ValueWalk Interview With Gabriele Grego Who Took Down Folli Follie Ahead Of His Next Big Short On 12/3: Full Audio And TranscriptJacob Wolinsky
Ahead of his next big epic short tomorrow (stay tuned for that) we spoke to Gabriele Grego, founder of Quintessential Capital. Listeners can find the full audio embedded below. For subscribers we have the entire interview (7894 words) transcribed as well, enjoy!
Please note male 1 is Raul our podcast journalist
Male 2 is Gabriel
Shorting with Gabriele Grego, Founder of Quintessential Capital by ValueWalk Value Talks hosted by Raul Panganiban
[00:00:00] Male 1: Hello podcast listeners today is a very special episode I have Gabriele Grego he’s the managing partner at Quintessential Capital. He’s also an official member of the Forbes Financial Council. Before this he was vice president head [inaudible 00:00:16]. He was also an asset management specialist at Shell Oil Products Europe, he was also a paratrooper at the 5015 airborne demolitions brigade. He has an MBA from [inaudible 00:00:30] university and a BA in economics from [inaudible 00:00:33] university. In today’s episode we’ll be discussing shorting, what he looks for and how he identifies his potential shorts. I want to welcome all our listeners to a very special episode and I want to welcome Gabriel to the show.
[00:01:07] Female 1: Welcome to Value Talk with Raul.
[00:01:13] Male 1: So I just want to welcome all our listeners to a very special episode I have Gabriel founder and CEO of Quintessential Capital welcome to the show.
[00:01:21] Male 2: Thank you very much great to be here.
[00:01:24] Male 1: So just tell me what lead you to finance and investment?
[00:01:29] Male 2: Well it was never a clear cut choice, I’m sorry to say but it was the default option in my family like most people one way or another end up working in finance in various roles. I kind of tried at the very beginning of my career to experiment with different things for example I spent some time in the army but then one way or another life events turned in such a way that I found myself back in finance so at some point I just accepted my destiny.
[00:02:00] Male 1: How would you characterise your investment philosophy and what lead you to it?
[00:02:06] Male 2: Well on the long side I would say with a very strong bias even though value has been a little underperforming the last few years I still think the underlying principles are sound. So we run two funds a long short equity fund and a short total equities fund. So in the long short fund the long part is definitely value based more on the [inaudible 00:02:33] understanding of value rather than Graham, in other words safe growth at reasonable prices.
The idea is that we look for very solid companies and tend to pull the trigger when they are undergoing a period of uncertainty for example like Google and Facebook right now. Every great company goes through some periods of uncertainty where it doesn’t have very good growth rates and very strong safety profiles you can snap up a bargain. So wait for a situation like that to come in and we buy it and let it compound, this is on the long side. Lately we are also adding on the long side an activist angle to this so we look for some kind of an active single on the short caps.
On the short side the strategy is very straight forward basically verges on three points. Number one we only go for hidden catastrophic situations so only frauds or criminal behaviour. Number two we only act when we have the critical mass of overwhelming evidence obtained through [inaudible 00:03:47] adn number three we only act if and when who controls the catalyst so activism. We don’t short on hope we go highly concentrated on a target where we’re 100% certain we have enough evidence to take it down basically.
[00:04:03] Male 1: And what would be your time horizon for the short?
[00:04:09] Male 2: In terms of how long it wakes to research or how long we take the position for?
[00:04:13] Male 1: Both.
[00:04:15] Male 2: The research takes a long time, like this kind of in depth investigation I would say would take a minimum of two months and it can easily take even four, five, six, seven months per transaction. How long we take it depends a lot on the circumstances but our bias is to get out fairly quickly. So we strike hard, we strike with the element of surprise and clearly so far there was no need to hang around too long just because the price collapsed. We believe that there is a window of opportunity of a couple of days where after the attack it’s very hard for the stock to recover and the trade goes against you. It means for those two days you can be very aggressive with the position with relatively low risk.
After those two days the company has a whole bunch of tricks that they can pull out of a hat so that they can try and support or even reverse the stock price momentum like a buyback, like announcing a fake tender offer. There are a lot of things that they can do or simply deny and trashing us so then it gets a little bit more speculative after those 48 hours when you keep on the position especially if you think that the stock could quickly go to zero but the bias will be to get out quickly.
[00:05:35] Male 1: So when you go public with it what are the typical items that you’ve got there to make it public?
[00:05:46] Male 2: It turns out that we kind of like the last few times finding a good conference which is followed by a lot of talented investors and is hopefully followed by the media. So for example we’re going to present our next idea at the chase short selling conference so that’s a great avenue for us. Alternately we may publish something on a blog or even on our website and use maybe social media to promote it or traditional media if it’s warranted.
[00:06:22] Male 1: Because I think [inaudible 00:06:25] launches there’s like online as well and they have been successful. So how does shorting fit in your investment process?
[00:06:41] Male 2: One fund shorting is the investment process, one fund we don’t do anything to short it. The other fund it’s a very important part and I think it’s still the main social [inaudible 00:06:52] of the fund, so the fund also generates some which comes from the value strategies, application of the value strategy. If we’re good and this has appeared where value overperforms. But in a long short portfolio it generates on generating good rates of returns, it helps in finding something to do when the market tends to be at full value or overvalued. So we’re less likely to fall to the tempation of doing something silly and looking for a forced value buy which ends up in a value trap. That of course is a great way to prepare your mind to think in a contrarian way to be skeptical which then also develops a set of skills which you can apply in your long side investing too.
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