Recently I have been watching videos on Youtube of guest lecturers in Mr. Robert Shiller’s class at Yale. I have recently watched Mr. Andrew Redleaf. What a great source of information these videos are. I encourage you to go into Youtube and search for Yale’s videos.
Mr. Redleaf runs a hedge fund. His lecture centered mostly on efficient markets, the two types of investors that exist, and how he runs his shop. Mr. Redleaf does not believe in the efficiency of markets and describes examples where mispricing and inefficiencies seem to appear; for example, when closed-end funds trade at a discount or premium to the assets they hold, or if a company owns shares in a different company but the value of those shares is not reflected in the stock. One example he gave was when 3Com owned Palm shares.
Mr. Redleaf’s lecture was interesting, but not riveting. What I did like about it and some of the points that interested me were the following:
There are generally two kinds of investors: coupon clippers and security resellers. A coupon clipper is someone who generally analyzes investments from a cash flow perspective. Similar to how bond holders would redeem their coupons and receive the cash flow or interest from their bond holdings. He mentions that Mr. Buffett is a coupon clipper and how Mr. Buffett tends to look for the coupon in equities. Security resellers, on the other hand, are those who buy something and look to resell it at a higher price.
Mr. Redleaf also described the three main concepts his firm uses. The first is that they are coupon clippers. What kind of coupons can we extract is a general philosophy of his. The second is analyzing risk. What’s the worst thing that can go wrong? (By the way he thinks VAR analysis is fundamentally wrong). And lastly, how do we eliminate the risks that we have? He provides an example of these concepts of how his firm may own a high-yield bond and short the stock of the company as a hedge.
I thought the best point made in his lecture was that he likes to think that firms or people get paid to eliminate risk, not for taking it. Overall, I learned something and thought it was interesting. If you have the time, watch it, if not, I think I just outlined his main points.