Contrarian Investing

Parker Quillen: 

Thanks, Elana. Great to be here. 

Elana Margulies-Snyderman: 

Absolutely. So, to kick off the conversation, tell us a little about yourself, your firm, and how you got to where you are today. 

Parker Quillen: 

Okay. Parker Quillen is my name and firm is Contrarian Alpha. I guess what we're trying to offer our clients, the primary product is a hedge fund, a limited partnership, and we try to provide uncorrelated or counter-correlated double-digit returns. How we got here, how I got here is many decades of working in the investment management business. I've kind of always been a contrarian, both from as an investor, but just in the way I live my life. I am not really interested in participating in vogue and trends. I don't like going to the hot restaurant. It's usually too expensive. It's often has a waiting list to get in and the service stinks. So, I feel the same way often about investing in overpopulated, overcrowded stocks. They're expensive and the performance often is poor when they mean revert. 

Elana Margulies-Snyderman: 

Great, Parker. So, given your focus on contrarian and investing, love to hear your high-level outlook for the space. 

Parker Quillen: 

Whew. Well, it's funny when you and I talked about doing this podcast a couple weeks ago, we talked about how the market felt kind of choppy and we were coming into this year and more recent months at pretty high valuations and definitely some indicators of toppiness, crazy stuff, whether it be in certain parts of the crypto space or the kind of surrounding names of artificial intelligence. It just reminded me a lot of the internet bubble days, and the market was starting to act a little choppy. Now as we speak on the 8th of April, we've basically had three of the worst trading days since the beginning of the pandemic and it's definitely we're in or very close to bear market territory. And so, I don't know where the market's going in the next few days. We technically maybe have a snapback rally; we tried to have one this morning and then it kind of failed on my walk over here. Maybe it's up again, who knows? But I just think that the valuations that we came into this year in the last month or two were so high that it was priced for perfection and now all this tariff talk and we're still at very high levels and so I just think we're going to have a lot more volatility and I think you look forward in the next five, six months, I think there's risks of the market going further down. 

Elana Margulies-Snyderman: 

Parker, given everything that's going on right now, in your strategy, where do you see some of the greatest opportunities specifically and why? 

Parker Quillen: 

Away from just trying to de-risk and keep from the volatility from swamping your portfolio, whether it's net long or net short, there are pockets of opportunity, at least that I see, for both our long and our short book. Most of what we do is idiosyncratic, so we're looking at individual companies and trying to arbitrage the price of the stock versus where we determine the valuation of the business. But we do also look at thematic opportunities and then look for individual stocks to play those. So, a couple sectors I would call out on the short side, we're still short a bunch of solar energy names. This was something that we've involved with for quite a few years. While there's lots of growth in installments and I expect there will continue to be, individual particularly equipment manufacturers just have had terrible margins and the margins are getting worse and some of these stocks are, even though they're already down 80%, there are a few of them that are going to zero in my opinion. So, there's another 100% return on the downside from here. So, I think some of those names are opportunities for shorts. As I mentioned, we saw, see a lot of excess in AI. What we're looking for is not to short the legitimate incredible leaders of that group. AI is obviously a super powerful theme for investing in the future. What we're looking for is the kind of more shady, dubious companies that claim that they're AI but really have very little proprietary, if anything proprietary. And they're just so many of those boats have been lifted in the hysteria that there are a lot of short opportunities there. And then finally on one theme on the long side, we found just like there're pockets of euphoria, there's also pockets of just complete unloved names. And these names typically are companies in out of vogue areas that need funding. The IPO market's been pretty slow, access to capital for pre-revenue companies has been really difficult. And so, it's created some dislocations and some opportunities, particularly if you can get involved with a group to provide that capital that's so desperately needed. We just did a transaction with a Canadian junior mining company called Premium Resources. It's got one of the generational copper and nickel discoveries, but the stock has just been absolutely terrible because they needed capital and it's pre-revenue, and once we were able to help solve that problem, we got involved with a much larger group with a lot of money, once we were able to help solve that problem, we shored up their urgent need for funding and now the stock is starting to work even in this really difficult tape. So, there are little pockets, I'd call out generally some of the biotech area where if they need funding they can't get funding, the stock becomes a self-fulfilling downward spiral. And if you can get involved at a time when the funding is answered, the stocks can really work pretty well. So, that would be a few examples. 

Elana Margulies-Snyderman:  

And Parker, on the other hand, what are some of the greatest challenges you currently face right now? 

Parker Quillen: 

The volatility. I mean, it feels like we're in a casino right now and I don't think anybody can, well, maybe some can, I don't think I can predictably call daily market swings. So, just managing the volatility is really challenging right now, I think for everybody. And for us is who we're pretty much always short, net short, we really got to be careful about timing. So, finding a good stock to, as I said before, arbitrage. We're looking for overvalued situations to sell short, but you really need to be careful about the timing of that, what's going to make the stock go down. If you identify a situation where stock's 100% overvalued in your opinion, what's to say first go to 200% or 300% overvalued, particularly in a bubbly type market environment, which was where we were a couple months ago. So, you got to be really careful about identifying the catalyst or the trigger to make the stock realign. 

Elana Margulies-Snyderman: 

Parker, we've covered a lot of ground today and wanted to see if you have any final thoughts you would like to share with us. 

Parker Quillen: 

Well, I want to grow the firm and given the unsettling market of the last several weeks, we're getting a lot of inquiries and interest, and this is obviously a time where people think more about hedging. We've gone through a number of years where hedging has been issued and there have been a lot of short biased funds that have gone out of business. So, we don't have a lot of competition right now and I'm looking forward to doing what we do and hopefully growing the business and prospering. 

Elana Margulies-Snyderman: 

Parker, I want to thank you so much for sharing your perspective with our listeners. 

Parker Quillen: 

I appreciate, Elana. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast, when we get down to business. 

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