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Featured GuestTax & Wealth Preservation VideoHeetan Doshi – The New Age of Investing

Heetan Doshi – The New Age of Investing

About Heetan Doshi


Heeten H. Doshi, CFA, is the founder and portfolio manager of Doshi Capital Management, an independent investment management firm based in New Jersey. His 25+ years of experience as a fixed income trader, equity analyst, equity strategist and fund manager provide him with a deep understanding of the cause and effects from events that impact the global economy, stock and bond market.


The DCM Fund analyzes highly reliable predictive algorithms that generate a high conviction signal to seek strong returns for investors by taking long positions in S&P 500 index futures during risk-on periods and long positions in long-dated fixed income during risk-off periods. Doshi Capital Management’s investment philosophy is based on systematic principals – management looks to time the markets for high absolute returns in any market based on a distinct, research-based multi-factor quantitative investment model.


Prior to launching Doshi Capital Management in 2011, Heeten was a senior equity strategist for Brown Brothers Harriman’s Portfolio Strategy team where he focused on the U.S. economy, equity market and sector/industry investment recommendations. Previously, he also worked at Morgan Stanley as a research analyst where he conducted deep-dive fundamental company analysis and at Lehman Brothers as a fixed income trader.


DCM utilizes a data driven approach that combines quantitative methodologies with economic analysis and fundamental research to provide investors with positive, risk-adjusted absolute returns in any stock market and economic environment. DCM’s investment strategy focuses on relationships that drive asset prices to provide true diversification, reduce portfolio risk, and avoid steep market declines, thus enabling investors to remain invested in different asset classes with different return drivers throughout volatile market cycles.




Alan Olsen: Welcome to American Dreams. My guest today is Heaton Doshi. Heaton, Welcome to today’s show!


Heetan Doshi: Thank you very much for having me.


Alan Olsen: So it’s always exciting to have an entrepreneur coming on the show, and we’d love to talk about how you got to where you are today. So for the listeners, can you tell us a little bit about your background?


Heetan Doshi: Yeah, absolutely. So I run a small hedge fund, we run a macro strategy. I started the firm, about 10 years ago. Before that I spent many years on Wall Street working at Lehman Brothers, Morgan Stanley, Brown Brothers, you know, that put my time in on Wall Street. And then I went out and started my own fund.


Alan Olsen: What was like venturing out? On your own?


Heetan Doshi: Yeah, it was scary. To be honest, it’s not for the faint of heart, it’s definitely a lot more difficult than I thought it would be. When you’re working, especially for a big corporation, almost everything’s taken care for you, especially in my position. It’s just really generating investment ideas. When you’re on your own, you’re in charge of everything, really from back office, middle office, front office, you know, the accounting, the record, keeping the legal. So there’s a lot more to it, than I had considered when I when I first started.


Alan Olsen: Your company’s called Doshi, Capital Management?  Okay. So let’s look back into, you know, things that that transpired. Did you have clients right off the bat?


Heetan Doshi: No. So when I first launched them we launched just my own money for many years, a few family members, but we really just opened up to outside investors, beginning of 2020. So for a long time, it was just GP family money running the fund.


Alan Olsen: So when you, when you looked at your strategy, what was the value proposition that you were bringing into this market that you didn’t see existed?


Heetan Doshi: Yeah. So when I left, and I launched the fund, really living through like the tech bubble and the housing bubble, the goal was to not lose money it was to generate returns year after year, right, because at that point, really is are my own money, and I live off of it, and support my family off of it. So, a lot people don’t realize is going through a recession, recessions take, five-seven years, right, at least the last two to recover your capital. So imagine, if you’re invested, and you go through a recession can’t wait five years to recoup my capital, right. So really, the initial goal was like, how do we avoid recessions? How do we avoid big macro downturns? And then from there, we took this strategy, and we turn it into like shorter cycles of like, how do we view shorter cycles throughout the years? How do we generate consistent returns every year? And really that that became the goal is just to have consistent positive returns year after year.


Alan Olsen: In a recession or not recession, then basically, what is your goal for average return?


Heetan Doshi: Yeah, so the goal for average return is about 20 to 25%. On an annualized basis and that’s over time. That’s over a business cycle, really it’s not year to year, that’d be almost impossible to do that, every year but but the goal is two sharp ratio, and you know, 20 25% returns over a full business cycle.


Alan Olsen: What should investors be thinking about in worried about in love in today’s dynamic market? Climate?


Heetan Doshi: Yeah. So, so I think the market is very volatile, right? We’re, we’re facing things that we haven’t seen in decades. Inflation is extremely, extremely high. We have the largest war since World War Two in Europe going on. So there’s a lot a lot of headwinds facing the market. I think really what investors need to focus on is what the Feds going to do. I think interest rates have moved up significantly. We’ve seen the short curve come up a lot. We’ve seen the curve invert quickly. But I think what investors really need to keep in mind is that the Fed is going to be doing quantitative tightening, they’re going to be reducing their balance sheet, and I think that’s something that really hasn’t hit the market yet. Right? The markets really focused on how much the Fed is going to raise interest rates, how often they’re going to raise interest rates. But I don’t think we’ve seen that market impact of them reducing the balance sheet and I think that’s going to be, a major headwind, throughout the rest of this year, and I think, we’ve seen long term interest rates rise, but I Think they can rise a lot further once the Fed tries to reduce their balance sheet. So I think that’s something that the investors should keep in the back of their mind.


Alan Olsen: How does the market timing, strategy support both portfolio diversification?


Heetan Doshi: Yeah, so our goal in terms of market timing, the instruments we use, we invest in index funds. So one, we’re not picking stocks, right, we’re investing in a broad index. So that’s one layer of diversification. And then the second layer is we’re trying to time the market, we’re trying to avoid, you know, macro events. So when you layer those on top of each other, they prefer to provide a lot of diversification to a portfolio. And you can see that because our fund has a low correlation to almost any other asset class there is really, whether it’s equities, bonds, gold, crypto real estate, right. So we have a low correlation to pretty much anything. And so, you know, from our point of view, adding us to a large portfolio helps increase diversification.


Alan Olsen: When you look at the old 6040 portfolio allocation of should investors still stay with that? Or should they be rethinking diversification in today’s world?


Heetan Doshi: Yeah, no. So they should definitely be rethinking that, I talked about this back in June of 2021, that the 6040 portfolio was dead, right? It’s worked so well, because we’ve been in a bond bull market for 30 years. Right rates have gone down for 30 years. So as rates go down, bond prices go up. So that’s really supportive, that 6040 portfolio, we’re seeing an inflection in bond yields, right, as rates start to rise, bond prices go down. And so that’s really going to hamper that 6040 portfolio. And I think what a lot of people don’t realize is, as rates go lower, bond prices become more volatile, right. And the whole point of a 6040 portfolio is to reduce volatility, right, it’s to offset that equity volatility, with a stable bond position. But in fact, as rates get lower, and lower and lower bond volatility increases. So it’s almost counterintuitive, that you’re trying to reduce volatility, but yet, you’re introducing more volatility. And so, you know, I had done a study last year that showed that over the past decade, from a risk return perspective, a 6040 portfolio is equivalent to being 95% in equities, right, so and you get a much higher return. So in my mind, you know, that 6040, at least over the next couple of years is dead. Until you see rates normalize until we see the yield curve, normalize, the Fed has held rates down artificially for a very, very long time, with trillions and trillions of stimulus and bond buying and mortgage backed security buying, right, they’ve really suppressed yield. So now, as the Fed raises rates to fight inflation, as they reduce their balance sheet, that rising yields, is really going to hurt that 6040 portfolio. So, from my standpoint, I mean, that idea is really dead, for the next couple of years until rates normalize.


Alan Olsen: What are investors get wrong about today’s market? Is their number one problem?


Heetan Doshi: Yeah, I think, I really saw this in 2020, during the pandemic, we got so many phone calls from investors. And they just didn’t understand the market. And the thing that I realized that investors get wrong is they don’t realize that the market is forward looking. Right? It’s for looking six to 12 months. And people that they live in the day to hear that now. They get so much news on their phone. And they and they see the data and the news headlines. And they wonder, Well, why is the market not reacting to the news headlines? That’s because the markets already past that, right? The market is a discounting mechanism. It’s looking at 12 months out, where are we going to be? And we saw that in 2020, the market bottomed, and it had a really hard rally, and there, 15 million people unemployed. And I had a lot of investors calling a lot of people calling saying, Why is the market going up so much, when they’re millions and millions of people are unemployed, and the economy is shutting down, and we’re in a recession? And, you know, and just explain, explain to everyone that well, the market doesn’t care about now, it cares about where are we going to be in 12 months, and in 12 months, there’s a vaccine that could happen the economy could be recovering. Right. So, I think that’s the number one mistake is a lot of investors they don’t realize that the market is it’s a forward looking mechanism.


Alan Olsen: So when you look at hedge funds, and when we talk about hedge funds, typically there’s a big negative connotation in the media. Can you identify why that is? So?


Heetan Doshi: Yeah, I think every year hedge funds, get bashed by the Media. It’s almost like a reoccurring theme. And I think the the biggest misconception is that the media paints the picture that hedge funds don’t outperform the market, right. And the market has done really well over the past, three years. But that’s not the goal of hedge funds, right. And so when the media always compares hedge funds and a broad index of hedge funds, compared to the market, and I think a few things, one, there are 1000s and 1000s of hedge funds, and there are 1000s of different strategies, right? So it’s hard to just  aggregate all those different strategies and say, Okay, this is how the average hedge fund does, right? I mean, there are long short hedge funds, market neutral hedge funds, macro hedge funds, credit, hedge funds, crypto hedge funds, right? I mean, just different asset classes, that they have different return drivers. And so to just take, you know, an index of all of them and say, well, they’re underperforming the market? Well, you know, I mean, that you gotta take that with a grain of salt. And I think, you know, people also don’t realize, you know, the purpose of a hedge fund is to hedge. Right, it’s to provide diversification to a portfolio, not to beat the market year after year.


Alan Olsen: Why should investors be inside of a hedge fund right now?


Heetan Doshi: Yeah, I think hedge funds the right hedge fund provides diversification, it can provide consistent returns, right? A hedge fund is a part of a portfolio it, you know, it’s not, it shouldn’t be someone’s entire portfolio, right? There’s a place for passive investing for just being in the market being in the index. But there’s also a portion that should be an alternative investments that can low in something that’s uncorrelated to the overall market, something that can provide downside protection. Right. I mean, we saw this year, just January, February, right, the markets, had a pretty severe drawdown. And so  it’s always good to have something to protect against those those losses. And I think, you know, a lot investors didn’t, you know, they don’t realize that because, you know, they’ve almost been lulled into complacency that the markets done so well, for so long, where we’ve been in an almost 12 year bull market, that investors, you know, they forget almost what volatility looks like, what a recession looks like, what what being down 30% Looks like, they forget that it hasn’t happened in so long. I mean, the last recession ended in 2009. I bet you most traders, you know, that are working right now, I don’t even remember what that recession looked like the pride dating myself, but you know, but I remember what that felt like. And so I think, this year, especially we’ve, the hedge fund industry has seen a really big increase in activity, a lot of interest has grown, because of that volatility, I think the easy money is behind us, right, the markets done well, for so long, that now you need to like reassess your portfolio and say, okay, where can I diversify? What other buckets can I have? Right, where else can I place put in my portfolio to, I guess, have gains going forward, considering the market has done so well, for so long, and it’ll likely, be choppy over the next couple of years.


Alan Olsen: So an investor new to hedge funds that want to venture into this area, What is it some of the key questions that they need to be asking themselves as they do due diligence?


Heetan Doshi: Yeah, I think, the number one question is manager selection right there, like I said, there are 1000s of hedge funds, a lot don’t do well, and a lot do do well. And, if you look at any category of hedge funds, just long short hedge fund, for example, there are 1000s of hedge funds, right? So really, it’s manager selection, it’s almost like picking a stock, right? I mean, if you look at the if you look at the tech sector, right, you have to know which stock to pick, right? You’re gonna pick Apple, you’re gonna pick, Netflix getting crater today, right? I mean, it’s all about stock selection, same thing for hedge fund, it’s all about manager selection. So I definitely think anyone you know, who’s interested in investing in a hedge fund it’s looking at managers, it’s looking at how that strategy fits into their portfolio, right? Does it provide a benefit, someone who has a lot of equities probably doesn’t want to own a long only equity hedge fund, right? That’s just exposure to the same thing. So it’s about where it fits into your portfolio. It’s about the track record of the manager, right? You want to see a long track record, you’d never want to judge someone based off of a month or a quarter or a year. You know, so you want to see that, that track record. And really, you know, you want to do your due diligence, you want to make sure that they have risk management in place, that they have staff, you know, staff in place to see Oh, they’ve audited financials, right. It’s all the sort of the basic due diligence that investors need to do. But yeah, I think really, the two biggest thing is manager selection and fit into their portfolio.


Alan Olsen: So any advice or lessons learned? is you’ve ventured out into your own fund that you can share with our listeners?


Heetan Doshi: Yeah, I think the biggest lesson that I’ve learned is you need to keep your emotions in check. Right. I think that applies to any any any investor, any investing philosophy, right? Whether you’re a hedge fund or retail investor, or no matter what you do,  it’s hard to keep your emotions in check, right? It’s in that just when the markets are falling, even when the market is doing great, it’s hard to stick it out, it’s hard not to, like take profits off the table, and then regret it later on. So that’s the biggest lesson that I’ve learned is, is really you have to stick with your, with your process really, right, you have to follow the process. You have to have your rules in place and stick to them. And not get overly involved in your emotions, especially when the markets are really volatile, it’s easy to get caught up, right? The media and the news and everything that’s happening and make a rash decision, which I have done. I’ve done that in the past. And I’ve learned my lesson from it. So speaking from experience, I think that’s really the biggest lesson I’ve learned is, is just knowing you know, when to take a step back.


Alan Olsen: So, for the listeners that who want to follow up and contact you Heetan, how would they go about that?


Heetan Doshi: Yeah, they can go to our website, you know, www.Doshicapm.com. From there, they can email us call us fill out the contact form. It’s an easy way to learn about the firm to learn about the strategy.


Alan Olsen: Okay, I’ve been visiting here today with Heetan Doshi, and it’s been a pleasure having you on the show today.


Heetan Doshi: Thank you so much. I really enjoyed it.

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This transcript was generated by software and may not accurately reflect exactly what was said.

Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.


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