Trading From The Short Side with Danny Moses, Vincent Daniel & Porter Collins

SPEAKER_1 (0:00)

In today's hyperfast markets, it's never been more important to consider every option to raise capital, drive growth, and create value. Stay one step ahead with Strategic Alternatives, a podcast from RBC Capital Markets. This season, RBC's experts examine how corporates and investors are adapting their strategies, reassessing their portfolios, and reallocating capital to navigate uncertainty and volatility in the current macro environment. Tune in to Strategic Alternatives, the RBC Capital Markets podcast today.

iConnections is the largest membership-only platform for the alternative investment industry, bringing together thousands of fund managers and allocators in one powerful hub. iConnections reimagines how the industry connects through its digital offerings and premiere in-person events empowering allocators and managers to meet, build relationships, and do business anytime, anywhere. To explore more about iConnections, its events, and gain access to the members-only platform, visit iconnections.io.

Dan Nathan (0:55)

This is Daniel Porter Collins, Danny Moses, founder of the Sea Wolf Capital. These guys all worked together for years with Steve Iseman, The Big Short. You read it, you watched it. Now, they're here. The panel is meant to be about short selling, and we're going to go deep into that and how they use that strategy on single-name basis, on thematic basis, and then for hedging. We want to encourage all of you guys, we have 45 minutes, ask questions, and we're going to save the last 15 minutes.

Again, this is not just about short selling.

But let's get into it. You guys know for short selling because of the Big Short? Is that where? Vinnie, give it to me. Why do you think people associate you guys in the media and all that sort of stuff as the short selling?

Vincent Daniel (1:43)

I think you answered your question. In general, if you're known for the guys that were in the Big Short, I mean, you're known for shorting things, which we do, but we do a heck of a lot more than that. But nevertheless, we do have quite the experience shorting stocks.

Danny Moses (1:59)

We were shorting before shorting was cool.

Vincent Daniel (2:01)

What?

Danny Moses (2:01)

We were shorting way before that.

Vincent Daniel (2:03)

Yes.

Dan Nathan (2:03)

Was it ever cool, Porter?

SPEAKER_5 (2:04)

Was shorting stocks cool?

Porter Collins (2:07)

I mean, yes, the portrayal in the movie was cool, but it was the most stressful thing I've ever encountered in my entire life living through all that. For those people who've read the book, Danny did have a panic attack.

Vincent Daniel (2:22)

Starting with that?

Porter Collins (2:23)

Yes.

Danny Moses (2:23)

That's what you're starting with?

Vincent Daniel (2:24)

Yes.

Danny Moses (2:25)

That was the day the short ban. You know how much shorting means to me when they banned it, I lost my mind and had to go to the steps of St. Patrick's.

Dan Nathan (2:31)

All right. Let's start here. I think it's really important because as an investor, a lot of folks are not comfortable taking the other side of a story. Market generally goes up over their time. I think you guys have a lot of data. A lot of stocks go to zero over time, right?

A lot of themes that are driving market performance fizzle out, right? So let's just start here. As investors, what were some of the things that made you feel confident enough to take the other side of the thing that a lot of investors are predominantly doing? They're buying stocks, they're buying the market, that sort of thing. You guys just get into it. How did you guys decide that short selling was going to be a part of your investment strategy?

Vincent Daniel (3:11)

Well, first off, a lot of things that you have to understand. Most hedge funds, in this day and age, they're called hedge funds for a reason. They have a long portfolio and they have a short portfolio.

So they are forced to short stocks.

The reason why they do that is because they are just not riding the market. They have to create a portfolio and present it to investors on a hedge basis. They call it low net, meaning your net positioning is low. And one of the reasons why they do it, for whatever reason, is that if you're a hedge fund, you get to charge premium fees to your investor base relative to what a long-only or an ETF does. So you are incentivized to short stocks, even though it might not be a profitable venture for whatever. And it has shown that shorting is really, really difficult. We do it significantly less than we used to. We still do it, but we do it significantly less than we used to. But a sizable portion of the institutional fund market does it for economic reasons, because they get to charge premium fees. So that's, to answer a cynical way of why people short stocks, that's a reasonable way.