Cliff Sosin
speaker
323 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Cliff Sosin’s voice in public audio — every appearance, attributed to the second.
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Appearances
If you'd gone all the way back to when I was in high school, I thought I would have been an inventor. I sort of modeled myself as an Edison in my mind or something. But when I went to school and I studied engineering, a lot of inventing is kind of obsessively debugging real things. And nature is pretty unforgiving. And so what I learned about myself was that I didn't love that process.
It just wasn't as fun for me. Um, and so I was sort of casting him up for what I wanted to do. And I ended up doing an internship at a big private equity firm. And, and I just thought it was really neat that I could use. And I discovered I could use a lot of these things I'd been learning in school, like game theory, apply them to these situations.
And that, that brought novel insights that these people who've done this for so long weren't using. And I was hooked, like the idea of like, you know, being able to do that. From there, I was trying to kind of get into investing. I thought I was going to do private equity.
I knew the path into private equity was through a banking analyst program, but I didn't want to do a traditional sell-side analyst program. So I ended up going into financial restructuring because I didn't want to do as much marketing. So I worked at a place called Houlihan Loki, which is a leader in financial restructuring, and I did that for a time. I still wanted to get to the buy side.
So I went to a place called Silverpoint for a year. And then from there, I went to UBS, where I spent five years before I started my business. And while I was there, that was really where I think I did a lot of my maturing. And I thought a lot about, I'd come from a lending and finance background. And at UBS, I was involved in trading, investing in stocks, trading in stocks.
UBS at the time, it was their proprietary investing business. It was the bank's own capital. Think of it as a hedge fund with 1LP. And it did a lot of the traditional things that I think a lot of hedge funds do. There was a lot of focus on short-term performance.
There was a desire to have, yes, we want things to be misvalued, but we want to have a bunch of catalysts that are going to cause the price to go up. There was a lot of trading around events. There was a lot of hedging. And Um, as I was involved in that, there was sort of an effort to teach me how to do it. And it, I, I didn't like it.
I sort of discovered that, you know, they would sort of say, well, we should, we should do this and do this. And I'd sort of say, well, why? And that doesn't make sense. And, you know, I don't know why this stock has a three beta. Why do I have to, why do I need to short $3 of S and P for every dollar, you know, of stocks we're going to buy here? That doesn't make any sense.
And this led to like a really vigorous debate. between me and some of my former colleagues there. And to their credit, I mean, I was young and incredibly difficult to have as someone working for you. And I just hounded them about it. And eventually this debate went on and on and it became pretty clear to me that I was right.
And I was naive enough to think I would just explain to them that I was right and they would just do it differently. Further occurred to me that they couldn't change. And they couldn't change because they had a principal agent problem. The problem was that they had to deliver steady profits to the bank. And if they had big drawdowns, that they would lose their money.
And so, you know, I started poking around quietly looking for another place to work. And I realized that so did all the other firms. in the industry had the same problem. In fact, it's endemic. Basically, one might naively think that the investing business is about maximizing performance, but it's not. It's about maximizing marketability.
And performance is a component of marketability, but really what you're trying to do is signal talent. And the way you do that is by finding things with short feedback loops, with low amounts of noise, so that you can sort of show people, look, we did this and it worked, and we did this and it worked, and we did this and it didn't work, but on average, we win.
And the type of investing I was thinking about, basically buying a piece of a company through the stock market and owning it for a long time, these are multi-year, 3-, 5-, 10-year feedback loops that are incredibly noisy, and they just don't lend themselves to it. And if you think about it practically,
Let's say that I meet with someone from an institution, and first of all, and I convince them that I've got this. They're gonna say, how do you pick stocks? I'm gonna say, well, I think really hard. And they're gonna be like, okay, cool. I'm convinced Cliff thinks really hard. He's good at this. But then they have to go back to their committee.
And the committee's going to be like, well, how does Cliff pick stocks? And he's like, well, he thinks really hard. And they're going to be like, well, you know, that's not very credible. And then even if they do make the investment, now, you know, they're going to own it. And so invariably, we're up, we're down, we're up, we're down. I look smart, I look dumb.
And along the way, they're going to be like, why did we do this? And by the way, we have a board that we're reporting to. And like, we're down this quarter because Cliff thinks really hard, apparently. This is just a really challenging setup. What this means is that When I started this, I wasn't fully aware of quite how challenging it would be.
But the premise was that I would start a business based on really focusing on long-term compounding, finding a relatively small number of stocks, treating it like owning a piece of a business, dealing with the volatility that comes with it. And I figured it would be maximally optimized around returns and minimally optimized around marketability.
And I think certainly on the marketability side, we nailed it. And so that's where we are. But I wouldn't change a thing. It's how I'm built. So that's how I am.
So I launched with $5.2 million. The old-fashioned way. It was $2 million from me because I'd been successful at UBS and they'd paid me. I like to joke it was a lot for post-crisis, not a lot pre-crisis. And I also got $2 million from my mom. She was a sympathetic audience. I had one million from a friend and it was, at the end you always ask people who they're most grateful to.
I had two in mind and he's one of them. I'd known him for years and we talked and he's a very successful person and I had this meeting, it was like my second marketing meeting ever and I sit down and he basically is like, I'm absolutely gonna give you my dollars, no problem. And I was like, wow, this is gonna go great. The next time I saw a check like that, you know, it was years.
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