Video Extra – Why This Shortseller is Long This Stock
Insightful deep dive with someone who went from special ed classes to a law degree to starting his own fund.
Quick note: I’m dispensing with the usual Weekly Wrap to bring you my recent interview with George Baxter of Sabrepoint Capital. If you’re a regular reader, he’s the short-seller who believes Turning Point Brands is the single best long of his career. And while we’re at it: If you’d like to see more interviews like this from me, let me know.
Like most people I “know” in this business, I’ve never met George in person. It’s all via phone (and as of last week, Zoom)... and then, I’ve only “known” him for a few years. When I first interviewed George several months ago regarding Turning Point, I mentioned it would be fun to do a podcast or a video. Well... here it is...
Among the things we cover:
How he got into this business. (Not like most people. See below.)
How he got into short-selling.
Why he is so passionately long Turning Point.
What he thinks the short-term and very long-term upside is.
Why the stock could be volatile short-term.
Why that may be followed by stronger overall performance.
What the risks to his thesis are, including why his own deep research could turn against him.
It’s a good convo. Still, since George is not overly (or even barely) exposed in the media, there’s the question: who is George? I asked that question in the video. He answered it, but he skipped over the best part – the challenges he overcame not just to land him at his own fund and to finish law school, but to get through any school – but interestingly, one I’ve heard or read about from quite a few highly successful folks. It’s quite inspirational...
My path into investing was anything but conventional. I grew up with dyslexia and spent much of middle and early high school in special education classes. Out of necessity, I developed strategies to adapt, and along the way a great history teacher introduced me to strategic thought.
That became a lifelong theme – I became president of the Strategic Thought Club in high school, then at Texas A&M I joined the Corps of Cadets before realizing the military wasn’t my calling.
I had a group of friends outside of the Corps that I regularly played strategy games with. Everything changed for us when a game called Magic: The Gathering was released in 1993. The game was created by a professor of combinatorial mathematics and involves thousands of cards that can be played together in countless combinations. I was obsessed and started writing about strategies.
Ultimately, I co-authored the first strategy guide for the game, wrote nine books, played professionally, and became a world champion. That experience cemented my obsession with competitive strategy.
Ultimately, I decided I couldn’t build a family around a card game, so I turned to law. I approached law school like a strategy problem—starting in a fourth-tier school, then transferring to the University of Texas, where I graduated near the top of my class. From there I practiced corporate law, but investing soon became my focus. I devoured every value investing book I could find, attended Berkshire Hathaway annual meetings, and began managing capital with success.
In October of 2007, after having saved and compounded my capital sufficiently to support my family for a few years without a salary, I quit my job as a corporate lawyer and launched my first fund. Unfortunately, that was at the exact market peak. I managed to limit losses during the 2008 crisis, but with my lack of pedigree and given the market backdrop I could not raise outside capital, and my fund was too small to sustain me. Later I joined Hirzel Capital, where we generated desirable returns that attracted capital and led the firm to grow from $40M to $1.3B in assets under management.
In 2016, I left to form Sabrepoint Capital with a capped structure ($250M hard close in net capital raised in the documents) designed around two principles: (1) aligning tightly with investors, and (2) sharing economics more broadly with the team. I’ve also co-authored Understanding Behavioral BIA$ with neuroscientist Daniel Krawczyk, bridging practical investing with behavioral science.
Not surprisingly, behavioral analysis plays a big role in his investment process, as it does with Turning Point.
Enjoy.
Disclosure: I own shares of Turning Point Brands purchased weeks after the original interview. I’m under no obligation to disclose any future trades in the stock. This is NOT investment advice, but for informational purposes only. As always, interpret at will.