A Hedge Fund Manager's Honest Take on Why Most I Zeke Ashtonnvestors Fail |

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Tobias Carlisle (0:56)

We are live. This is Value After Hours. I'm Tobias Carlisle joined as always by my co-host Jake Taylor. Our special guest today is Zeke Ashton. Ashton, Total Return Fund. How are you, Zeke? Good to have you back.

Zeke Ashton (1:08)

I'm doing great. Thanks, guys. Appreciate you having me back on the program.

Tobias Carlisle (1:12)

Absolute pleasure. You were on about a year ago. For folks who may not be familiar with who you are, give us a little background.

Zeke Ashton (1:20)

Yeah. Okay.

I guess I started my investing career in the late 90s. I was actually in the risk management consulting business at the time, living in Europe, and starting my professional career on the risk management side was, I think, a very fortunate way to enter the business because what you learn is all the things that blow up, all the things that break, how all the capital markets can move together.

Some of the early lessons were very much so that in a crisis, correlations go to one, liquidity becomes incredibly valuable. Then I think, as I talked about on my first appearance is, it was always my impression in the risk management business. When you look at case studies that when really bad things happen and really bad things break, it was because somebody did something really foolish that at the time was obvious. The truth is, is that that's not really how it works. It's usually the smartest person in the organization who's had a history of success. They have basically bet heavily many times and each time has come up roses for them. Then all of a sudden, they massively overbet with incredible overconfidence.

Usually, the perfect storm comes at that moment that either wipes them out or deals them an incredibly bad setback. So that was my lesson and what I have learned since is, and I think Warren Buffett has talked about this too, is that IQ is great to have, but it's better to have a philosophy where you have some risk management controls there too. I do think that one of the things that as I transition from that business to the business of taking risk, it's one of those things where I never forgot that half my job is being a risk manager, and the other half is being a risk taker. And I think one of the things that some of the great capital allocators that have stood this test of time is they know when to pull back on risk. They know when other people in the markets are taking too much risk and that there will be an opportunity soon when that creates a vacuum as it inevitably does. So anyway, I joined the Motley Fool in January of 2000, which was a wonderful perch with which to watch the end of the.com bubble. And obviously that started to break in March of 2000 I was running a little private partnership then while I was writing for the Motley Fool. And it was just a very interesting thing. And when you watch a market that felt very much like this one in the sense that the great companies at the time were Yahoo and America Online and Cisco, and it just felt like those companies had growth as far as the eye could see.

And then, you know, we all watched the NASDAQ decline by 80% over an 18-month period. And, you know, it's very hard to tell somebody who did not live through that period how that feels, how it feels to have, you know, that kind of thing happen. And I guess some people got a taste of it in the in late 2022, but it wasn't nearly as long, obviously, and wasn't nearly as devastating. So in any case, in 2002, I left the Motley Fool and moved to Texas, which is more or less where I'm from. And I started a long short partnership called Centaur Capital. And that was a hedge fund that I managed for 17 years. I also managed a mutual fund starting in 2005 That was, I think, the first equity income value-oriented strategy that used covered calls. And so we were looking for alternative ways to generate income. And so covered calls was a part of that strategy. That fund did very well for a long time as well. And I think in all of those, sort of my finest moments, both in the hedge fund and in the mutual fund, was in 2008 and 2009, when we managed to protect capital very well in 2008 And then we made it all back in 2009 by about September, October for both of those funds, where many people who invest in the S&P 500, for example, didn't get back to even sustainably for about, I believe, five years. So, it was just one of those things where that was the moment where understanding risk, having risk management and in the hedge fund, being able to short was one of the few times in my career that I was really glad to be short. Shorting is a very tough business as I'm sure you're aware. It tends to have negative expected value over a long period of time, but what it can do is provide a tremendous amount of capital available to you right when capital is at its most valuable, and that is when everybody else has to sell and nobody can buy.