About the Author vii

Acknowledgments ix

Preface xi

Part I Market Environment: The 2010s and 2020s

Chapter 1 Challenges to Active Investing 3

Chapter 2 Global Central Bank Intervention 15

Chapter 3 Accelerated Pace of Technology = Disruption 29

Chapter 4 Passive Investing 41

Chapter 5 The 2020s 51

Part II Creating Alpha

Chapter 6 A Cohesive Strategy 69

Chapter 7 Investment Process 81

Chapter 8 Security Selection 91

Chapter 9 Valuation 115

Chapter 10 Capital Allocation 127

Chapter 11 Portfolio Management 133

Chapter 12 Short Investing 157

Part III The Bigger Picture

Chapter 13 Goal Congruence, Fiduciary Responsibility, and Learning 173

Glossary 181

Index 183

Praise for Active Investing in the Age of Disruption

"The performance of active managers has come under pressure over the past decade and value investing has underperformed expectations. Evan Jones not only reveals the drivers behind this underperformance but also creates a roadmap for generating future alpha. Jones has successfully integrated many of his key investment principles into our investment process at DUMAC which has led to long term outperformance. Whether you are launching a start-up hedge fund or have decades of investing experience, you'll find value in the insights amassed from his diverse background—entrepreneur to hedge fund manager to endowment investor."
—Neal Triplett, Chief Investment Officer, Duke University Management Company (DUMAC)

"Thinking of giving up on active management? Don't. In this combination memoir and how-to manual, Evan Jones shows how technological innovation and changing economic policies create new alpha opportunities—some of them very large—even as old ones disappear. A compelling read, peppered with words of wisdom from great investors of the past and present."
—Laurence B. Siegel, Gary P. Brinson Director of Research, CFA Institute Research Foundation; author of Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance

"In the institutional investing world, already drowning in data and how-to tomes, it is refreshing to come upon a book that is insightful and accessible for practitioners of all levels of experience. Evan Jones has written just such a book. Investing for endowed institutions—serving both present and future generations—has become markedly more challenging in the 21st century. Jones lays out with clarity how we got where we are, what's important to know now, and what behaviors, practices, and principles are critical for investors and their clients to establish and live by in their quest for superior investment performance over the long term. A skilled practitioner experienced in long and short, active and passive, domestic and global, across multiple asset classes, Jones speaks with authority but in a straightforward manner with language that doesn't intimidate."
—Thruston Morton, Founder, Global Endowment Management, LP

"Processing information is critical for driving strong investment returns. Historically, availability was an issue, but now the challenge is information overload. So how do investors process it all? Evan Jones solves this problem by providing a thoughtful adaptive learning approach to muffling the noise and focusing on what's relevant. As this dynamic continues to proliferate, his book will surely become increasingly valuable over time."
—Joshua Pearl, Founder and CIO, Hickory Lane Capital Management LP; co-author of The Little Book of Investing Like the Pros and Investment Banking

"Evan Jones' Active Investing in the Age of Disruption reveals the secrets of how a successful endowment manager evaluates a portfolio manager and dissects their security selection and portfolio management process. This provides a useful template for allocators and high-net-worth individuals to use when evaluating potential investment managers, but also offers important insights to portfolio managers who are looking to raise capital from those same investors."
—Paul D. Sonkin, former portfolio manager, The Hummingbird Value Fund and Gabelli Asset Management; co-author of Pitch the Perfect Investment

The amount of data and research available to investors is overwhelming. Investment professionals are bombarded with hundreds of emails containing news and opinions on a daily basis. Television shows, podcasts, and investment blogs offer a constant stream of analysts, pundits, and executives offering their views on how to outperform the market. All of this information, almost exclusively focusing on the current point in time, is only of value to investors if they understand how, when, and where it will be used. For most non-professional investors, passive alternatives are usually the best option. However, dedicated professionals can benefit immensely from disciplined, effective active management.

Active Investing in the Age of Disruption is designed to help investment managers, professional asset allocators, and sophisticated individual investors generate positive alpha. Providing an innovative, adaptive learning approach to active equity investment strategies, this book examines a range of investment methodologies that can be implemented to achieve predefined risk and desired return.

Written by the manager of Duke University's Direct Investments portfolio, this book offers insights on the investment process, examines the broader scope of the financial markets, and explains how the stream of data can be used to create superior results. Divided into three parts, the book first analyzes the challenges faced by active investment managers that arose in the last decade and explores how these challenges will affect the next ten years and beyond. Part two contains detailed coverage of the investment tenets and investment process necessary for creating alpha in the public equity markets, including security selection, valuation, and portfolio management. The final part looks at the bigger picture, focusing on goal congruence, fiduciary responsibility, and learning.

Beating the market through active equity investing has never been more difficult: central bank intervention, macro-driven financial markets, and accelerating technologies are continuing to disrupt traditional business models across industries. The obstacles in the current environment will likely remain for some time, requiring investment managers to think differently about risks and opportunity. Active Investing in the Age of Disruption is an invaluable resource for refining the investment process and leveraging the alpha potential of different strategies for outperforming the market.