22: From Bar Mitzvah Money to Running a Hedge Fund | Matt Poliak on Investing, Energy, AI & Building a Life

Speaker A: Good afternoon and welcome to Unfiltered Finance. I'm your host, Ron Geffler. I started my career at the SEC in the early 90s. I spent the last 30 plus years on the inside of Wall Street. And the purpose of the podcast is to open the kimono and give you insight because it's about time you learn how the sausage was made. With me today is Matt Polyak, who is a client of the firm. Um, Matt, welcome to, uh, Unfiltered Finance.

Speaker B: Thanks so much, Ron. I really appreciate you having me. Uh, I'm Matt Polyak. Um, I'm the founder of Hummingbird Capital, which is a long, short, energy focused, uh, hedge fund based out of, uh, Chicago. So appreciate you having me on.

Speaker A: Come on, it's a pleasure. Like I said earlier as we were speaking, I'm connected with you on social media as well. So how do I not continue the dialogue with you on the podcast? So one of the things I find that people, um, always ask me about that are not in the industry. How did you get into the space?

Speaker B: Um, my passion for investing. I was very fortunate to fall in love with stock trading as quickly as I did, um, because it gave me a sense of purpose and direction, um, that was magnetic. I started trading stocks, um, with bar mitzvah money, ah, was looking into Nestle at the time and Apple, um, and trying to figure out good places to put some bar mitzvah money to work. And then, uh, in college, I was actually pre med, but I shifted from medicinal chemistry to an econ major because, um, the summer of my freshman year, I had about $600 saved up that I turned into 15 grand. Really, a lot of it was just dumb luck where, um, I had no idea what I was doing with my first few investments and doubled my money in two weeks. And for a college kid to make $600 in two weeks after telemarketing all summer was, was, uh, quite the juxtaposition of reality. And so, um, I just went down a rabbit hole of trying to educate myself as much as possible about how to trade stocks. And I was trading penny stocks. I was, um, doing research on, uh, 3D printing at the time was kind of the cool thing, just trying to figure it out and reading Investors Business Daily and anything that I could get my hands on or speak to anyone who I could speak to, who was willing to talk to me. Uh, I was literally just a sponge. To the extent that I fell in love with the industry, I knew that that's what I wanted to pursue as a career. And I was very, very fortunate to have that sense of direction so clearly at a relatively young age. Um, as a college kid, everything just became pretty, pretty clear to me. Um, and I loved the meritocracy of it. I loved, um, the substantive nerding out and doing deep research and, um, then putting those ideas to work.

Speaker A: Was there anybody in your, like, at that stage of your career that was really helpful or that might have added to your motivation?

Speaker B: Absolutely.

Speaker A: Um, and the reason I'm asking that is I'm assuming there's, there's a young Matt listening to this podcast or, or, um, Matilda. Right. And maybe help open their creative thoughts by sharing that, that part of your life story.

Speaker B: You know, I think I could spend this whole podcast talking about how fortunate I was to have certain individuals helping me along the way. Um, but, but we won't do that. Um, what I will say is I would encourage any young man or woman who is interested in anything that they're doing to pursue whatever it is that they're most passionate about. I believe that is going to be the best North Star in terms of career, success, finance, happiness, personal finances, happiness, whatever it is. If you really love what you do, I truly believe that, um, that, no, no work is really just that. So that that helps with motivation. And then along the way, um, I mean, I was speaking. I was calling people in college, like I said, just, just trying to be a sponge, calling people who were trading in their day, trading in their personal accounts and trying to figure things out. I was talking to portfolio managers who had been doctors who became portfolio managers at large hedge funds. So those were great perspectives to get. I would literally just pick up the phone and call anyone who was willing to talk to me. And that was super valuable. But as my career sort of progressed past college, um, and the way that I got my initial internship at Balliasney Asset Management out of college, I was very fortunate to get connected with Dimitri Bagliasney as a college student. And I knew him as a very successful individual, but I didn't really appreciate to the extent that he had built such an amazing business when I had called him and, and when I had called him and spoke to him, I was just inquiring and saying, hey, I like trading stocks. Uh, can I pick your brain? He was kind enough to answer the phone while boarding a plane and talk to me. Just a college kid. And that was so awesome to me. Um, um, you know, there was so down the line, I had four internships or four interviews for the internship, and, uh, became an intern and met so many great people who helped me along my career. Dan Orr, Christian Zahn, Saul Garber, Doug AH Garber, just Taylor o'. Malley. I mean I can talk to so many people who I've met and was fortunate enough to learn from or work with. Um, and every one of those experiences in life were invaluable. So I don't believe in the concept of a self made person. Everyone is made by the community around them and those that they surround themselves with. And I think that's so important to have a good infrastructure and support system around you in order to be successful.

Speaker A: So why do you think they spoke to you specifically? Because I'm assuming they get, they probably received calls from many other people and I know I get random calls from people that are in law school or email and some resonate with me, some catch me at the right time, some don't. So you must think that there must be some common threat as to why all these people took your call and took the time, however long it was or however short it was, to get to know you and to impart things on you.

Speaker B: I think that I genuinely believe in the goodness of people and people want to help. If you ask and you put yourself out there, I think, you know, a lot of it was also, frankly, just luck on my end. And, and um, and to the extent that they saw a young, hungry, passionate individual, you know, I try and do that today when, when people are emailing me or reaching out to me with as much passion or vigor as possible. The people who go that extra step to ask and genuinely are curious. I think that, uh, kind of potential, it's kind of a sin to leave it untapped. So, um, just about helping, I think helping other people.

Speaker A: No, look, I totally agree with you. It's more about, from my perspective, making the world a better place. And how do you make the world a better place? You help those around you and it's, it's an honor to be in that position as opposed to an obligation. So I see the world the same way as you do in that regard. So, um, so then what led you, where were you? What led you to launching your fund?

Speaker B: I got to spend the first decade of my career at, uh, Bally Asney Millennium Orion, um, and Intrinsic Edge Capital Management. I got to work at these great institutions and these great funds working with different, um, portfolio managers and seeing different aspects of the finance industry at the highest level. Um, and my process evolved every one of the stops along the way. So learning as much as I possibly could Taking that same mentality, whether I was a intern or senior analyst or a portfolio manager. And I think that's kind of also at the heart of any good investment process is the desire to consistently improve. Um, I think my personal ambition and aspiration was always to take the entrepreneurial route and sort of be the master of my, um, own destiny to the extent that I could. Um, and so Hummingbird Capital was sort of launched as a labor of love of, you know, what I do and what I hope to grow my business into is still ahead of us. But, um, the process evolved every step of the way and was very fortunate to spend that time learning from these great institutions.

Speaker A: Do you think going back to the entrepreneurial spirit, do you think it's something you were always wired to be that way, or was there a life experience that sort of put you on that path? Because I can point to a few things in my own biography that lend itself to that question.

Speaker B: I think the answer is yes to both parts of the question. And to give some examples, I think I have a tendency as an individual to like to be in control of what I'm doing and am frustrated by bureaucracy. Especially when I was younger, I think I tended to see, um, the finish line and want to rush to get there because I already saw where the ball was going. And as I've gotten older, it's certainly given me the perspective of slowing down and enjoying the journey a little bit more. Taking, uh, a stoic path, I think, is one that is sometimes lost on gratitude. And so to the extent that you can enjoy the journey more, great. But in terms of, uh, in terms of the context of owning my own business and how I put that into work every day at Hummingbird Capital, the portfolio, the process, every part of what I do only gets better by the small little moments, and I really mean that. I think a good process is iterative and fundamental, and there's a lot of hard work going on to make it scalable and repeatable. But the. The aspect of spending 15 minutes on a walk with my wife outside just to let my brain sort of cool off is something that I might not have applied at, uh, one of these shops where it's just go, go, go, and the freedom to sort of adapt to what lives or dies. You know, this is a business where you live or die by the sword, quite, quite literally is improved upon by that life experience. So all of that is to say I've always had, you know, I've always been rebellious, and I've always had issues with authority as A teenager and what have you, but really kind of letting my business get the nurturing that it needs and evolve in the way that is empirically best, um, is something uh, that I'm comfortable applying my own sort of brushstrokes to rather than in the context of uh, a firm.

Speaker A: And what was the most challenging or um, cause the greatest fear? It could be either of those and connect you with, launch your fund, your hedge fund.

Speaker B: Um, what was my greatest fear about launching the fund?

Speaker A: The greatest fear, the toughest challenge tied to that.

Speaker B: Well, every aspect of it was tough, to be honest. It was very tough. Um, it's daunting. I mean again, as a, as a young man with a young family, there's, there's a lot on the line, it's a big risk. Um, but, um, but obviously the pursuit of, of that dream was, you know, was inherent to what I always wanted to do and what, what I wanted to do at that time. So, so it was scary. Um, but frankly with, again it just comes back to the support structure of especially my wife, my friends. Um, I can, I can think of Dan Orr in particular just, just you know, like supporting me. My, he was my first boss out of school and, and um, just texting with him every day to ask for advice or what, whatever the example was, uh, that helped me kind of keep going. Uh, and that's how I'm four years into it today.

Speaker A: So uh, why don't you share with the audience or the listeners, spend a little bit of time talking about your investment strategy or thesis, not anything specific to your portfolio and where you think the, I guess the energy sector, since that's the focus is going, might be going and whether um, it's a function of the implementation of AI and new developments or the closing of the Straits of Hormuz.

Speaker B: Yeah, um, a lot to, to talk about there, I'd say so. Hummingbird Capital is a market neutral strategy. The goal here is to make money regardless of whether or not oil is up or down or solar is going up or down, or if the market is left or right. The goal is consistent, uncorrelated alpha. It's a fundamental, uh, equity focused strategy consisting of a portfolio of about 50 to 80 names. Um, where the goal is from a risk perspective to neutralize factor exposures and market exposures and let underlying alpha drive returns. I cover the broader energy ecosphere. Uh, and in the context of what's happening with the Strait of Hormuz or AI or just energy on its own, outside of those two massive factors, the opportunity Set in my coverage universe is the best that I've ever seen it. And I think we have a, ah, pretty fun, you know, five year stretch ahead of us at least. Uh, and I can get into that more specifically.

Speaker A: But yeah, no, I'd love to hear that first. Why don't you explain to just in case a listener doesn't understand what fundamental analysis is relative to technical analysis and then alpha as well.

Speaker B: So the concept of alpha is the returns that you can explain that are unattributed to moves in the market, moves in different factors like momentum or growth or value. It's sort of the isolated return stream that is coming from being correct or incorrect to the best of its ability. So it's inherently uncorrelated by definition. Um, and what fundamental work is, is taking a deep understanding of uh, every single one of these subsectors that I cover, being able to, no supply demand dynamics inside and out of what drives pricing and volume, operational leverage across every name that I cover. And to be up to speed on um, the newest technologies or changing technologies or different techniques and services that are being applied across the space. So pairing that with a deep understanding of financial leverage of the individual securities in my coverage universe. So what that means is also understanding balance sheet analysis and uh, cash flows of these companies and how these companies allocate cash flows and ultimately deciding if that's good or bad. Um, and then there's other parts that I believe that are inherent to a fundamental process which are being able to quantify qualitative factors like is a management team good or not? Um, how do you quantify that to the extent that you can? Fundamentally, I think some of it is obviously more art than science, but it matters to how a security is priced. Um, and so that comes into the process as well. But taking a deep fundamental, uh, not just top down and knowing how much oil is coming out of the straight of Hormuz, but having a, uh, bottoms up. Okay, hey, this company is a pressure pumper. This company's exploration, uh and production company and they have better inventory than this other company that's five miles away. Um, those small differences make huge differences in context of the return on investment. So I believe good returns are the output of a good process. And um, so I marry um, all of that modeling and subsector intimate knowledge with okay, how do I get paid? How do I develop a catalyst path, how do I sort of tell the future to the best of my ability by putting the mosaic to get pieces together. Uh, and so there's regular touch Points with C suite management teams across my coverage universe where we're discussing, hey, if the Strait of Hormuz is closed for another three months, how can that impact your business? How can that impact your supply chain? If you're doing business in the Middle east, do you have enough supply on the ground to respond to activity that demands while you can't actually bring, you know, ship um, supplies onshore and then we'll discuss you know, trucking or what, what goes on around it. So then trying to understand like where the pain points are and, and, and being able to sort of chart that out with, with accuracy and understanding where I'm um, differentiated versus consensus especially drives the underlying return stream here. And that's how I'm able to stay so consistent in being able to put up positive returns. The goal is nine or 10 months out of the year. Um, so by keeping idea generation so high, by having all these touch points and by being right over 50% of the time. Ken Griffin always said his best portfolio managers have low 50s hit rates. And to the extent that it's better than that, then that's kind of where the edge is expressed.

Speaker A: Makes sense. So um, you were going to share about the energy sector in the next five years in particular?

Speaker B: Well, I mean the market has sort of left energy for dead. A lot of the best energy investors out there have. There's not many of us left. The first seven years of my career were the longest energy bear market ever. And today energy is still only 3 low 3% of the S&P 500. But it's generating double digit teens percent of the free cash flow of the market. And then in an environment where um, some of these hyperscalers are going free cash flow negative or you know, you're seeing some of these hyperscalers, um, spend more and more capital, who's going to benefit the companies that that capital is getting spent on. So 25% of every capital dollar that is being invested in AI is going towards energy or infrastructure for power. The biggest bottleneck for these data centers is power, um, and that means energy, I use them synonymously. Um, and so in the evolution of the data center dynamic you have this structural secular tailwind where market free cash flow is compressing, um, you have secular investment and demand growth across, across the energy space for at least the next 20 years or pick an arbitrary number until you know, however long you think it takes for AI to actually saturate in its growth and um, people just sort of change their opinion on energy where the question 10 years ago was, are we going to use oil in ten years? Um, now the question today is how much more oil or gas or solar power or hydrogen or nuclear power or whatever it is that we need to make our economy grow and make our lives better?

Speaker A: Um,

Speaker B: how much of that are we going to need? I think that dynamic change has also removed some of the terminal value questions that plagued energy. So all of this is to say energy is 3% of the benchmark and it's done well year to date on the back of the Strait of Hormuz being closed and oil prices being higher. But I still think that we are underweight energy because these companies are just going to make so much money.

Speaker A: When you say we are you, who are you referencing with regard to weight?

Speaker B: We as a market, like the market, uh, is underweight energy. So I, I'm, I'm as underweight energy as I am over like half my book is long and half my book is short. So, um, but I do think that your average generalist should be. There's a lot of money to be made here and uh, there's a lot of cool new technologies in a colleague, cool new ways of doing things that are, that are evolving. And in the meantime, there's quite a lot of free cash flow to go around for everybody. Um, especially when kind of the legacy names that you've owned for the past 35 years are now going free cash flow negative, uh, uh, that piece of the free cash flow pie. In terms of the S&P 500, we can go from 12% of free cash flow in the S&P 500 to over 20%, depending on how much, uh, capital actually gets spent. So there's a regime change going on right now? Um, yeah.

Speaker A: So is there anything on the horizon that you think might, that concerns you that might kill or harm the thesis of the next several years being a good place to allocate money and energy?

Speaker B: Um, there's always plenty of concerns. I think to the extent that, um, irrational things happen more frequently as capital comes into the space where there's a name that goes viral on whatever social media platform. I don't find that to be a fundamental, um, driver of inequity, but that tends to be an opportunity for a strategy like mine to capitalize on. Um, but, um, on the back end of where my concerns lie, I would just say, do we get data centers in space with, can we make a couple hundred foot, uh, radiators more efficient on the back of some of these satellites? And um, are though, you know, can we make the efficiency frontier on some of the solar panels good enough in space to power that, or to the extent that, you know, something like we saw with Deep Seek last year, where inference models versus kind of just efficiency is kind of misunderstood, where do these data centers wind up needing one, one millionth of the power that they need today? What I've seen at least uh, up until this point is you could discuss the whole Chabon's paradox of the more efficient that they get, the more demand there will actually be. But um, and the more power will actually be consumed. But I think that a lot of the efficiency gains are more marginal ahead. Um, but it's definitely an interesting time and I think even if that happens then um, you're still 10, 15% of the market's free cash flow and only 3% of the market.

Speaker A: Do you um, do you see space exploration as intersecting with energy? Because there's more and more investment going into space opportunity. And I'm not just talking about SpaceX.

Speaker B: I think the only way that I can think of the intersection right now is putting solar panels onto satellites, um, and then figuring out how to actually make these data centers in space more uh, efficient. And I sort of underappreciated it until I actually learned more about it where it's like oh, data centers in space. This is definitely a bubble. But uh, uh, the more I learned about it, I mean Elon Musk has a great team of engineers behind him and um, I'm sure there will be data centers in space.

Speaker A: Sweet. So that to that end, um, educate us. What are the one or two things I learned about data centers in space that you think the audience might find of interest?

Speaker B: Uh, I think the only, my main takeaway there was like, okay, you can actually like string. I didn't even understand like I'm not a space guy, right? So I didn't even understand like if a data center is in space, how is that data going to get back to Earth? Like, I don't, I don't understand it. But, but uh, but yeah, obviously the same way that satellites work now with uh, with, with SpaceX, like uh, you can kind of connect all these satellites together with, with lasers and, and that data comes back down and then on the back of the satellite. You, I think like the, like the um, dealing with space and ambient sort of temperatures is the issue. So you have to like strap a couple hundred foot radiator onto the back of these satellites and to the extent um, that you can make that more efficient and less bulky, then you is, is my Best understanding of it is then you have a better data center in space. Um, but maybe I'm just old fashioned and believe we should build data centers on the ground. Um, but yeah, a lot of that is something I'm actually just doing more work on at the moment. Um, and it's just interesting. Ah. Uh, but it's something to think about.

Speaker A: So um, taking the gear a little bit more macro, what are your thoughts on the economy as a whole and do you have any concerns about its effect on your strategy or any other aspect of the business?

Speaker B: I think there's always concerns about the economy as it pertains to the strategy. You know, I think structuring the uh, portfolio in a way that is neutral is obviously a good start. But to be macro aware is important especially in the context of running an energy strategy. Um, I'd say concerns on um, inflation being stickier are probably going to alleviate to the extent that crude oil stays in the 80s as it is today, um, versus 200 that was feared. And so to the extent that that problem resolves itself, I think people forget that oil is in everything. Our clothes, tires, you know, trucking freight, et cetera, et cetera. I mean you name it, it's got oil in it. So the downstream effects of uh, having a pretty comfortable oil price in the 80s is still relatively elevated. But if you inflation adjust versus even five years ago it's more like low 70s, high 60s. So that's not terrible. And so I think there's been this myopic view on inflation and food prices have also kind of went higher. But to the extent that you're average consumer, um, can manage their spending and dealing with any sort of credit exposure and to the extent that you actually get back onto a rate cut path, um, I think the economy can see meaningful GDP growth on the back of AI. I'm not in the camp of you know, all the jobs that'll be destroyed at the moment. I think it's something that.

Speaker A: Because of A.I. you mean, right?

Speaker B: Yeah, because of AI.

Speaker A: Yeah.

Speaker B: Uh, but it's, it's possible that that, but the way I'm using AI is, is just allows me to be significantly more efficient at work. And I believe that you'll see initially at least that efficiency show up in investment, consumption, uh, uh, and then you only have government spending and net exports on the back end of it to figure out whatever GDP is. But uh, yeah, well coming back full

Speaker A: circle to you as a person, if you, if you had the opportunity to speak to your, your younger self, what age Would that be. And what would you say to that person? Or is there nothing that you could provide insight to younger Matt that, that, that isn't worth the time travel?

Speaker B: Yeah, I'm trying to talk to younger Matt on a daily basis. So we all are trying to speak to that. But uh, I mean even the Matt, even who I was yesterday, just always, always trying to get better. But I think, I think my philosophy, um, growing up was, you know, do. Do the right. Do what is right and necessary and let what will happen happen. And um, and I think that, that stoicism held me back because, you know, the realities of the world are not always so benevolent, unfortunately. And to the extent that I internalized disappointment or things that were ignored, things that didn't move my life forward in a positive way or have a positive impact on those around me, I think, uh, each one of those experiences were obviously learning experiences. But I'm trying to apply much more of a philosophy of also being just more gratitude. Don't internalize the things going on around you. Don't just keep your head down, kind of bulldog through. Be grateful and find happiness in the fact that it's just a nice day outside or um, that your daughter's laughing in the other room or, or um, whatever it might be. I think happiness is just a perspective, uh, and not an end goal. So I think that is a very valuable lesson. Uh, and it makes me a better father, a better husband, a better portfolio manager, a better business owner, and allows me to stay in this flow state of investing because investing is really stressful. And so to have the infrastructure around you of people who love you and support you, um, is invaluable. And to the extent that you don't have that infrastructure around you, I would encourage you to spend all your time trying to build that infrastructure around you because, and I speak from experience when you don't have that infrastructure around you, it's just it, it makes it that much harder to appreciate all the wonderful things in life. Um, and so you know, that that's, that's kind of, ah, that's kind of the personal perspective on life at large.

Speaker A: Those are good points. I periodically. And it's, and it's not every decade, it's, it's more frequent. I'm going through the same realizations that I am responsible for my own sense of happiness and that for the most part, in almost any circumstance I can find happiness. I just need to, I just need to change my perspective totally. So. But, but I feel like you're ahead of the Game on that one. You. You found that mindset at a younger age than I did.

Speaker B: Well, I'll keep, uh. I'm grateful for that at the moment. And you know, it's. I think it's always a fight, right? It's always, uh. It's always battle to.

Speaker A: It's always a struggle. But I hear what you're saying, so. Well, is there any other subject you'd want to address that I haven't asked you?

Speaker B: Um, no, I would. I would say, you know, those were. Those were great. I think this was a great, great quick conversation, I think.

Speaker A: Any.

Speaker B: Anything else that you wanted to discuss or go over?

Speaker A: Yeah. So. Any, uh. So here's a. Here's a good. Interesting closing question. What's what outside of generating amazing returns, spending time with your daughter, uh, um. Celebrating the arrival of your new daughter. Any other things on the. On Matt's list of things to accomplish?

Speaker B: Um, you know, I think in terms of. It's. It's. I appreciate that opportunity. It's not so much as of, you know, what am I setting out to accomplish. It's how do I give back more or. Thinking. You know, my wife and I recently joined the board of the, uh, United States Holocaust Memorial and their Next Generation program. So thinking of ways to give back or thinking of ways to participate more in the community and address, um, philanthropic efforts that are near and dear to me. That's kind of front of mind at the moment to participate more, um, in the juf. Or St. Jude's um, or other things that are near and dear to me and that I'm trying to spend more time on to accomplish. But I think in terms of what to accomplish, the things are pretty simple. Spend as much time with my family as I possibly can. Spend as much time on growing my business that I possibly can. I think the return stream is really special here, and I think what I'm doing is really special. And I think it's a scalable, repeatable strategy that I'm looking forward to growing. Um, and uh, taking advantage of this wonderful opportunity set that the market has given. Um.

Speaker A: Uh.

Speaker B: And outside of that, just, um, spending as much time with friends and family as possible. It's pretty similar. It's simple. And I think to the extent that I can continue to take care of my mind, body and soul every day is just, you know, kind of a personal matter.

Speaker A: Those are all really good. Um, it's a really amazing perspective and good words to live by. So I'd like to thank our guest Matt, and uh, I'd like to thank the viewers for listening and look forward to tuning in for next next time we, uh, our next episode.

Speaker B: I really appreciate you having me on, Ron. Uh, thank you so much. Enjoy the conversation.

Speaker A: Oh, my pleasure.