Prime Opportunities Investment Group Founder and CIO Pouya David Yadegar transitioned from a successful real estate career to running one of the top performing hedge funds globally. We discussed the change with him in an interview last week and gained some insight into his journey:
What’s your investment background?
Prior to founding Prime Opportunities, I managed our family office wealth in Los Angeles, with a focus on the purchase and development of multifamily and retail real estate assets in high-end areas of Los Angeles County such as Beverly Hills and Brentwood. Our family office invests long-term with a very conservative mindset: I don’t think we’ve sold a property in 40 years, and thankfully this strategy has served us extremely well over the years.
Why did you start Prime Opportunities Investment Group?
I love real estate, but I also love studying publicly traded companies. Since I was very young, I’ve been tremendously passionate about it. My first exposure to the field was when I began reading Warren Buffett’s annual letters when I was 12 or 13 years old – I couldn’t put them down, and proceeded to read everything I could on the subject.
Also, although we experienced great success in real estate investing, I was consistently finding stocks that I believed were worth 3 to 5 times more than what they were trading for. What some people perhaps view as a drawback of the public markets – volatility – I saw as an opportunity for profitable long-term growth, when done right.
What were some of your best investments to date?
We invested in Amazon about 8 years ago, in Chipotle around the time of its inception (exiting the position several years ago, and re-entering recently), and in Tesla 5 years ago – all of which have increased around 10x since we bought them. Thankfully, many of our stocks have done exceedingly well as we’ve also been in FedEx, T-Mobile, Activision, Virgin America (before they were acquired) and many of the best performing companies – but those three stand out as the top performers.
A common thread, and one of the main themes in our strategy is the need for businesses to be “China Proof” – a term we coined several years ago. Our view is that China has many competitive advantages: a population of almost 1.4 billion people that work for 10 cents on the dollar – relative to the United States and other industrial nations – as well as the fact that they are hard-working, very smart, and have the support of their government behind them… and now the consumer has moved into their backyard. We find companies that are either immune to these competitive forces, or can actually capitalize on them by selling into the Chinese market on a sustainable basis. To have the performance we’ve been able to put up, you have to find investments that have huge competitive advantages, and can grow substantially in the future.
What is the single most important thing you look for in a company?
The biggest thing to look at is how big the company can grow. If you extrapolate out the business potential, and you align that with unbelievably good management, the numbers scream off the page. The ability to conceptualize business factors, combined with the mindset to see exactly how large a market, or an opportunity, can grow, is the backbone of amazing returns.
Our thesis was different for each company, but they all shared the fact that we believed the market was vastly underestimating their value. We believe successful investing takes hard work. For every company we look at – Amazon, Chipotle, and Tesla included – we spend countless hours reading and analyzing their operations and future prospects, before making an investment.
Your long-only fund has returned an average of 30.5% per year, over the last 9+ years, before fees. The S&P 500 has returned 15.5% per year during the same time period. You’ve outperformed the market by a very large margin, and you’ve done this with no leverage or options – simply pure stock-picking. To what do you attribute your outperformance?
Ultimately, I believe the most important thing is your ability to accurately assess the long-term prospects of companies. In order to figure that out, we have a simple (but difficult) process: We read. A lot.
Among the numerous factors we analyze when evaluating a company, we assess the strength and durability of its competitive advantages, the talent and ability of management, the growth potential, and the return-on-capital profile of the business. In the end, your performance is tied to your ability to accurately assess the variables that matter.
Do you see this type of performance continuing? What is your current outlook?
Every day, we work diligently to study companies as thoroughly as we can, seeking new opportunities – and re-assessing our current positions. I am pleased to see that – as we continue to research companies – we are finding opportunities that are just as undervalued as when we first started. Over the short term, the market is predictably unpredictable. Our approach is to take a long-term view of the businesses we invest in – and through that lens, I am optimistic as to the potential our investments hold.