Interview with Jeff Fischer

Portfolio manager of the Motley Fool Pro hedge fund, and Chief Investment Officer at 1623 Capital, the home of the fund.

Jeff joined The Motley Fool in 1996 as co-manager of the original long/short Fool Portfolio on Fool.com with company co-founders David and Tom Gardner. From 2008-2018, he served as the founder and manager of the long/short Motley Fool Pro, a real-money subscription newsletter service, and from 2009 to 2018, he was also the founder and lead advisor of Motley Fool Options.

With his upcoming speaking session at INVEST Fair 2019, we had a quick catch up with him for a short interview to understand more about his journey and thoughts towards investing.

What got you started into investing?

At the age of 13, I was fortunate to be taught in school – albeit briefly – about stock market and investing. The subject piqued my interest and I began to track stocks daily using my parents’ newspaper. I bought my first few shares when I was 17 and began investing earnestly in my early 20s with the goal to be financially independent.

Where do you usually get your investing ideas from?

First and foremost, the ideas come from life. They come from being observant to the products and services the world (friends and family) are using increasingly. For example, in the earlier days of The Motley Fool, we recommended Amazon and Starbucks because we were regular customers. Secondly, it comes from reading and staying in touch with industry trends and businesses. Lastly, many existing ideas lead directly to new, related ones. When you learn about one strong software company, for example, it will often point you to its peers.

Please tell me more about your investment strategy. Do you have a set of rules?

I have always favoured businesses that were relatively inexpensive to operate – such as a software company that can make one product and sell it digitally millions of times, rather than a capital-intensive business such as heavy equipment manufacturing.

Overall, I seek companies that enjoy high customer retention rates that lead to strong, recurring revenue at little incremental cost, so the company can spend more of its cash flow to generate new revenue with new customers, and keep growing in multiple directions. Continued revenue growth is a key indicator of long-term stock performance. I also like founder led companies, and companies that are leading in an important, fast-growing niche or industry. Somewhat counter intuitively, I have also found that it is best to add more money to your winners and keep building your strongest ideas.

We see that you are the founder of Motley Fool Options from 2009 to 2018. Please share with us briefly how retail investors can benefit from learning to trade options?

Options are a tool to complement your stocks and they give you more ways to generate returns than from stocks alone. My favourite strategy is selling put options. When you sell a put option, you are agreeing to buy the underlying stock (a stock you choose) at a set price (the strike price) by the option’s expiration date. You are basically selling insurance into the market that says, “If the stock falls to this strike price or lower by the option’s expiration date, I will buy the stock at the strike price.” When you sell this insurance into the market, you get paid the option premium in cash This is a popular way to generate healthy, recurring income while also targeting a lower potential buy price on a stock you want to buy if it falls. Warren Buffett used this strategy to gradually build his Coca-Cola stock position, getting paid income at the same time. He did this with other stocks he targeted over the years, too.

Next, you move on to be a fund manager at 1623 Capital. Can you tell us about the things you do on a day-to-day basis?

Primarily, I am managing the hedge fund we launched this year. My mornings begin by reading the news on our stock positions and on the economy, and then I place trades for the fund, tweaking or starting positions, managing more than two dozen long stocks, shorts (or bearish investments), and options. After morning decisions are made, I go back to research, writing my thoughts, and then meet with the investment team. Earnings season is busy with going through earnings results and conference calls, and then making investment decisions as we see fit. So, most of my time is spent on investing, and that makes me happy, and should continue to help results.

Let’s dive deeper into the fund - what is 1623 Capital’s investment philosophy and its performance thus far?

The hedge fund I manage at 1623 Capital uses the same strategy and approach that I have used for more than ten years publicly, initially in the Motley Fool Pro newsletter service. Net of all presumed hedge fund fees, that same service returned 9.8% annualized from October 2008 to April 2019 (when its capital was rolled into the new hedge fund), while being on average only 74% invested in long stocks.

We seek to earn steady returns with less market risk by owning a concentrated portfolio (two to three dozen stocks) of outstanding, growing businesses; and using options to generate steady income even when the market is going nowhere, or to protect positions, among other strategies. Third, we short (or bet against) the stocks of struggling companies to profit when those stocks decline. Shorting should cushion our risk in a down market, too.

Combined, this three-pronged approach should provide us with at least some winners in any market environment, and we can then roll those proceeds into positions we like best at the time. At our core, we seek to compound capital in the best businesses we can find, and benefit from options and shorting, too, driving steady results.

The fund has only had outside capital in it since May 1 (so it is still new!), but from then till July 9 (time of writing), the fund’s net asset value (NAV) has grown more than the S&P 500 did. While it is a very short time period to measure performance, it is a confidence boost as we will be managing the fund for the many years ahead.

1623 was the year that Shakespeare’s first folio of plays was published – 36 plays that serve as the main body of his work today. Our name pays homage to the long-term value he created with his work, and hints at the very long-term mindset we aspire to in our own humble way as we look to create generational value.

 

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