Keith, great to finally get you here at Real Vision.
We've had so many people trying to introduce us, get us together, and I've always been
following you.
Well, I followed you for a long time on Twitter and other things and thinking, this is a guy
we need to get on Real Vision.
So finally, thank you for coming to join us.
Well, thanks.
Thanks for having me and for making it work.
Your studio is far nicer than mine.
Thank you.
So look, tell people a little bit about the background of what you do now and then more
importantly, how you came into the business and a little bit of your story.
So now I have a company called Hedgeye that's 10 years old, but I started as any other analyst
on Wall Street.
Got a job as a hedge-fund analyst.
Didn't know what I was doing.
Started to figure that out a little bit.
Worked with a guy named John as he was breaking up with a guy named Art Samberg You probably
recall Pequot Capital.
Yeah, and Art's been on Real Vision.
OK, cool.
So we were right there on Pequot Avenue-- that's why it's called Pequot in Southport,
Connecticut.
And I cut my chops as a buy-side analyst.
Then they gave me my own book, probably too early.
Back then we didn't have factor exposures or limits or--
Which year was this?
This is back in-- well, I started as an analyst back in 2000.
Graduated from college in '99.
As a Canadian, you're about 35 years old at that point.
So then that rolled into your traditional Wall Street investment-banking program.
Couldn't stand that after a year and went to the buy side, and then eventually became
a portfolio manager, had my own fund.
And you were running tech, a tech portfolio?
Consumer, global consumer with a big-- and that's how I got into global macro was I got
tired of modeling companies that couldn't tell me what the forward outlook was from
a macro perspective because that's, of course, what they would always get wrong, so I would
get it wrong, and I didn't like being wrong.
So I started to build a global macro overlay to actually analyzing companies from a bottom-up
perspective, which was easier with global companies like Nike, for example, or some
of the big ones that I started to understand better earlier.
But it all started with just being an analyst.
I started as an analyst.
And now today I guess I moonlight as a macro strategist, but most of my-- all my macro
calls are born out of that same analytical process.
We're almost 20 years later, but I've really just applied most of my fundamental learnings
as a bottom-up analyst to my top-down view.
And that's certainly not a qualitative one.
It's how I quantify it, like this whole rate of change process that we've built and whatnot.
So that process of bottoms up and top down was kind of the Tiger Management approach,
people like that.
Some people have done it really well because there's a lot of top-down information in the
granular data and the bottoms-up stuff, if you know what I mean.
A lot of people don't look at it that way.
So is that what you did?
You kind of tried to marry the two together?
Yeah.
In the beginning, again, you always start with you don't know what you're doing, and
you're trying to refine a better path of getting it more accurate, more often.
And I just fundamentally couldn't understand why people weren't applying a process, a repeatable
process from a macro perspective to signal what is the dollar impact to be-- again, to
use the example, what is the dollar impact going to be on Nike's quarter?
What is the global growth rate decelerating going to due to Nike's European business?
It was just the logical conclusion that you should get to having the rate-of-change macro
processes and overlay to bottom-up companies.
Then I started working with many more bottom-up analysts.
I let them do that.
That's a full-time job.
There's plenty of hedge funds today that believe that's all you have to do.
And it's been a great learning experience starting to see what everybody else does,
like being in the other team's dressing room, so to speak, because now I'm the sell-side
guy or whatever you want to call me, and I get to learn what they're doing and try to
help them augment their process with mine, and it's been a great voyage in that regard.
You learn so much faster when you see what other people are doing and you can back test
because my goal, of course, is to be right.
And I have no problem borrowing other people's best practices.
There's plenty of them out there.
So one of things when I found that was my epiphany moment was back in the late '90s
where I suddenly realized if you look at the chart of GDP, it goes up and down.
It's cyclical.
And when you look at every single analyst, they assume linear demand, let's call it,
so in which case they don't ever look at the macro.
It's how will the global demand situation driven by the business cycle change the performance
of Nike or the dollar or interest rates that companies borrow at or anything?
And I had the same epiphany.
It's like, really?
I mean, this was really 80% of all returns come out of macro.
Yeah, particularly at the turns.
Yeah, at the turns especially.
So I like to just think of it as one gigantic sine curve that can have the amplitude and
longevity of anything.
There's no fixed point.
But people who are modeling things bottom up don't quite like that.
They want it to be linear.
So that's the opportunity is really an understanding and having-- I like to think that if you have
an apolitical and data-driven view, you can really be data dependent.
The answer is staring you right there in the face.
And a lot of people when they do macro, they do it one of many ways.
Now obviously there are many different strategies, but the big difference I see is a lot of people
say this is what the data should look like or could look like or the outlook could or
should look like, whereas we built plenty of mathematical tools that are more modern
than anything you might have seen before in terms of macro hedge-fund managers and whatnot,
predictive tracking algorithms.
You can know day to day.
It's not a guess anymore.
You can nowcast what the market is telling you about what is right there.
So trade what's in front of you as opposed to what you might ordinarily want to see.
And I think that was a great learning.
As opposed to certainly trying to tell the macro market what to do, just listen to it.
And again-- A lot of people do try and tell it what to
do.
It's not doing the right thing.
It's like, well, either you're too late or wrong.
Yeah.
I think most of what I do is a function of all my mistakes.
I mean, I've tried-- Anybody who says you can't approach this business
without humility because I always say every time you think your shit smells of roses,
you're going to get your face rubbed in it, and it's true.
Yeah, absolutely true.
It is all about failing.
Anybody who doesn't understand that repeated failure but losing less than you make in the
upside is the whole investing game, and learning from why you're failing is the icing on the
cake.
So once you start figuring this out, what made you leave kind of traditional Wall Street
and set up your own shop?
Talk me through that whole process.
Well, first I got fired, and that's the best way to start.
OK, that's a good way to start.
So you start from a real safe place of not being able to go back and do your job.
I was at Carlisle.
So as I walk through it briefly, I had my own hedge fund probably at too early of an
age.
I effectively went to Magnetar Capital and rolled that into a big book there and started
to learn, well, what are these factor exposures?
Magnetar had this proprietary system that was very early in its day, and I give them
a lot of credit for that.
And I had no idea what it was that they were doing until I finally lived inside of that.
Carlisle asked me to come basically run long short for them.
That imploded within what was the fastest loss of capital certainly that I've ever seen.
We completely blew up Carlisle's initial hedge fund.
And it wasn't me.
Our credit team lost a significant amount of capital in a short period of time.
Was that with Ralph Reynolds and Rick Goldsmith?
Yeah, that was.
Because they were my old bosses from years ago.
Oh, they were?
Yeah, [INAUDIBLE] West.
And so I was with them for a very brief period of time.
It's kind of a classic, like you said, you think you smell like roses.
When I got hired by Carlisle I thought this is the best job possible.
You're a young partner managing whatever director title at one of the biggest private-equity
firms on earth that's going to fund their first hedge fund.
It's a no brainer.
Yeah, and then six months later I'm carrying a box with my notebooks, and my son's going
to be born the week after that, my first son.
So it was a pretty jarring experience.
The number-one reason why I started my own firm is that I had a noncompete, and so I
couldn't go back.
And the second reason is that after a couple of weeks I was like I kind of not working
for anybody but myself.
And that's when I started to think through, OK, what is it that I could do that could
actually change the world a little bit more than me just having another big P&L?
What year was this?
This was in late 2007.
And I had an explicit market view that was much different than Wall Street's, and that
was the beginning of making an early and big bear market call to start.
That's effectively what I started the firm with was a call that people would be paying
attention to.
Not for the sake of making the call-- it was the same process I'd used for the first part
of my career and what I was seeing at that point in my career.
So I saw a big opportunity in being in print or, as I like to say, time stamped with accountability
using modern technologies.
And don't forget, a lot of the things that came to be over that period of time were new.
I used to call it youtubing the street.
Tweeting obviously was shortly thereafter.
There's so many ways to communicate why things were happening a certain way while other people
were saying that's not happening.
This can't be happening.
This should not be happening, all the way down, obviously, to Warren Buffett in October
of 2008.