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Investor Profile: Jesse Felder
Jesse Felder is a well known value investor and investment writer with some decidedly unconventional opinions.
Jesse Felder is paradoxically both a famous and an obscure investor.
At the same time, many investors have never heard of his work, and he is not as widely covered by the financial press as many other prominent investors, for example, Michael Burry of “The Big Short” fame.
Who Is Jesse Felder?
Jesse Felder is an American investment manager and market analyst. He started his career at Bear Stearns and later co-founded Aletheia, a multi-billion dollar hedge fund. He then became an independent researcher and money manager for a family office serving a small number of selected clients.
He has written his own publication, the Felder Report, since 2005. In 2017 he started a podcast called “Superinvestors and the Art of Worldly Wisdom“, which focuses on interviewing other investors and money managers and understanding their investing methods and experience.
I think it is fair to portray Mr. Felder as an experienced insider of the investing industry. That did not stop him from developing an original viewpoint and a highly contrarian approach.
Since 2000 he has lived and worked in Oregon, and he has often mentioned how being away from Wall Street and California has helped him stay away from the groupthink in the industry. This sounds similar to what Warren Buffett has said about operating Berkshire Hathaway from Omaha.
One thing I noticed in Felder’s background is his education. His LinkedIn profile lists only a Bachelor of Arts degree in literature. This reminds me of Peter Lynch, whose book we covered recently here, praising non-business education as a road to investing success.
Jesse Felder’s Investing Strategy
Jesse Felder’s method can be described as contrarian. For example, he did a great market call in favor of the energy sector in September 2020. This was in the middle of a seemingly endless pandemic, just a few months after oil prices went negative for the first time in history and right after Exxon was kicked out of the Dow Jones index.
His method is essentially value investing (“I am a diehard value investor to my core“) with a top-down approach of finding first an undervalued sector and then narrowing down on specific companies. Over the years, he has learned to let his winning investments run instead of taking profit early. He also recommends the selective use of hedging instruments to improve risk management.
There is another pattern I noticed while reading some of his older material. Jesse Felder can sometimes be quite a bear, and call out too early for an end to the bull market (for example here in 2019 and here in 2020). I would nevertheless remark that his rather cautious approach, cautious hedging, and a healthy caution toward shorting have kept him from getting into trouble from such timing issues.
He seems also skeptical of the passive investing trend and suggests that value investors should look for opportunities out of the beaten paths. His description of his money management business gives us a good overview of this mix of “traditional” value investing combined with more “hedge fund-style” macro and technical analysis:
Felder & Company, LLC was founded by Jesse Felder in 2000 with a clear vision of creating an ‘extended family office,’ an exclusive client base whose best interests are of paramount importance to the firm. At Felder & Company we understand that our overriding purpose is to manage the portfolios in our care with two prerogatives: protection of principal and long-term growth. Our investment philosophy is firmly grounded in traditional “value investing,” derived from the school of Benjamin Graham and Warren Buffett. However, we marry this fundamental approach with technical analysis, sentiment research and macro-economic analysis to improve our performance results. This proprietary, holistic approach is precisely what we believe to be the key to successful, long-term investing.
I have followed Jesse Felder for quite a few years now, with his podcast one of my favorites in the investing category. I like the podcast for the diversity of profiles and opinions appearing in it. Jesse makes his guests comfortable and gets clear, constructive responses from them. The diversity of sometimes contradictory opinions challenges assumptions and makes for a great source of ideas. These interviews convey a blend of intellectual curiosity and open-mindedness.
Opinions on Current Markets
As I mentioned before, Jesse Felder feels that markets have been overpriced since at least 2019. The runup of the last 3 years has reinforced this conviction. In his opinion, the largest excesses are to be found in tech and growth stocks as well as the private equity/VC markets.
At a macro level, I feel Jesse Felder’s opinions about the current market are:
1. An historic overvaluation in tech stocks, especially US tech:
2. A positive outlook on the energy sector, especially oil & gas:
3. A negative outlook about inflation, and a corresponding positive outlook for gold miners:
4. An historic undervaluation of commodities (not only energy and gold but also foodstuff, metals, materials, etc…), with still a long way to go to retrace historical patterns.
5. An overvaluation of the US market versus the rest of the world:
6. An appreciation for undervalued growth stocks outside of most value investors’ comfort zones, notably the cannabis sector:
I have noticed that Jesse Felder does not usually comment about individual stocks. I think this is fair as he keeps his recommendations behind the paywall, for Felder Report subscribers.
The exception is maybe the gold miners in the link above. Felder’s BANG acronym (Barrick, Agnico Eagle, and Newmont/Goldcorp), is a reference to the infamous FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks that dominated the last 10-year market cycle.
The argument for gold is a macro perspective forecasting the high risk of stagflation, similar to the 70s. By including all the world’s largest gold miners, the “BANG” portfolio would benefit from institutional and individual investors returning to the gold sector as a hedge against inflation.
In the energy sector, Felder has also noted record positive cash flows from shale oil companies. His argument for energy, and commodities in general, is a very low ratio of commodities compared to the S&P500.
If this ratio goes back to its historical average due to crashing US stocks or rising commodities, or a mix of both is rather irrelevant. If this ratio repeats its rise in the 2000s, commodities would provide both a safe haven and outstanding profit for investors compared to US stocks.
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This article originally appeared on FinMasters.com: Investor Profile: Jesse Felder