Taking Advantage of the Algos (w/Harris Kupperman & Jeff Zananiri)

TL;DR

Value investor Harris Kupperman discusses his investment strategy, which involves finding undervalued stocks and taking advantage of market disruptions caused by passive investing, ETFs, and algorithms.

Transcript

Harris Kupperman: This is a tougher game than I thought it was. Oh, you got me again? Jeff Zananiri: Harris, thanks for joining us in this lovely setting. You're probably wondering what this slightly guillotine-looking contraption is in front of us and between us. HK: I sort of am. JZ: It's actually a Connect Four board game. So the show's called "... Read More

Key Insights

• 💢 Value investing has become more challenging in the era of passive investing and algorithmic trading, as computers often drive market movements and create price distortions.
• 😮 Rising interest rates are predicted to have a significant impact on the market, leading to a repricing of assets and potentially causing disruptions and opportunities for value investors.
• 🖤 The market may experience mini flash crashes and increased volatility due to algorithm-driven selling and a lack of natural buyers.
• 🥺 Kupperman's strategy involves finding undervalued stocks and sectors that have been overlooked or misunderstood by other investors, leading to potential opportunities for significant gains.

Questions & Answers

Q: How does Kupperman's value investing approach differ from Warren Buffett's classic value approach?

Kupperman takes a more nimble and short-term approach compared to Buffett's long-term perspective. Kupperman focuses on finding oversold opportunities during specific market conditions, such as earnings misses or sector underperformance.

Q: How has passive investing and algorithmic trading impacted value investing?

Computers and algorithms have taken over the market, resulting in a lack of discretion and unique strategies. When all computers want to sell, there is no natural buyer, leading to market disruptions and irrational price movements.

Q: How does Kupperman view the impact of interest rates on the current market?

Kupperman sees rising interest rates as a significant trend that will fundamentally change the market. He anticipates a repricing of assets, leading to lower equity valuations and increased focus on debt paydown. Kupperman believes this will create both opportunities and blow-ups in the market.

Q: What type of investment opportunities does Kupperman look for in the current market?

Kupperman is interested in companies that have experienced significant declines or missed earnings. He looks for undervalued stocks and sectors that are ignored or disliked by other investors. Kupperman also seeks out opportunities in companies emerging from bankruptcy and undergoing reorganization.

Summary & Key Takeaways

• Kupperman describes his investment approach as nimble and focused on finding oversold opportunities. He aims to capture a significant portion of a stock's rebound over a short to medium-term period.

• He believes that value investing has been overshadowed by passive investing and algorithm-driven trading, which create market disruptions and result in irrational price movements.

• Kupperman explains that he looks for investment opportunities in sectors and companies that have been overlooked or undervalued by computers and other investors. He cites bankruptcies and missed earnings as potential areas of opportunity.

• He highlights the importance of interest rates in the current market environment and predicts a significant repricing of assets as rates continue to rise. He expects this to lead to a wave of debt paydown, buybacks, and restructuring opportunities.