Jockey Stocks

For decades Jack Bogle was a voice in the wilderness.  Boggle bought into the so-called efficient market theory which argues that there is no way to consistently beat the market.  If you can’t beat the market why not just invest in the whole thing?  Choosing to invest in the entire stock market instead of chasing market beating returns with Harvard MBAs and insanely high fees, Bogle gave a normal people the ability to safely invest and sleep at night.

Over the past 80 years or 100 years or 150 years; any measure of time that includes and up and down cycle the stock market has performed better than just about any other asset class accessible to normal people.

As time went on more and more investment companies jumped on the bandwagon and the 401(k)-benefit plan made passive investing an option for millions of Americans.  The invention of Exchange Traded Funds (ETFs) and the proliferation of online discount brokers cut the time and effort it took to invest by somewhere between 40 and 94%.

Individual investors went from CDs and savings accounts to ETFs focused on gold miners or ETFs giving you 3x leverage on the S&P 500 or ETFs that only purchase undervalued stocks with good momentum that are run by CEOs who are in at least three different secret societies in a generation.

In response to a decade of 0% returns ETFs following single or multi-factor strategies (but still employing no active management) sprung onto the market.  The strategies focus on companies that are small or undervalued or show good momentum or buy back stock or have raised their dividend for 37 straight years.  Many of these strategies are legitimately good and have academic studies backing them.  Many more glom onto the most recent fad in the market (like the Bitcoin ETF the Winklevoss twins tried to start) and produce nothing but endless sadness.

As with all seeming free lunches the passive investing trend seems to have formed somewhat of a bubble.  As billions upon billions gets transferred out of active funds, that have underperformed for decades, into passive strategies the success of passive strategies is priced away.

So, what is the individual investor to do?

The answer I pursue is to meld active and passive investing together.  In prior books and on my website, I have written about special situation strategies (How to Hack Wall St.) that allow enterprising individual investors to find profits in areas where big institutions cannot and about using technical analysis and trend identification to time when to enter and leave markets.

My favorite strategy, however, is to focus on ‘Jockey Stocks.’  Jockey stocks are companies run by genius capital allocators.  Managers who can identify the right place to be in a bull market while also snatching up distressed assets on the cheap in bear markets.

The origins of these capital allocators runs the gamut.  Some have beat the market with a hedge fund for decades, some simple combine an insurance companies with solid investing and some aren’t even based in the finance industry they have just proven that they know how allocate capital efficiently.

In this book, I will profile each of the Jockeys I have chosen as well as the vehicle(s) they currently utilize.  Each profile will detail the history of the Jockey and what returns they have produced to date and produce a back-of-the-envelope valuation of the company or companies they run.

Our goal is to create a rock-solid portfolio of jockey stocks that will perform just as well as the electric car producing con-men in bull markets but also weather the certain but impossible to accurately predict financial crises to come.