A Dinner and Walk with David Sherman, fund manager of Crossing Bridge Funds.

Last week I had the opportunity to sit lanugo for dinner with one of our own, the legendary David Sherman. He is no stranger to regular readers of MFO. His funds, public and private funds through Cohanzick and CrossingBridge and the RiverPark Short Term Upper Yield Fund, for which he’s the sub-adviser, are uniformly first rate. He’s articulated four investing principles that are typified in each of his portfolios:

1. Return of wanted is increasingly important than return on capital. 
2. We are in it for the long haul, seeking to unzip consistent, solid returns. 
3. Understanding the merchantry model and associated risks is essential to intelligent investing.
4. Being disciplined and pragmatic are indispensable in this ever-changing world. 

I commend to you both our coverage of his thoughts on the financial slipperiness (“The tide is going out,” 2023) and our profiles of RiverPark (now CrossingBridge) Strategic Income and RiverPark Short Term Upper Yield.

We went to dinner at a local Italian place, La Pecora Bianca, only to find out we could have gone to an plane increasingly local(er) Italian. David lives exactly a woodcut yonder from me on the Upper West Side.

“Where do you get your coffee, David? Why have I never seen you virtually here?” I asked.

“I don’t do coffee,” he told me. And I understood why when he took me on a whirlwind of his views on markets and merchantry ideas from the 1990s to 2050. David Sherman doesn’t need coffee. He is amped up on markets and life.

It was a most fascinating evening where I learnt a lot from a market veteran. His views often did not uncurl with mine, and to be honest, that’s the kind of dinner I like to go to. It helps me evaluate what I have figured out and what’s missing.

It would be untellable to imbricate all of it in detail here. However, I think it might be fun to format this vendible into a rapid-fire set of Q&A to get his perspective on markets (beyond his fund).

Don’t hold him to the responses, but they are instructive nevertheless.

Personal Investment Situation

• Do you manage your personal investments? Kind of.
  Do you have a well thought out personal worth (PA)? Nope.
  Why not? Not unbearable time, given fund responsibilities.

US Stocks

• Views on US Stock Market: Expensive
  What percent of your portfolio are US stocks? Less than 15%
  What did you buy last? Google, when the AI Bard fiasco happened, and State Street, which is the only financial that has nothing to do with the financial crisis.

  Snowball interjects: in February 2023, Google debuted its competitor to ChatGPT, a program that is dubbed “AI Bard.” The problem is that Bard sort of blew the wordplay to one question. Someone asked, “What new discoveries from the James Webb Space Telescope can I tell my 9-year-old about?” Bard promptly (and, I’d guess, cyber-cheerfully) offered a list that included one 19-year-old discovery definitely not related to JWST. Investors promptly sold Alphabet in a two-day panic, dropping its market value by $170 billion. Fuller coverage from The Verge.

• View on Berkshire Hathaway: Complicated.
  Why? It’s largest than owning the S&P 500 Index fund. It’s a well-managed “mutual fund.”
  But? Buffett key man risk.
  Do you think Buffett makes very investing decisions anymore? No, but he can undeniability wanted yonder from the guys who do.

International Stocks

• What do you think well-nigh Buffett’s Japan trade? Makes a ton of sense. Japan is my favorite market.
  Name some reasons: Japanese government owns a significant portion of Japanese stocks. There is now a legal mandate to monetize the embedded value for shareholders. Large number of companies trade at net-net.
  Snowball interjects: hi, again! “Net-net” refers to a visitor whose mazuma on the books is greater than the total value of their stock. Translation: when you pay, say, $10 for one share of a net-net company, you’re getting, say, $12 in mazuma plus the value of the company’s operations.

  JP Morgan’s Michael Cembalest, “Too Long at the Fair” (May 2023) and the specimen for Japanese stocks

  View on Indian stocks: They have been a unconfined investment for my family since the 1990s. I sold them a few years ago.
  Why did you get into India, then? I liked the democratic wile compared to other EMs. This is a country where property right matter – which is very important from an investment perspective – and where the populace values education.

He asked me well-nigh my views on India, and I said I was invested through private equity.

Private Investments

• Do you do a lot of private equity? No
  Why not? Money is completely out of my tenancy when I do privates. I don’t squint at my statements or read commentary. It’s meaningless. Only thing that matters is how much money I get when at the end. India is one place where I would do private equity.

Real Manor Investment Trusts (REITs)

View on Real Manor Investment Trusts (REITs): Terrible investments
Why? They are serial diluters. They alimony issuing stocks all day long. No way to make money.
How do you do real estate? Through private investment.
Snowball interjects: Taylor Swift, likewise. I wonder if they’ve met. Regardless, you might want to trammels out our vendible “Taylor the Investor: You Belong With Me.” She’s moreover into closed-end funds.

Inflation

Views on inflation: Read David Buckham’s The End of Money (2021). We are scr***d.

Bonds

TIPS: Not good investments.
Why? They don’t capture services inflation.
NY Munis: Better investments, given the tax angle.
What should I have increasingly of? Munis > TIPS
Strategic vs Opportunistic
Me: You have identified a lot of problems with a lot of conventional assets. Where’s your money in?

David: I am very opportunistic. If I don’t see something obvious and big, I alimony my money in cash. I don’t have to invest.

Mutual Fund Observer

Thoughts on MFO: Great community. Not unbearable young people in the community. Fix that.
How? Write increasingly columns for young people. Market. You can’t just write. You have to market what you write.
What do you want written? Health Savings Worth (HSAs). Please tell young people well-nigh them. It’s the weightier tax privileged vehicle out there. I love them.

David made sure I ordered dessert – an Olive Oil confection with caramelized kumquats. He paid for our meal and insisted we walk off the dinner with a stroll virtually the Museum of Natural History. He explained to me how he thinks of his funds, his investors, challenges with the fund management industry, and the fund rating systems.

“You know what people want, right,” asked David. With David, questions posed are a pause which he answers with my silence.

“POSITIVE BETA,” he emphasized. “ALPHA seems less important to them.”

Snowball’s final interjection: “Positive beta” describes an investment that moves in the same unstipulated direction as the market. “Alpha” refers to peer-beating returns. You could think of a preference for positive beta as a sort of fear of missing out (FOMO) impulse; you don’t need to be at the front of the pack, but you certainly want to be in the race.

More than once, he made fun of me for sitting on my ass while he has to “work nonflexible for a living” and reminded me to get on with my life now that my kids are grown-up teenagers and no longer need me. I said I’d sit lanugo and write a post well-nigh that.