Doug Kass and Jim “Rev Shark” DePorre actually have a lot in common --despite what many of their Twitter followers may think.
Kass and DePorre are both long-time columnists for TheStreet’s premium site Real Money, dedicated to providing the most insightful market commentary and trading guidance to subscribers. What's more, they have intriguing and inspiring personal and professional stories.
Kass has been writing his popular Daily Diary blog for 22 years on Real Money Pro and DePorre pens four columns a day on Real Money, where he’s been a regular fixture since 2001. Both are invaluable for investors and traders to stay abreast of the market and for ideas on how to play it.
However, while Kass and Rev Shark may share the same goals, their investment approach and strategies couldn’t be more different.
Below, Kass and Rev Shark, in their owns words, discuss some of those differences.
Doug and I have been debating a wide variety of topics over many years but at the heart of most of our disagreements is a difference in style. I don’t believe that any approach to the market is inherently superior. Two people can approach in very different ways and do equally well. It all depends on finding a style that suits your thinking and temperament.
That being said, I think that most people would be more successful at trading and investing if they focused more on price action and reacting rather than on anticipation and predictions.
Though I recognize that there are a lot of ways to make money in the markets, I approach the market from the standpoint of fundamentals.
The core foundation of my approach to intermediate and longer-term investing lies in hard-hitting (and often contrarian) securities analysis -- a key factor in the process is searching for a "margin of safety."
I invest in companies that sell, based on my calculus, at a discount to intrinsic value (providing me with a margin of safety).
My approach is only as good as the analytical input that is attached to those determined values.
Importantly (and understandably), while my investing is anticipatory, Rev's trading process is understandably reactive -- as price momentum is an important determinant of his trades.
Another important difference is that my investing timeframe is far longer than Rev's trading timeframe.
I say viva la difference between our approaches, for as Warren Buffett once stated, "in the short run the market is a voting machine, in the long run it is a weighing machine."
I appreciate Doug’s approach but I believe that he relies far too much on predictions and that creates unnecessary risk. One of the biggest changes in my trading over the years has been to admit that we do not know what the market will do next and that it is far more important to respect the price action and to use a strategic approach.
A good example is our current positions in the indices. I see no reason to fight the trend and I believe it is futile to try to predict when a major top might form. I believe Doug has been building index shorts for a while as he feels that a major turn will soon occur.
I believe most individual investors and traders will not handle this sort of predictive and anticipatory investing very well and would be better served if they forget predictions and focused on price action instead.
I agree with Rev's trading approach.
But, his timeframe is relatively short compared to mine.
However, even in regard to short-term trading, a changing market structure (in which ETFs and quantitative products and strategies now dominate daily market trading) tends to artificially influence short-term prices (and charts).
This is not our father's market and natural price discovery (abetted by generous monetary policy and even the change in the uptick rule for shorting) has given way to an artificiality in prices, patterns and charts.
It also raises the possibility of abrupt and unpredictable Flash Crashes in the years ahead.
I believe that Doug is far too quick to dismiss the value of relying on price action as a way to navigate the market. Yes, there are some major influences such as computer algorithms and high-frequency trading that have shifted the nature of the action and create randomness, but those issues also offer opportunities if you use the right strategies.
Navigating the market in the short term is the best way to ensure longer-term success. It is far too easy to dismiss obviously technical problems that a stock is having and may indicate deep fundamental problems when you claim to be a long-term investor.
Discipline and strategy are the best ways to outperform the market and using charts and price action is essential to both.
This leads to the question of whether price is truth.
Absolutely price is truth. Price determines whether we make money or not and that is ultimately the only thing that matters. That doesn't mean that price reflects value but, in my opinion, it is impossible to calculate value. I think that is one of the main conceits of fundamental investing.
There is a belief that fundamental analysis has a higher degree of precision than using charts. In addition, value approaches carry far more risk when they are not used with appropriate risk management. The risk of underperforming for years while waiting for price to reflect value is a huge factor that is overlooked by those trying to copy a Buffett-like approach.
There is a tendency to believe that "price is truth."
To me, price is just a point in time -- the intersection of demand and supply. As I mentioned, it’s exaggerated by products, strategies and traders that worship at the altar of short-term price performance.
I aggressively use these opportunities when price deviates markedly from intrinsic value in my process.
No doubt it requires patience and a longer-term timeframe for investing.
There are so many examples I can use of artificiality -- for example Tilray (TLRY) at $300/share a year or so ago (now under $18/share).
Here is another in the debt market:
Not too long ago Argentina's 100-year bond was 10x oversubscribed at 7.875%.
Obviously "Global Markets" were not thinking there was a "problem" at issuance in May 2018.
Participants joked about it, just as there are currently nonstop jokes about Austria's 100 year or Ireland's, etc., but it was waved in with abandon.
The Argentina bond was not inconsequential in size -- it was a $2.6 billion issue! (issued at $90 to yield 7.90% and now trading at about $56!). Certainly, Argentina has a long history of default, but I wouldn't even call this one an easy short given the cost of carry for 15 months... the bond took a surprise 15-point election poll hit for it to crack in a bad tape several months ago ...
No, price isn't truth.
Markets are often inefficient.
Both Doug and I believe that price will vary greatly from value but my focus is to make money by focusing on price action when Doug believes that it is better to focus on value and to hope that it eventually is appreciated by the market. I certainly agree that price may not at all reflect value at times but that astute traders can use that dynamic to make money. I want to take advantage of the tendency of price to disconnect from reality and have no fear of buying a stock like (TLRY) and Beyond Meat (BYND) when they are running on pure momentum.
Doug's approach to value and price requires great patience at times and I believe that it also leads to underperformance because there is no focus on timing.
Let’s wrap up with both of your views on how impeachment will affect the markets in 2020.
I believe impeachment will impact the market in 2020 by actually helping Donald Trump to be reelected. While Trump is disliked for his personality excesses by many, he has been effective with policy and many of the swing voters do not care for the partisan way in which impeachment was handled.
Like him or not Trump is a positive for the stock market and if his chances of reelection increase it will help the market, especially when contrasted with the less friendly policies of Biden, Warren or Sanders.
As it relates to our capital markets the issue of impeachment is a "nothing burger" -- as there is a 99.999% likelihood that the it will be defeated in the Senate.
That said, the passage of the articles of impeachment (in the House of Representatives) may have an impact on the November 2020 election.
At this point, however, I am not sure whether it will hurt or help the incumbent President.
It was nice participating in this forum with Rev - who, as all our subscribers now, I respect immensely as a person and as an investor.
Doug Kass’ Daily Diary appears each trading day on Real Money Pro, TheStreet’s premium site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Kass, Tim Collins, Mark Sebastian, Paul Price, and others.
James ‘Rev Shark’ DePorre writes on stocks and the markets each trading day for Real Money.