What It's Like to Suddenly Become a Bond Manager in the Credit Crisis

Tracy Alloway (0:10)

Hello, and welcome to another edition of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

So Joe, you and I talk a lot about markets, but it's kind of weird, I guess, because neither of us, well, I suppose you have, you invested a little bit when you were in college, right?

Joe Weisenthal (0:28)

Way back in the day, I did a little bit of trading, and I worked for a brief period for a portfolio management company. But no, I would say that between the two of us, we do not have a lot of collective experience actually in the market.

Tracy Alloway (0:42)

Right. So have you ever wanted to have an in-depth discussion with someone who actually makes investment decisions on a daily basis?

Joe Weisenthal (0:50)

Yes.

This is all, I mean, to be honest, this is all I wanna do every day, you know? There's so many people who just talk and talk and pundits and strategists and people who tweet too much. And it's like, forget all the noise. Let's just talk to someone who actually has to put money to work. I mean, that's what people really wanna hear, right?

Tracy Alloway (1:13)

Right. And of course, it's one thing for us to kind of sit back and say markets look frothy and this is overvalued.

There's signs of irrational exuberance. But if you're someone whose job is to actually put money to work, you have to find something to invest in, right?

Joe Weisenthal (1:28)

Exactly. Or theoretically, you could sit out the market, but then you're gonna be judged on that question too.

But you definitely can't get away with just saying boring stuff like the markets are looking frothy and all of the boring stuff people say all the time. But anyway, what are you getting at? Are we gonna have such a conversation like that today? Are we gonna have a good conversation?

Tracy Alloway (1:50)

Yeah, we are actually. So today for our guest, we have one of my favorite investment managers actually. It's David Schawel. He's a portfolio manager over at New River Investment. You've had him on your show a couple times.

He's a prolific tweeter actually, but he is also someone who makes money, do things on a day-to-day basis.

Joe Weisenthal (2:13)

So unlike our conversations, we're not talking to a poker player, we're not talking to a gambler. We're actually gonna talk to someone who invests.

Tracy Alloway (2:22)

A real life credit portfolio manager. That's who we're talking to.

Joe Weisenthal (2:26)

Awesome, well, he's in studio right now.

David Schawel (2:28)

Thanks for watching. Bye-bye.

Tracy Alloway (2:38)

Hey, David.

David Schawel (2:39)

Hey, guys. Thanks for having me on.

Tracy Alloway (2:41)

Shall we start with, well, why don't we back up a bit? Why don't you tell us what exactly you do and what kind of portfolios you manage?

David Schawel (2:49)

Sure. So I started at New River about two years ago, and right now I manage an Opportunistic Income Strategy, and pretty much what that does is it focuses on fixed income or fixed income-like securities in the publicly traded space. So these are instruments such as mortgage rates, close-end funds that have underlying bonds in them, preferred stocks, business development companies.

And it's kind of a niche area of the market where few players play. It's very illiquid, and it's a little bit of the Wild West in the market versus before.

Joe Weisenthal (3:27)

I want to ask a question that backs up even farther than that, because the idea of having a job where you can take money and buy stuff and sell stuff seems pretty appealing. But how do you even get there? So how did you get to this role in life where you work for New River Investments and you have this money to invest? What's the path to get there?

David Schawel (3:51)

Sure, so that's a great question. So I started at a bank, a De Novo bank, called Square One Financial in early 2008 And I started as a credit analyst. And Square One was a commercial bank, but they catered to the venture capital community. So a company would raise $10 million of a Series A and they might raise a little bit of debt to bridge them to the next equity round. And we'd make the clients keep all their deposits at the bank and pretty much I was underwriting these clients. So it might be a formula line of credit. And so it was early 2008 and the bank at the time had an outsourced investment manager who had loaded them up to the gills in subprime bonds.