Interview #104 : John Davenport (J&S Capital)
Seeking deep value
For this issue we have the pleasure of interviewing John Davenport from J&S Capital.
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Hi John, thanks so much for taking the time out to do this interview.
No problem, Jon. Thanks for inviting me!
Can you please tell readers about your background, and how you got involved in investing?
I wasn’t one of those people who knew they wanted to be an investor from the age of twelve. For a while I wanted to be a professional golfer. I had enough talent to get recruited to play in college and enough sense to hedge myself by choosing a good school. That landed me at Columbia in New York.
I quickly realized that I was either going to be good at golf or get good grades, but not both. And I just as quickly realized that being an average Division I player means you have no chance at playing professionally. So as seems to be the right of passage for the New York college kid, I got a job on Wall Street.
I have a tendency to do things a bit differently and so when all my classmates chose the investment banking route, I ended up landing a job at a startup credit fund under the Royal Bank of Canada banner, which ended up being an incredible opportunity for me. I was there from $0 AUM to approximately $1 billion by the time I left.
I was initially hired to do the standard grunt work that you might expect of a recent college grad, but I wanted to be in the game. I was lucky enough to have great PMs who spent a lot of time training and mentoring me, and I spent virtually all of my time in the office or studying at home, with the hope that I would prove myself capable of handling the investment work.
I was initially given a couple industries to cover (the ones that nobody else wanted), but soon was given more and more responsibility over my own book.
Ultimately, I had about $150 million of the fund’s assets under my coverage, which was an incredibly abnormal and fortunate place to be in as a 23-year-old. It was truly trial by fire - I loved it. I’m very grateful for that experience and for the trust my PMs placed in me.
After about 2.5 years at RBC, I wanted to try something different, so I moved to a young firm that at the time was mostly doing private asset-backed lending deals.
These could be loans secured by anything from real estate, ships, portfolios of other loans, even fine art. It was a very interesting role, and I worked with some incredible people. However, I was only there for about 6 months before COVID temporarily shut the industry down and ultimately altered my career trajectory.
Why did you decide to launch your own business? And who do you manage funds on behalf of?
I’d always known in my gut that I was going to work for myself, and the COVID stay-at-home period ended up being my time. For the few months prior to March 2020, aided by a lack of trading restrictions post-RBC, I had been creating and fine-tuning a prop trading strategy with the intention of making a bit of side money.
The overly simplistic description would be that it was a market-making algorithm. My hope was that it would eventually be profitable enough to allow me to go off on my own. The combination of massive volume and volatility during 2020 made that a reality far sooner than anticipated.
By April 2020, I was making multiples of my salary using essentially my first two bonuses as trading capital. It really was one of those right place, right time, right strategy moments, and so I began trading full time.
The returns were ridiculous - I did about 7,100% on my trading capital in a bit under 3 years - but it wasn’t scalable beyond about $1 million of trading capital. Simultaneously, I opened a separate account to invest some of my profits, both because I wanted to start building a track record outside of trading and because I needed to do something with the extra cash.