Patent litigator turned stock market investor taking questions

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halfpastfive

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Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue Apr 27, 2021 9:13 am

Legal career: Ga. Tech (BS/MS EE), Boalt ('12), CDCA, CAFC, Irell (a year), quit in 2015. http://members.calbar.ca.gov/fal/Licensee/Detail/294269

Investing career: 2015-now. I mostly go "all in" on high conviction bets. It's been wild. https://www.sec.gov/Archives/edgar/data ... msc13g.htm

I have very fond memories of whatever I was doing in law. I still dabble in patents here and there - mostly as a hobby. My whole legal career - academic/clerkship/biglaw seems like a really fun segment of my past.

Happy to take questions from anyone interested. I have oceans of free time in my life. I bill zero hours. And I literally do nothing for the majority of my days other than read and think.

Some topics I can certainly address:
(1) applying to schools;
(2) Northwestern (where I was a 1L)
(3) Berkeley
(4) clerkship applications
(5) CDCA/CAFC
(6) the experience of a junior associate at Irell
(7) quitting law
(8) investing.

Lawdup

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Re: Patent litigator turned stock market investor taking questions

Post by Lawdup » Tue Apr 27, 2021 9:33 am

I'll bite, as your story seems very interesting. Thanks for posting!

How did you wade into investing? In terms of your initial investing philosophy, how much did you invest initially at a time, and when did you decide that it was enough to quit law?

Also- do you have a significant other? If so, how did you convince them of this transition?

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue Apr 27, 2021 9:59 am

Lawdup wrote:
Tue Apr 27, 2021 9:33 am
I'll bite, as your story seems very interesting. Thanks for posting!

How did you wade into investing? In terms of your initial investing philosophy, how much did you invest initially at a time, and when did you decide that it was enough to quit law?

Also- do you have a significant other? If so, how did you convince them of this transition?
Got into it during the Great Recession. I was in my early 20s and it was fascinating. I read the Intelligent Investor. I immediately bit the bug. Bought all kinds of cigar butts. My timing - for obvious reasons - couldn't have been better.

My decision to quit Irell (and law) was unrelated to me hitting some financial number. I just realized that if I devoted my entire time to being a better compounder of capital, the math of compound interest would just destroy whatever I could make as a lawyer. Then I had to grapple with the sunk costs (I'd invested 2009-15 in law). It finally hit me that I loved analzying businesses more than I loved: (1) fighting over the meaning of words in documents written by lawyers in the late 1990s, which is what patent litigation in 2014 was about; (2) paying experts to be intellectually dishonest, basically; and (3) my bleak view on the future of patents as an asset class.

More than anything else, it was #3 that was the final straw. I knew my end goal - if I wanted to stay within patents - was to invest in them as an asset; not service them on someone else's behalf. But with Alice, AIA, and essentially my experience investing in patent-heavy equities, I pretty much reached the conclusion that there wasn't a viable path to compound $ in patents - either through a fractional ownership in a patent litigation service company or patents themselves. I was pretty happy at Irell. The people were amazing. The lifestyle was surreal. And the money I was being paid every couple weeks was great. But the opportunity cost of staying in it was too high, given my alternatives.

My SO wanted me to be happy doing whatever I was doing. That was a non-issue.

ESQ92

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Re: Patent litigator turned stock market investor taking questions

Post by ESQ92 » Tue Apr 27, 2021 12:54 pm

What are some specific trades that you won big on? How many trades per day / week are you typically making?

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue Apr 27, 2021 1:21 pm

Vitamin shoppe 50% in (65% in a year)
Bed bath and beyond all in (50% in a year)
Big 5 Sporting Goods all in (350% in a year)
Wells Fargo all in (100% in a year)

I basically make one or two decisions a year. They're usually all in bets.

I don't use margin or options. I stick to simple businesses with strong balance sheets and whose prospects are fairly predictable.

I'm presently all in on CarGurus. We'll see how the next year pans out.

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Lawdup

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Re: Patent litigator turned stock market investor taking questions

Post by Lawdup » Wed Apr 28, 2021 3:16 pm

halfpastfive wrote:
Tue Apr 27, 2021 1:21 pm
Vitamin shoppe 50% in (65% in a year)
Bed bath and beyond all in (50% in a year)
Big 5 Sporting Goods all in (350% in a year)
Wells Fargo all in (100% in a year)

I basically make one or two decisions a year. They're usually all in bets.

I don't use margin or options. I stick to simple businesses with strong balance sheets and whose prospects are fairly predictable.

I'm presently all in on CarGurus. We'll see how the next year pans out.
Interesting. So when you go "all in" are you investing and then cashing out/realizing capital gains and then rolling that money into the next pick? Buying and holding over the long run (e.g., putting "all" of a lump sum on a single bet at a time)? Looking for stocks that issue dividends to provide current income?

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Wed Apr 28, 2021 8:11 pm

Yeah it's been sequential, interestingly.

I've had a fair value for all these all in bets. And they've been getting "realized" within 12 months to 18 months so far.

And yeah, I cash out, pay the tax man, and dump the rest in the next one.

I think CarGurus should be worth $40 ($5B) and I am pretty much gonna forget about the stock market until that happens.

And no I don't pursue dividends for income. I typically sell stock on an as needed basis to fund my life.

rnen22

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Re: Patent litigator turned stock market investor taking questions

Post by rnen22 » Sat May 01, 2021 10:11 pm

Really interesting story, how did you learn about investing, and what's your basic investing approach? It sounds like your strategy is sort of like value investing.

sophocles

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Re: Patent litigator turned stock market investor taking questions

Post by sophocles » Tue May 04, 2021 11:38 am

This is fascinating. Thanks for doing this. Here are some questions I had:

How do you come up with investment ideas?

Do you use a screener?

If you had to guess, how much time do you spend researching a business before going "all in" on its stock?

How do you handle a position taking a substantial dive (e.g., 30% drop)? Double down? Cut your losses and run?

If you had to guess, how many ideas do you conduct substantial research before deciding not to invest?

Bonus question: which version of Security Analysis sits on your bookshelf?

Thanks

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sophocles

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Re: Patent litigator turned stock market investor taking questions

Post by sophocles » Tue May 04, 2021 11:42 am

A couple more questions:

Do you look for catalyst-driven investment ideas? Or just waiting on the basis of sheer, absolute value?

What do you think of the current ZIRP-driven casino-type atmosphere that seems to permeate much of retail investing these days (or maybe you disagree with that characterization entirely)?

johndhi

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Re: Patent litigator turned stock market investor taking questions

Post by johndhi » Tue May 04, 2021 12:31 pm

1. why bleak on the value of patents

2. what do you say to people who recommend 'diverse' investing? isn't 'all in' typically viewed as overly risky?

3. how much $ did you start your portfolio with

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Re: Patent litigator turned stock market investor taking questions

Post by ChessPlaya » Wed May 05, 2021 2:17 pm

Thanks for doing this. I have a few questions for you:

1. Can you talk about your life as an associate in patent litigation? What were your hours and lifestyle like? How did you like the work?

2. When you quit your associate job, did you just start investing in your personal account using your own savings, or did you have outside capital? Is your plan to build a track record and then seek out investors? Did you ever think about trying to work as an analyst for hedge fund or something similar?

3. I'm super curious about your personal finances, to whatever extent you are comfortable sharing. When you quit law, how much did you have saved up, and were you able to generate enough income through your investment portfolio? What percentage of your net worth is in your portfolio? Is this still a sustainable path forward for you?

4. For someone with an interest in investing and idea generation (I used to focus on special situations like spinoffs) , how difficult would it be to remain in Biglaw and manage a personal stock portfolio?

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue May 11, 2021 4:38 pm

rnen22 wrote:
Sat May 01, 2021 10:11 pm
Really interesting story, how did you learn about investing, and what's your basic investing approach? It sounds like your strategy is sort of like value investing.
In 2007/08 (when I was still in grad school before law school), I went through the Great Recession and bought "The Intelligent Investor." I was hooked.

My strategy has evolved over time. I primarily bought and held cigar butts during recessions. Then I shifted to patent plays, i.e., situations involving patent litigation. Then I shifted to free cash flow generative businesses whose common stock appeared grossly mispriced. Now I'm looking at free cash flow generators with competitive positions that I can understand and wrap my head around.

I've basically been drifting away from cigar butts and toward better businesses. It's a lot easier way to invest.

I'd say all investing is value investing. I used to think that value investing referred to pursuing low price-to-book or p/e type situations. It's really not. When you buy a stock and part with your $, you're giving up certain value in exchange for a fractional ownership in a business. Your goal is always to receive value in excess of whatever you pay.

Not sure if any of this helps - but it sums up my approach.

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halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue May 11, 2021 4:46 pm

sophocles wrote:
Tue May 04, 2021 11:38 am
This is fascinating. Thanks for doing this. Here are some questions I had:

How do you come up with investment ideas?

Do you use a screener?

If you had to guess, how much time do you spend researching a business before going "all in" on its stock?

How do you handle a position taking a substantial dive (e.g., 30% drop)? Double down? Cut your losses and run?

If you had to guess, how many ideas do you conduct substantial research before deciding not to invest?

Bonus question: which version of Security Analysis sits on your bookshelf?

Thanks
1. I go to the SEC's website and I browse through each day's 10-Ks. I home in on the one or two that I can understand. I don't understand 99% of businesses. Then I try to "value" the business on my own before looking up market cap. I have a Google Sheet that I use to tabulate all my research/valuations. And I use Google Finance's API to basically trigger alerts whenever a company's market cap falls below my assessment of fair value. I do use screeners. I found Big 5 Sporting Goods that way. I was looking, if I recall correctly, for a high cash flow generative company relative to market cap when I identified Big 5 back in 2019.

2. Usually a day or two. If I believe enough in a business to go "all in" on it, the competitive advantage of the business *should* jump off a page without doing a whole PhD on it. And over the last two years, there have been such situations. The strange thing is, the higher my portfolio value, the easier it's been to go "all in" because I don't really have a high cost of living and I can withstand the downswings way easier now than I previously could.

3. No. I usually just get pretty moody and bitch and whine about how Mr. Market is ridiculous, stupid, wrong and overly pessimistic about the company. And I wait for him to cheer up. If I have cash lyin around, I buy more. I've never bottom ticked any company (except WFC) and so I've always had my positions go down between 10-75%. It's not pleasant. But if I have cash coming in through dividends or any other source, my conviction doesn't change unless something fundamental about the business/its competitive position has changed (this hasn't happened yet).

4. "If you had to guess, how many ideas do you conduct substantial research before deciding not to invest?"
I'm not sure what you mean. How many ideas do I research before deciding NOT to invest? Not sure what that means - sorry.

5. I actually did pick up SA wayyyy back in '08 but gave up on it within the first chapter or two. I prefer Intelligent Investor way too much. Way more accessible.

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue May 11, 2021 4:52 pm

sophocles wrote:
Tue May 04, 2021 11:42 am
A couple more questions:

Do you look for catalyst-driven investment ideas? Or just waiting on the basis of sheer, absolute value?

What do you think of the current ZIRP-driven casino-type atmosphere that seems to permeate much of retail investing these days (or maybe you disagree with that characterization entirely)?
1/ I've done a couple of patent litigation-related catalyst-driven ideas. Some panned out. Some didn't. The patent stuff is most interesting because I certainly bring a lot to that game. So my eyes are peeled for such situations.

2. I prefer the organic appreciation approach. It's way easier to generate $X in free cash flows through a competitive business than win a whole bunch of patent trials and obtain affirmances from CAFC. The latter's a ridicuously high level of difficulty. It's actually kind of dumb to try and compound money through patents. It's not a game I play. And I spent a decade in that world.

3. I think volatility is terrific for good investors. Makes for tremendous opportunity. I'm not sure what "ZIRP" means but I do agree that there's a whole lot of casino-minset folks in the stock market (Robinhood) that are in a real hurry to make a lot of money quick. I think it's extremely difficult to compound money. Mostly, it's extremely difficult to cultivate a temperament conducive to long-term compounding. I don't think anyone posting on reddit or buying call options and trying to get rich quick has a decent shot at suddenly transforming into a serious business thinker. They're basically trying to front run market sentiment. Well, if you walk onto the floor of any casino - anywhere - you'll see dopamine chasing in action. This will have a bad ending.

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue May 11, 2021 4:56 pm

johndhi wrote:
Tue May 04, 2021 12:31 pm
1. why bleak on the value of patents

2. what do you say to people who recommend 'diverse' investing? isn't 'all in' typically viewed as overly risky?

3. how much $ did you start your portfolio with
1. I've just lost - and lost - and lost - on patent bets. I have many, many scar tissues here. An issued patent is basically an application at this point. It is very, very, very difficult to monetize patents, let alone invest in them. If you do survive IPRs, you'll have to survive a damages challenge before the CAFC. It's just a shitshow. Patents are toxic assets in my view. If someone had $1B and wanted to compound money, I'd say patents is the last place they should look at. Well, no, I think crypto is the last place. But patents are in that zip code.

2. It's good for most people. I don't do it because I don't have 20 great ideas. I pretty much believe in concentrated, focused investing. And opportunity cost-driven capital allocation. Every dollar in idea #7 is kind of a wasted dollar because it could be in idea #1 instead. This approach organically results in a concentrated portfolio. If a fund is exceeding 5-6 investments, I think that manager should just index.

3. The invested capital was around $500K, which was about 10-12 years of savings from the age of 18-31.

halfpastfive

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Re: Patent litigator turned stock market investor taking questions

Post by halfpastfive » Tue May 11, 2021 5:08 pm

ChessPlaya wrote:
Wed May 05, 2021 2:17 pm
Thanks for doing this. I have a few questions for you:

1. Can you talk about your life as an associate in patent litigation? What were your hours and lifestyle like? How did you like the work?

2. When you quit your associate job, did you just start investing in your personal account using your own savings, or did you have outside capital? Is your plan to build a track record and then seek out investors? Did you ever think about trying to work as an analyst for hedge fund or something similar?

3. I'm super curious about your personal finances, to whatever extent you are comfortable sharing. When you quit law, how much did you have saved up, and were you able to generate enough income through your investment portfolio? What percentage of your net worth is in your portfolio? Is this still a sustainable path forward for you?

4. For someone with an interest in investing and idea generation (I used to focus on special situations like spinoffs) , how difficult would it be to remain in Biglaw and manage a personal stock portfolio?
1. Irell was insane. I could work from the beach if I wanted to (and I often did). They had this incredible "no face time" policy. I'd literally jump from beach to beach, cafe to cafe, and work from there. I think at one stretch I wasn't in the office for like 2 months? It was kinda crazy. I loved workin there. I loved the people, the work, etc. The people were quirky for sure. But so am I. I loved my time there.

I liked some parts of pat lit. I mostly liked working with Irell people. They were very interesting and really pushed me hard but in a good way. I learned a ton from them. I loved - even more probably - clerking for J. Pfaelzer in CDCA. She was amazing. (She's passed now. RIP.)

The only problem with patent litigation is that (1) you're usually fucking around with documents written in the late 1990s by lawyers; (2) the tech isn't as cutting edge as you think it is; and (3) litigation is fundamentally intellectual dishonest work. The third point is pretty interesting. In 1L they tell you that lawyers deemphasize bad facts and emphasize good facts. Nobody really tells you that this kinda thing isn't for everybody. Not everybody is wired to do that. I think clerking after law school kinda fucked with my head. I learned way too many bad habits from that job. My boss (J. Pfaelzer) was trying to solve problems and be the best judge she could be. And the lawyers on both sides were usually lying. So we didn't like 90% of the briefs. So I kinda took away from that experience that the best litigators help the adjudicator solve problems. I'm not sure if what I'm saying makes a lot of sense. But investing is wayyyyyyy easier on the soul than being really good at slanting facts for a living.

2. Yeah I just did my own thing. I have zero interest in managing anyone's money (and their emotions). I'm not good at marketing so I wouldn't have convinced anyone to invest their $ with me.

3. $500K or so. I have ~$10.4M now in book value (net of deferred capital gains taxes). It's been surreal. It's all in CarGurus common stock. I don't have any kids. My SO has her own job and we don't really mix finances (we aren't married). 100% of my net worth is in my portfolio, i.e., in CarGurus common stock. I have like $1,000 in my checking account lol. I'm dead serious about all this.

4. I would say you could easily do a biglaw career and pick stocks on the side. I think there's no chance in hell I could do what I do without oceans of available time to just think about one problem for months and months at a time and sit on it. All I do is exist in the microeconomics of my "all-in bet" company.

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