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- Our Conversation with Ram Parameswaran, Octahedron Capital - Part One
Our Conversation with Ram Parameswaran, Octahedron Capital - Part One
Enrique Abeyta
April 23, 2024
Last week, we put out the tenth episode of our HX Podcast, and it was by far our BEST!
We had the opportunity to speak with our old colleague Ram – whom we have known for over a decade.
I first met Ram when he joined me at my prior firm, Falcon Edge Capital (now Alpha Wave). He was fresh from the brokerage side of the business and knew next to nothing about investing at the time.
He impressed me with his humility, curiosity, hard work, and raw intelligence.
We have kept in touch over the last ten years, off and on. He moved to Silicon Valley, joined one of the most successful technology-focused hedge funds, and now runs his own fund.
What we had not done over that time was have a conversation about INVESTING.
We had that opportunity last week on our podcast, and I have to say that I was BLOWN AWAY!
He has distilled his raw talent into an outstanding investment philosophy. One of the most focused and intelligent that I have ever seen.
On the back of that conversation, we wanted to take the following issues of HX Daily and share some of his insights along with our commentary.
Note that we have done some "light" editing to the stream-of-consciousness conversation from the podcast. You can listen to the original here or watch it on YouTube below.
Here we go…
On investing in “ten-bagger” stocks…
Well, first – this idea of “ten-baggers,” while it sounds sexy, is littered with many zeros. People only "cherry-pick" their successes (and don't mention their losers.) First, I would say I don't invest that way at all. I look for three- to five-baggers. Can I, over a reasonable period, make three times my money? That is for my public investments.
Most of the ten- to one-hundred baggers we discuss are found in private markets, not publicly traded stocks. That’s not available for many people in the audience, so the question is, how do you make ten times in the public markets? It does happen all the time…
Enrique’s Take…
This is a GREAT insight. We often discuss how a single ten-bagger (or more) can change your investment portfolio results. It is crucial, though, to understand that in publicly traded stocks they are hard to find and may be too risky for most investors.
Remember that most stocks with THIS kind of upside also have a considerable downside. Many of them can (and will) go to zero, and that may not be something you can tolerate in your portfolio.
His target investment goals…
I'd also like to double my money but in three years. That's approximately a 30% IRR. With this goal, for me, what's important is my hit rate, and you know I'm really, really focused on hit rate. Once you have a high hit rate that generates doubles periodically, you end up with Hall of Fame returns, generally over long periods.
Yes, Steve Cohen is a certified genius, and part of the high hit rate is that he covers so many stocks in many sectors. Having a 55% hit rate covering a wide variety of equity and debt products is truly genius.
We cover 50 to 60 stocks, and our hit rate is much higher than that because we cover three to four areas. It's closer to 80 to 90%. That's the first thing I focus on.
Enrique’s Take…
As I said on the podcast – wow! This makes SO much sense!
Instead of covering a broad swath of the market, he focuses on a narrow group of stocks with tremendous upside – e-commerce, internet, software, etc.
His statement is true – if you can do an 80% hit rate with stocks that can double, you are a Hall-of-Famer…
The “Fake-It-Until-You-Make-It” mentality in Silicon Valley…
What happened during the “ZIRP” era is that many CEOs were way above their heads regarding their marketing and scaling. This is my caution number one in most technology companies. The problem is that technology companies, especially ones backed by venture capital, get a lot of media waves, and they get a lot of media attention because the reality is you've got to “fake it until you make it.”
This was done for the longest time, meaning that many CEOs become extraordinarily good salespeople. You've got to be careful in understanding who's real, who's salesy and really reading human emotion and human behavior. Now, of course, by the time they get to the public markets during the “ZIRP” era, some of those traces remain, which is why we saw just a lot of SPACs that got blown up, and we see our fair share of what I call carnival barkers.
Enrique’s Take…
"ZIRP" refers to "Zero Interest-Rate Policy" and refers to the policy undertaken by government central banks worldwide for many years to hold interest rates near zero. This resulted in the availability of a lot of inexpensive capital for entrepreneurs.
This is an insight that I had never thought of, and Ram being surrounded by the environment of Silicon Valley gave him the ability to identify it.
The reality is that entrepreneurs must have a tremendous amount of self-belief in the face of incredibly difficult odds. That is inspiring – and can help get them funding – but it doesn’t necessarily scale well once you have a real-world company.
Identifying the ones who can grow is a critical difference. For Ram's strategy, understanding management is vital.
These are the first of some unique insights from our conversation with Ram, and we will share some more in tomorrow's HX Daily.
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