Our guest today, named as hedge fund tradies, which for the non-nerds in the room means the spice must flow. And for those of you who remember spice from your freshman year in high school, it's not that kind of spice. For Gavin, spice is high bandwidth memory. His Arrakis is Taiwan, and his sandworm is Jensen Huang. His X bio reads, 'No investment advice, views my own,' which may be the most expensive disclaimer in modern finance because he's got 288,000 followers that follow his advice. Anyways, he ran 17 billion at Fidelity. He beat 99% of his peers, although he just told me it's actually 100% of his peers. And he now runs his hedge fund from Boston, which may be the most contrarian position of all. Ladies and gentlemen, the most knowledgeable man alive on semiconductors. Please welcome Gavin Baker.
Wow. Thank you. And let me introduce you, Jess. Jess is one of the most senior partners at Blackstone and he just took over a new job as heading all of Blackstone's AI strategy, and was formerly the head of their tactical opportunities strategy.
We've been friends for a while, so it's fun that he gets to interview me and I get to interview him. But Gavin, I do get to interview you. Since this is an investing conference, I wanted to start with your mental model as an investor before we get into the meat and potatoes of semiconductors and memory and the stack and the bottlenecks which I'm sure all of you, just like me, want to engage with you on. So, you started at Fidelity in 2000 and managed it through two bubbles. What is one piece of Peter Lynch era Fidelity DNA that you've kept and the one that you had to break in order to start and run and be successful with The Trades?
Yeah. Good question. I'd say the Peter Lynch DNA that is forever woven into me, as I suspect is woven into anyone who had the great fortune of starting their career at Fidelity, which was an amazing place for me, is this concept that if you like the store or you like the product, you're going to love the stock. And just the importance of engaging with new products, with companies as deeply as you can as a consumer and user, that for sure is embedded into me. What I have been working on my entire professional career as an investor is there's a stock market axiom that you want to, you know, Peter Lynch said you want to pull up your weeds, water your flowers, you want to sell your losers, you want to ride your winners. For whatever reason, that is very hard for me. I'm extremely valuation sensitive, I'm very contrarian, I'm most comfortable on the 52-week low list. I've been hanging on to the memory stocks for dear life. But that's been a lifelong journey that I try to get a little better at every year.
Most great investors point to a single trade, a single bad trade, as the formative one in their own journey. What was yours and what specifically does it stop you from doing today that you would otherwise do?
Well, I would say there are two. I had a really hard year in 2011 or 2012. And it was two stocks. One was a company called Dendreon, and they were helping effectively small hospitals do a better job of negotiating with big insurance companies. You know, you feel like it's a good cause and then you wake up and there's a front page 10,000-word article in the New York Times on Sunday about how they're denying care to people in need and this is just simply not true. Nonetheless, the stock went down 90, 95%, never recovered. And just there are always unknown unknowns. There's always risks that no matter how much you try to dimensionalize an opportunity are present. And the second one is embarrassing. It was Nextel International. So I was a telecom analyst in the past for a long time. You could make a lot of money in telecom whenever a new network was built in an emerging market, it was definitionally the lowest cost, best and highest quality network because it wasn't loaded. And so Nextel International, they built a new network in South America. It was the latest and greatest 3G network. They were migrating off something called iDEN. I'd made money in this kind of pattern many times. And so made it a large position. And I'll never forget I wrote a letter to the board insisting they do a buyback and the company was bankrupt 18 months later. And the lesson is be very, very careful of high leverage because the company was just too levered and sometimes not everything goes right. What happened was a price war broke out between two unrelated competitors who were much larger. They got caught up in that and I will forever have the black mark of having written my only letter to a board asking them to buy back stock, you know, 15 months before a company went bankrupt, which is also a good lesson.
Yeah. Oh, appreciate that. Thanks for the candor and the vulnerability. I appreciate that.
We'll mix it up a little bit.
Usually lightning rounds come at the end. Great.
Put it at the beginning. Overrated or underrated? Pattern recognition, scuttlebutt, position sizing, sleep. You just get one word.
I think pattern recognition and sleep are highly underrated. I think scuttlebutt is overrated. What was the fourth?
Position sizing is very important. You just have to pick your game and you have to play it. You can either be a slugging percentage player or you can be a batting average player, but you have to know what your game is and stick to it and be consistent.
Appropriately rated sounds like the production function of Gavin Baker. When you actually look at where your edge came from last, maybe it's this year, last year, what fraction is reading? What fraction is your network? Maybe not so much given the scuttlebutt, but what fraction is just being early to one or two correct frameworks?
