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Candid CEO: Don’t Tweak Your Models! | Aref Karim, Quality Capital Management | #30

“We are not a firm that is constantly tweaking models, trying to calibrate.” – Aref Karim (Tweet)

Welcome back to the second part of our discussion with Aref Karim. In this episode, Aref discusses his firm’s strategies and the broader philosophies that drives what he does. He also talks about market volatility, the need to innovate while keeping models intact, his perspective on drawdowns, and what investors should be asking their managers. You’ll learn something about the art galleries and music that fuels his inspiration, and what he thinks it takes to become a successful hedge fund manager.

You will be amazed by the candid truthfulness of Aref at the end of the episode as he speaks about his personal life and the current state of his business. Thanks for listening to Part 2 of the conversation, I hope you enjoy it.

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In This Episode, You’ll Learn:

  • What strategies his firm uses regarding commodities and currencies.

    “Some people make money by calling directions in the markets and others do it by just changing the level of conviction.” – Aref Karim (Tweet)

  • How Aref explains his investment strategy in a concise and understandable way.

    “What we have is a mechanism which we believe quite efficiently tries to change the levels of convictions so that the portfolio is looked at as a whole.” – Aref Karim (Tweet)

  • Why volatility is an important source of information when making investment decisions.
  • How to make the best of the current market environment and innovate.

    “The environment we’ve seen over the last few years since the crisis has been extraordinary, it has been unusual.” – Aref Karim (Tweet)

  • Why his firm evolves their model on a macro level and does not change the model every time the markets change.
  • How QCM manages risk.
  • Aref’s perspective on drawdowns and how to make investors comfortable with drawdowns and see them as an opportunity.

    “You can never predict drawdowns – it’s like going on a holiday at the beach and expecting perfectly sunny weather at the right time, and then suddenly encountering rain and adverse weather – those things just happen.” – Aref Karim (Tweet)

  • How investors should be evaluating the track records of managers given that some firms’ models have changed over time.
  • How growth and technology have effected the relationship managers have with potential investors and why it is still best to meet the manager in person.
  • When investors ask questions of potential managers, the economic alignment question often gets left out.

    “They just want to jump straight into the model, does the model do this or that, as opposed to understanding maybe the higher philosophy.” – Aref Karim (Tweet)

  • What it takes to be a successful fund manager: treating it like a business even if you are investing for yourself.
  • Aref’s personal appreciation for the arts, art galleries, opera, and jazz. How it inspires him.
  • How Aref sees the current state of QCM and why he believes in its future.

    “Assets have sort of come down from where they were – but we look at that as real, this is how things are. Longtermism is something that is very crucial to me, I’m passionate about it.” – Aref Karim (Tweet)

Resources & Links Mentioned in this Episode:

  • Learn about Long Volatility vs Short Volatility, mentioned as “Long Vol” by Aref in the episode.
  • Aref’s suggestions on becoming a successful fund manager:
    • “Get rid of cognitive biases and avoid emotional biases.” – Aref Karim (Tweet)

    • “Try and keep [the model] solid, simple, crisp, and clear – where you know how the parts are moving together.” – Aref Karim (Tweet)

This episode was sponsored by Swiss Financial Services:

Connect with Quality Capital Management (QCM):

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“The old touch and feel, the real story – the right story – from the managers side is a scarce opportunity these days.” – Aref Karim (Tweet)

1 Comment

  1. Kumuyi on 08/12/2015 at 5:23 PM

    Stops are an essential risk maemnnaegt tool All hedge funds use them. I can’t dispute the second statement, but the first is bunkum.Once a position has moved against you, you have a larger risk than before, whether it’s a simple short, a long, or a long vs a benchmark position. Your regularly-scheduled updates to your beliefs about the future may continue to have the same target price, in which case you have a higher potential win, but your risk has grown a bit faster than the win. If the first position was optimal, it’s now a bit too big, and should be pared back if your review didn’t find an even stronger opportunity.But paring back a position to its previous risk/reward profile is far different from taking it off the table entirely; for a long equity investor who cares about say, the S&P 500 benchmark, closing it completely would put on a negative bet why would you do that, just because some new info appeared that probably didn’t contradict your earlier insight?The whole idea suggests lousy framing of the trading or investment process problem. How do you make any money if you drive spending most of your time looking in the rear view mirror?

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