A fundamental question for investors is ‘what is your edge?’ Starting with the idea that each time we buy or sell, someone else is making the opposite decision, anybody seeking to maintain their investment performance has to have an answer to that question. It could be better analysis, or a more disciplined approach, or that one has turned over enough rocks to find something new that no one in the market is watching.
Slingshot Insights goes one further step with the ‘what is your edge’ question; their approach is to find experts on a given topic and ask them about what does or doesn’t matter. Given Slingshot Insights’ focus on healthcare and biotech, where expertise is at a premium, getting scientific or other high-level insight would seem especially ‘edge-worthy’. The group’s Marketplace service is fittingly called Become The Smart Money. We emailed with the team to hear about their approach and about what they’re hearing in the still rocky healthcare sector, and where they’re looking to learn more.
SA Marketplace: Could you talk about your approach generally with Slingshot Insights? What led you to this direction?
Slingshot Insights, author of Become The Smart Money: At Slingshot Insights we work to connect investors with questions to the most knowledgeable experts with answers. Why do we do this? Because we know that the best capitalized professional investors spend more money on expert and management access than any other diligence resource. Until now, these tools were not affordable for the vast majority of people. We think direct access to those closest to the situation, be it doctors, buyers, or management teams, brings life to the independent research investors currently do.
By speaking to experts directly, investors are able to probe big picture proclamations by management teams. We are currently focused on healthcare with plans to expand into additional sectors in 2017.
We started with healthcare because of the complexity and diversity of the industry. For example, if a management team has claimed a new medication’s addressable market is 500k patients, a lot more research needs to be done. Speaking to a physician who has treated the illness for 20 years and was involved in the drug’s development can provide valuable granularity to that number. Carefully crafted questions and follow-up inquiries can peel back patients that might be too sick to go on therapy, already satisfied, or contraindicated. Often these nuances can mean the difference between missing launch estimates and a huge takeout premium.
SA: How do you make sure to get value out of the calls? Interviews or Q&As can be tough to control, so how do you handle that?
SI: We have many steps and procedures in place to ensure our customers get value from the telephone interviews we set up. First and foremost is expert selection. We screen each expert for relevant experience, analyze their biography, and evaluate more than one candidate. The experts on our network are often in the small group of authoritative voices on a specific topic. They are called “Key Opinion Leaders” for a reason and even other professionals look to them for direction. Once an expert has been selected, we organize both specific questions and an overarching goal of the conversation to make sure the time is well-spent. By connecting preparation with selection we are able to consistently deliver insightful conversations.
A good expert is essential, but a strong call leader is also important. Our calls are led by an impressive group of investors, many of whom manage millions of dollars professionally and have closely followed the companies discussed for years. We have been consistently impressed with the caliber of dialogue and degree of sophistication our call leaders bring to the table.
SA: And then where does your expertise in the industry come in? When making your final conclusions, if any, where is there room for you to insert your opinion and analysis independent of the collective expert opinion (for example, if you have 2 or 3 experts who disagree on something)?
SI: An investor’s individual experience is critical to maximizing the value of a call. Understanding the salient points on a topic going into the conversation can often mean surprising the expert with a ‘good’ question.
Beyond asking clever questions, interpretation of the answer also takes skill. Frequently investors listening to the exact same conversation will come away with different conclusions on the investment implications due to their own larger experience and knowledge basis. Oftentimes as professional investors do, our members will execute multiple calls on a topic, further refining investor questions and drilling further into specific learnings from the prior call(s) to form the basis for a strong investment thesis.
SA: What’s the biggest revelation you’ve heard on a call over the last few months, and what’s the significance for investors?
SI: Often the biggest revelations will be surprising answers the expert takes for granted. This dismissal of a management claim out of hand can be particularly surprising to call listeners. Two recent examples are particularly stark. In the first an expert explained why anatomically a drug’s delivery method would not work for that indication. The drug just wouldn’t reach the part of the eye needed to treat the disease. A second involved a new treatment similar to what was the current generic standard of care, but supposedly did not cause 2 key side effects. Talking through these “improvements” the doctor made it very clear the risks were theoretical at best and not something he or his patients were worried about in reality. These comments are very actionable and a great check against rosy management proclamations.
SA: In the previous roundtable you joined, you mentioned healthcare policy was a big factor to watch for, while at the same time mentioning skepticism that drug pricing would change much. With a few more weeks of information, what’s your current outlook for the regulatory/political environment for healthcare companies?
SI: Sadly it seems that the political bashing and rhetoric around healthcare over the past 12-18 months has soured many investors on the space. General interest is down and “sexy stories” are harder to find. We have the view that sectors out of favor are the most fruitful for diligence and selective investment. Value exists and sizzle is cyclical.
SA: You also mentioned in that roundtable that Slingshot Insights doesn’t tend to take positions. How come?
SI: We see Slingshot Insights’ great value as empowering investors to form stronger theses for where they put their money. By serving as an open platform connecting investors with information, the community’s creativity and idea generation is endless. Much like Seeking Alpha only endorses strong articles, rather than forming a portfolio, we see ourselves as a platform rather than one more stock tip newsletter. Our offering is experiential and is hands-on for our members. We believe the only way to consistently beat the market is with well-researched and differentiated ideas, not a ‘hot tip’.
The differentiator for Slingshot Insights is broad access to this previously closely guarded resource. Despite professional investors spending more than $600mm annually on expert access, the number of investors utilizing it was a small % of the overall market. We see these conversations becoming the backbone of countless investors’ theses and raising the caliber of investment discourse broadly.
SA: What is an area of strong interest for you right now, and why?
SI: As we mentioned in the round table recently, oncology remains a very hot topic; not only because oncology broadly represents dozens of smaller diseases, but also because of the degree of innovation in the field right now. Investors, governments, and scientists have focused on oncology broadly for many years now and that work is finally bearing fruit.
One of the biggest cancer conferences of the year is the first week of June and a list of all the papers and presentations were released this past Thursday (4/20). Events such as ASCO are where the progress of an entire medical field is unveiled, and investors are rightly very excited and focused on them. We will be hosting a number of Expert Interviews and Management Calls both before and after this event to help orient investors on the latest breakthroughs.
SA: What is an area you are finding more difficult for investors or experts to shed light on, and what are the challenges in that area?
SI: The hardest area for us to get good ‘experts’ on right now is public policy. Through a combination of regulatory restrictions on what government employees may speak to investors about as well as a general lack of political consensus, it is an opaque topic. Fortunately, there are still many names on both the long and short side that can work despite these challenges.
Thanks to Slingshot Insights for joining the Roundtable! If you are interested in their work, follow their profile. And click the Become The Smart Money link if you’re interested in checking out their service.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.