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In Episode 113, we welcome entrepreneur and hedge fund expert, Stan Altshuller. Meb starts by asking Stan to give us his backstory, and how he came to co-found Novus Partners.\nAfter Stan gives us his origin story, Meb asks about Stan\u2019s broad approach to the markets. Stan tells us that at Novus, they start with data. This data encompasses everything from public data from regulatory filings, to private data from daily holdings reports. They bring it into an accessible, searchable database. Then engineers and programmers write various algorithms that capture and present the details of that data. This helps identify takeaways such as where the risks might be in a portfolio, and how various portfolios compare to others.\nMeb asks about common takeaways from all this analysis. Stan points toward \u201cdiworsification.\u201d As the name implies, too many investors have far too many holdings in their portfolio \u2013 from a diversification perspective, more than is needed or helpful. Stan tells us that 12 different investments is as beneficial as 100. Another takeaway Stan points toward is \u201cconviction.\u201d Are you truly adding value to your portfolio given your weighting decisions? Meb notes how you have to have greater position concentration to make a real difference in your portfolio. He then asks how Stan measures conviction.\xa0\nStan tells us that conviction can mean different things. For equities, the highest ROI comes from stocks with a 7.5% position or higher. But if your portfolio is highly diversified, you\u2019re unlikely to have a single position of this size. Stan adds that, for an allocator, the threshold is about 5%.\nNext, Meb asks about the state of active management. With so many headlines about flows going into passive, what are Stan\u2019s thoughts?\nStan gives us a great synopsis, covering \u201cdispersion\u201d and \u201ccorrelation.\u201d The presence, or lack thereof, of these market characteristics can have much to do with the success of active managers. Overall, Stan says conditions are now setting up such that we\u2019re seeing alpha being generated in the hedge fund space again. He tells us \u201cI\u2019m bullish on active management, but I think that you need a correction for people to remember why hedge funds exist in the first place.\u201d\nMeb asks about Stan\u2019s process \u2013 what analytics help identify the good funds, what they look for, the red herrings\u2026 Stan says the first thing to do is ask whether the manager is telling you the same thing as what the data is telling you. You\u2019re basically double-checking the manager\u2019s stated skill set. Next, analyze whether the manager is truly going to add value to a portfolio. For instance, if you add another manager, how much diversification benefit will t actually provide? If not much, do you really want to pay their fee? Then you look at whether the manager is still generating alpha. Has there been style drift? Is he/she managing significantly more money now than in past years?\nMeb hones in on one part of Stan\u2019s comments \u2013 \u201cperformance as a metric.\u201d This is a great part of the interview in which Stan really draws out the point that looking at performance alone isn\u2019t necessarily all that helpful. You need to understand how a manager created his alpha. Unless you understand that, you\u2019re a duck in the water. You cannot invest based on performance alone.\xa0\nThere\u2019s so much more in this great interview: What percentage of managers are really adding value with their short book\u2026 Stan\u2019s take on whether hedge fund managers truly deserve their fees\u2026 When is it time to give up on a manager if performance has been lagging\u2026 A major risk in today\u2019s hedge fund space\u2026 And Stan\u2019s most memorable trade\u2026\nThis one involves Amazon and Google. Listen to Episode 113 for all the details.\nLearn more about your ad choices. Visit megaphone.fm/adchoices