Author Archives: Devesh Shah

About Devesh Shah

Hi, I’m Devesh Shah and I’m pleased to meet you. As a professional, I was a co-inventor of the CBOE VIX Volatility Index, an equities and derivatives trader, and Partner at Goldman Sachs. My passions now mostly involve writing, teaching about investments, practicing yoga, playing the piano, and volunteering with a non-profit, Sponsors for Educational Opportunities (SEO), that opens up career and college pathways for underprivileged students of color. I am an alum of SEO. My hope for the months ahead is that I might share a few things I have learnt about investing.

Asset Allocation & International Equities, Part I: What is the right percentage allocation?

By Devesh Shah

Introduction: “Can you improve the returns of this endowment portfolio?”

In late 2022, I became a trustee of a private school endowment and was asked to join the investment committee. The committee consisted of a dedicated group of trustees with prudent investment sense. Although there were no permanent employees to manage the investment, a number of decisions had made the job manageable. The endowment worked with a sharp financial fiduciary who advised and then carried out the committee’s decisions.

Broadly speaking, the endowment had followed David Swensen’s Yale public model. Market timing and stock picking were completely avoided. Asset Allocation, Continue reading →

Options Based Funds – a deeper dive

By Devesh Shah

Introduction:

In the March 2024 MFO, I introduced the two main developments in Options in recent years.

Zero-Day Options and Options-Based Funds. We learnt about the history of options, the market players involved and benefitting from Options, and started getting deeper into the Funds.

In April MFO, through the 2nd and 3rd articles in the series, I hope to Continue reading →

The Options Conundrum: Fund Comparisons, Performance, and Risk

By Devesh Shah

Having looked at the qualitative rationale for why options-based funds are offered by fund managers and sought by some investors, it behooves us to quantitatively analyze options funds’ performance. There is no ONE BENCHMARK that can be used to compare ALL the options funds. That may be a good thing. It’s made me think of what a good way to create a customized benchmark for each fund might look like. The benefit of keeping things focused on the small picture is we can look at one fund at a time, in detail, without drawing too Continue reading →

Devesh, “My friends think I’m (a little) crazy” 2023 portfolio review

By Devesh Shah

In this article, I would like to talk about how I am allocating my portfolio. I want to note that every single fund I have positively highlighted in my MFO articles is also one of my portfolio holdings. My money is where my mouth is, and you, the reader, get the good with the bad. Take what’s useful to you and throw away the rest.

Market background in Q4 2023

For 18 months, from Feb 2022 and Oct 2023, it was Continue reading →

Insane markets, anxious investors, sane asset allocation

By Devesh Shah

A winter walk around the Central Park Reservoir

My friend “W” and I have gotten into a good habit of taking an hour-long walk around the Central Park Reservoir every few months. An hour’s walk is a perfect amount of time when two people speak the same language, are willing to not pretend or live in a fantasy world, are willing to engage in a two-way honest communication, and then want to return to their lives.

W is one of the Continue reading →

In Conversation with Michael Cirami

By Devesh Shah

Missed Opportunity in Brazilian Interest Rates sowed the seeds of finding the right fund

Earlier this year, one of my friends, a doyenne of Currencies and Interest Rate trading, told me there was money to be made in Brazilian Real Local Government Bonds and interest rate products. In 2022, the Brazilian interest rate rose from 9.25% to a cycle high of 13.75%. Inflation was soaring there as in the rest of the world. A lot of traders lost money calling the highs in the rate high cycle and threw in the towel. Losses multiplied. But by the turn of the year, things were looking different. Inflation was coming down, the Central Bank had stopped raising rates in Sao Paulo and had Continue reading →

Hot Coffee and Hot Chocolate – A Brunch and Walk with David Sherman

By Devesh Shah

The leaves are turning crimson and gold in Central Park. On the Upper West Side, surrounding the American Museum of Natural History, are oak trees. They line the pedestrian walkway and are swinging to the rhythm of a light chill wind, marking the beginning of fall in New York. Acorns and dry leaves crunch under our feet. There is a farmer’s market which starts on 81st and Columbus Avenue, continues down to 77th Street, and then wraps around the museum to Central Park West. Varied hot dogs, kababs, and coffee carts line the path where the farmer’s market ends. It’s not your standard Broadway street fair with trinkets; it’s a proper market where locals get their meat and vegetable shopping done for the week. The first stand on Columbus is Continue reading →

’Another such victory and I am undone’: The high cost of Pyrrhic victory

By Devesh Shah

Investors and commentators have long bemoaned the catastrophic effects of a zero-interest-rate environment: a disincentive to save, distorted capital allocations, excessive risk-taking, and inflated equity prices. In winning the fight against inflation, the Federal Reserve has given investors the victory they sought: interest rates high enough to encourage saving and penalize speculation. Our question, suggested by King Pyrruhs’ catastrophic victories in 279 BCE, is: can investors survive their victory? Continue reading →

In Conversation with Rakesh Bordia, Portfolio Manager of the Pzena Emerging Markets Value Fund (PZIEX/PZVEX)

By Devesh Shah

Rakesh Bordia co-manages Pzena Emerging Markets Value Fund (“the fund”) with tenured co-managers Caroline Cai, Allison Fisch, and (recently added) Akhil Subramanian. The strategy has approximately $1.35 billion under management and has been around just since 2014. Investing in emerging markets has been no cakewalk for this window. The passive Vanguard FTSE Emerging Markets ETF (VWO), over the past 15 years, has earned just south of 3% annualized.

Pzena EM Value Fund has earned just north of 4% a year since its inception. The interesting Continue reading →

In Conversation with Scott Barbee, Portfolio Manager at Aegis Value Fund (AVALX)

By Devesh Shah

“Small value” is one of the market’s most inefficiently priced corners, and it has long been the home of famously successful and iconoclastic investors, from Joel Tillinghast with his love of low-priced stocks to Chuck Royce, who obsessed with tiny blue chip companies. So here’s an easy question:

Over the past quarter century, what has been the most successful small value fund you could have bought?

Continue reading →

In conversation with Andrew Foster @ Seafarer Funds (SIGIX & SIVLX) : On Emerging Markets

By Devesh Shah

Introduction: Trouble in the Emerging Market Equities asset class

Emerging Market Equities (EM Eq), as tracked by the iShares MSCI Emerging Market ETF, are up almost 10% this year. That would generally be welcome news for the ignored asset class. But the news is not good enough. I have the distinct sense that investors of multiple stripes are “giving up” on EM Eq. There isn’t a wholesale liquidation as much as the flow of money in EM has slowed down. The long-held conviction that EM Eq is an asset class where one has to be involved has now Continue reading →

Catching Up with Amit Wadhwaney @ The Moerus Worldwide Value Fund

By Devesh Shah

Our profile of Moerus Worldwide Value ended with the note, “Moerus offers a rare and intriguing opportunity to invest alongside (in another of legendary value investor Marty. Whitman’s phrases) a distinguished ‘aggressive conservative investor.’” In the years since that profile first appeared, Moerus has posted top tier returns for the past one-, three- and five-year periods. After rising 6.4% last year (2022), the fund is up another 20.6% through July 30, 2023 which about doubles the returns Continue reading →

Modest protection from runaway inflation

By Devesh Shah

Introduction

Warren Buffet has a long history of sharing sharp, colorful reflections on inflation and its role in controlling your profits.

Before we drown in a sea of self-congratulation, a further – and crucial – observation must be made. A few years ago, a business whose per-share net worth compounded at 20% annually would have guaranteed its owners a highly successful real investment return. Now such an outcome seems less certain. For the inflation rate, coupled with individual tax rates, will be the ultimate determinant as to whether our internal operating performance produces successful investment results – i.e., a reasonable gain in purchasing power from funds committed – for you as shareholders.

That combination – the inflation rate plus Continue reading →

A Dinner and Walk with David Sherman, fund manager of Crossing Bridge Funds.

By Devesh Shah

Last week I had the opportunity to sit down for dinner with one of our own, the legendary David Sherman. He is no stranger to regular readers of MFO. His funds, public and private funds through Cohanzick and CrossingBridge and the RiverPark Short Term High Yield Fund, for which he’s the sub-adviser, are uniformly first rate. He’s articulated four investing principles that are embodied in each of his portfolios: Continue reading →

Flows in Money Market, Inflation Linked Funds, and Series I-Bonds: Let the data talk.

By Devesh Shah

Inflation continues to be a hot-button topic. We (and many others) have written about TIPS, TIPS funds, and Series I Bonds. This article is not about adding or altering recommendations. Instead, we let the data do the talking. Instead of prescribing an investment thesis, I want to see how market participants are behaving by watching their actions. Some light commentary will try to connect the images and tables into a narrative. You could be forgiven if you detect an underlying theme that sounds like Continue reading →

Short Term Performance of Long-term Recommendations

By Devesh Shah

The eternal flaw of investment gurus, both on the web and elsewhere, is that they’re never held accountable for their bravado and bold recommendations. It is in the nature of the beast that one right guess lives on forever while an infinite number of horrendous recommendations vanish from the public mind. I think of Elaine Garzarelli, who made her fame from one right call – an impending market crash a week before the actual “Black Monday” crash in 1987 which saw the Dow drop 22% (7300 points in today’s terms) in a day – but somehow dodges rebuke for her Continue reading →

Artisan Developing World Fund interview

By Devesh Shah

An interview with Lewis Kaufman, founding portfolio manager of the Artisan Developing World Fund

My primary investment biases are two-fold. First, in general, I invest in public markets through low-cost, low-turnover passive vehicles. Second, in general, I invest in US equities. Both of those biases were arrived at through a combination of (painful) experience and careful research. That said, none of us benefit from being held hostage by our beliefs. In many ways, humility and self-doubt, curiosity, and the determination to keep learning are the hallmarks of our wisest citizens. And I aspire to learn from them. In consequence, I’ve spent a huge amount of time over the past six months talking with a cadre of the industry’s best emerging markets managers.

Home Bias

Investors worldwide have a powerful bias Continue reading →

Interview with Amit Wadhwaney: Co-Founder and Portfolio Manager, Moerus Capital Management

By Devesh Shah

Recently, I had a long chat with Amit Wadhwaney, the founder of Moerus Capital Management and the adviser to Moerus Worldwide Value Fund. He is a very thoughtful and seasoned investor. Here are some of his thoughts on his fund and his stock-picking style. I’ve presented a summary of my notes rather than an actual Q&A, but the flavor of their investing style will hopefully come through. Continue reading →

Just short of two cheers for active, international investing

By Devesh Shah

Readers know that I long ago concluded that active management rarely adds value to an investor’s portfolio. There are too many managers fighting over the same stocks. Very few of them have a meaningful Edge over the others. Most of those who add some value rarely add enough to overcome the drag imposed by their expenses and higher tax burden. Some few add serious value, but they are almost impossible to reliably identify in advance.

That said, I am about to commit two heresies in one column: I will suggest that you consider Continue reading →