies within your universe is the way to decide on the correct level of diversification. Focusing on a highly correlated sector will significantly shrink the number of companies that are optimal for diversification and alpha creation.”
― Evan L Jones, Active Investing in the Age of Disruption

“As active managers see allocators moving capital to passive investing, they have little choice but to try and stem the flow by trying to demonstrate outperformance immediately. Short-term thinking and decision-making inevitably lead to poor performance. In the market environment of 2019, short-term decision-making translates into buying high-growth stocks, because they have momentum. Popular growth stocks are bought regardless of valuation and the core tenets of cash flow analysis and contrarianism are cast aside. Ultimately this will cause negative performance for those active managers unable to abstain from following the herd and chasing a momentum-driven market to try and keep their investor base.”
― Evan L Jones, Active Investing in the Age of Disruption

“If you think the world is going to mean revert to a place where established, traditional banks and oil-related companies are going to fundamentally outperform and lead the economy then you should own value stocks. Unfortunately, these industries are under major disruption and they will not mean revert as they did historically. The underperformance of financial and energy companies is not a cyclical issue, as it would have been historically. It is a disruption, paradigm shift issue.”
― Evan L Jones, Active Investing in the Age of Disruption

“The fact is almost anyone can achieve positive absolute returns in a trending up market. Watch TV and listen to market pundits, buy the hot stocks of the day, and ignore valuation. Growth and momentum have been the lessons learned by new portfolio managers in the 2010s. Only when the tide goes out, do you discover who has been swimming naked. —Warren Buffett When the tide goes out, good investors create outperformance. Global central banks have made sure the tide has not gone out for a decade. US equity market drawdowns of more than 10% have occurred only four times in the last decade and each drawdown has lasted less than 60 days.”
― Evan L Jones, Active Investing in the Age of Disruption

“The one problem with a strong free cash flow yield security selection emphasis is that it handicaps compelling growth companies unnecessarily. A company with low free cash flow may be very compelling if the reason for the low free cash flow is a large capital expenditure budget that is being spent well on high-return projects. A company with high free cash flow is good, but a company with high cash flow from operations being spent on new high return on equity projects is better.”
― Evan L Jones, Active Investing in the Age of Disruption

“Active investing conviction is like confidence in sports. Any athlete knows playing with confidence is integral to success. Does telling an athlete to play with confidence right before a game add any value? Probably not. Confidence is built well before the game during practice. Practice creates belief in one's self. In athletics, repetition after repetition builds confidence. The same concept is true for investing: research due diligence and analysis before the stressful event is the only way to invest with conviction. So telling someone to have conviction may help less than telling someone to do his or her work before stressful events occur.”
― Evan L Jones, Active Investing in the Age of Disruption