Tue, 18/04/2017 - 12:33
Jacob Ma-Weaver(pictured) is founder and manager at Cable Car Capital LLC, a fledgling long/short investment adviser based in San Francisco.
Founded three years ago, he has achieved annualised performance of 19.9 per cent based on very eclectic research which underpins his philosophy of concentrated, hedged value investing.
In the investment world, he is best known for some bold shorting techniques, particularly in the UK with his published research on Plus500, an online trading firm.
Ma-Weaver’s long portfolio is invested long term in some five to 10 securities investing over a three to five-year time horizon in a variety of situations. “The root of the approach is broadly defined by buying securities for less than they are worth and selling them for more,” Ma-Weaver says, drily.
There is no one thematic approach in the portfolio. “A lot of investors focus on one style of value investing with portfolios consisting of securities trading below liquidation values or those managed by owner-operators with long term horizons or businesses that have attractive internal rates of return on capital,” he says.
“Philosophically I am open to any of those situations and try to have some of each at any time when the price is right. I look at the downside and assess what might go wrong and what might mitigate that risk, such as net cash on the balance sheet or recurring cash flows.”
Ma-Weaver finds the opportunity set is currently richer in shorting listed companies.
“Short-selling is more fruitful at the moment,” he says, “and the short side is somewhat different in that, particularly in the current market environment, there is more focus on actively seeking out fraud and malfeasance.”
His research for such shorting opportunities is fundamental.
“Oftentimes a company is trying to raise money and in the process the goal is to raise money from unsuspecting investors and misappropriate assets. These companies are very promotional in the way they talk about their business and the way they seek investors – they come to you.”
Another source of shorting opportunities is through the reappearance of ‘bad actors’.
“The same bad actors who have been associated with wrongdoing in the past will reappear in the future,” he says.
The biggest thing short sellers have to be careful about is position sizing, Ma-Weaver says. The shorting side of his portfolio is proportionally much smaller, particularly if it’s an outright fraud.
“The idea of any form of investing is to be right more often than when you are wrong or have a larger position when you are right than when you are wrong, or some combination of the two,” he says.
He has been public about a couple of his shorting positions in the past but has become more selective about talking about his positions. “That’s partly due to recognition of the fact that once you publicise in a more speculative environment there is a greater likelihood it will become more difficult to borrow the shares. It’s not always in your best interests” he says.
His shorting portfolio is a mix of situations where there may have been some wrongdoing but also companies where no ill will is intended by the short position and the situation just reflects the fact that market expectations may be overoptimistic.
Ma-Weaver is agnostic on the overall direction of stock markets but valuations in the US context are certainly higher than they have been at many points in the past, he says. “It’s been a relatively long period of time since we had a downturn in the economy, so you have to ask yourself over a long horizon of five to 10 years whether the returns from current valuations will be attractive?”
His current research is focused on the movement to legalise cannabis in the US. “I am looking at several heavily promoted cannabis-related companies. Some are real businesses seeking to capitalise on the markets but others are simply public shell companies with no real operations.