Ep 11: Danilo Santiago on Incorporating Macro and Earnings Cyclicality Into an Investment Framework

The Pitch Podcast

Summary

When it comes to equity fund management, you can never know enough. In today’s episode, we speak to Danilo Santiago, Founder of Rational Investment Management, about the strategies he has implemented to best predict and navigate the tricky world of value investing. First, Danilo lets us know what sets his approach apart from that of other equity fund managers and gives us the lowdown on how earning cycles impact prices. Next, he talks about the four strategies that inform his work and what he considers to be the three legs of a successful strategy. We touch on why Danilo considers multiples but does not factor them into his model and he lets us know what he requires of companies in terms of buybacks and dividends before including them in his portfolio. Next, we talk about the term ‘Circle of Competence’, coined by Warren Buffet and on which Danilo has curated his basis of companies. We dive into the influence of market cycles and macro events and talk about how looking at a company’s methodology guides us in predicting its future. Danilo shares a word of advice: fully invest when you see opportunities, and he explains the value of letting your net exposure vary. In closing, we discuss the importance of having a pre-emptive approach rather than a reactive one and Danilo gives us his predictions for the future of value investing. Tune in today to soak up the wisdom of a master in the field of equity fund management!

Key Points From This Episode:

• An introduction to today’s guest, Danilo Santiago.
• Danilo’s educational background in engineering and business.
• How his approach differs from that of many other equity fund managers.
• How earning cycles impact prices.
• The four strategies that Danilo runs.
• Three legs of successful strategy; full strategy, portfolio construction, fundamental analysis.
• Why Danilo considers multiples but does not factor them into his model.
• The requirements of being included in Danilo’s portfolio in terms of buybacks and dividends.
• Which industries are most conducive to Danilo’s analysis.
• Defining the term, ‘Circle of Competence’ and the influence it has had on Danilo’s strategy.
• How Danilo has curated his basis of companies.
• Defining ‘unknown unknowns’.
• How market cycles and macro events factor into constructing a portfolio.
• How methodology can help to predict future performance.
• Why you should only fully invest when you see the opportunities.
• The value of letting your net exposure vary.
• Who Danilo’s strategy is ideal for: sophisticated, financial, well trained individuals.
• Why you should be pre-emptive rather than reactive.
• Danilo’s predictions for the future of value investing.