Scott Goodwin - Know The Names - [Invest Like the Best, EP.332]

Episode Summary

Executive Summary: Patrick O’Shaughnessy interviews Scott Goodwin, co-founder of Diameter Capital Partners, about why the 2020s favor credit over equity, how credit cycles create mispriced debt, and how Diameter uses speed, sector expertise, and liquidity provision to exploit dislocations.

Main Topics: The 2020s credit regime shift (Priority: 5/5): Goodwin argues higher rates and inflation shift returns from equity owners to creditors. How credit cycles create opportunity (Priority: 5/5): He frames credit as recurring booms and busts across macro and sector-specific shocks. Liquidity provision as alpha (Priority: 5/5): Diameter aims to buy and sell quickly when forced sellers create price dislocations. Knowing the names (Priority: 4/5): Deep coverage of sectors and issuers lets the team act fast when events hit. Building Diameter’s culture and process (Priority: 4/5): Alignment, transparency, and weekly portfolio rituals are central to the firm. Expanding into private credit and Europe (Priority: 3/5): The firm sees room to grow without cannibalizing core strategies.

Key Arguments: Higher rates mean capital shifts from shareholders to lenders, savers, and pensioners. Credit investors win by thinking about downside, covenants, and maturity walls, not just upside. Alpha from document discovery has faded; speed and structured liquidity provision matter more. Sector-specific credit cycles recur in energy, telecom, retail, and real estate. Many liquid credit investors are forced sellers, creating intraday and event-driven mispricings. Diameter’s edge comes from knowing issuers, banks, and docs before the dislocation arrives. Firm growth must avoid cannibalizing existing strategies; size can dilute trading alpha.

Data Points: Diameter Capital Partners AUM: $13 billion - Scott Goodwin describes the firm’s scale Diameter team size: low 60s - He says the firm is approaching 70 employees B of A loan sale response time: 5 minutes - Diameter responded quickly to a large loan block in COVID Potential buyer response window: 15 minutes - He says only a couple firms could respond that fast Average loan price before dislocation: high 80s - Software loans sold during the COVID dislocation Bid price: around 80s - Diameter bid the loan block down roughly 8-10 points Sprint/Informatica-like exposure: 2 loans - He cites Sprint and Infor as examples in the block Early league size: 15 other people - Bill James fantasy baseball league had 16 total participants Sunday portfolio meeting: 7 to 9 a.m. - Weekly Scott-John portfolio review ritual Team workflow meeting: Sunday at 4.30 - Research team sends weekly focus updates

Pivotal Quotes: "know the names" — Scott Goodwin: His shorthand for mastering issuers and sectors before events happen "we want to be a provider to liquidity into inflection points in markets, credits, and sectors" — Scott Goodwin: Explains Diameter’s core trading philosophy "I like to say there's no bad bonds just bad prices" — Scott Goodwin: Describes opportunistic credit investing and price discipline

Implications: Listeners should expect credit opportunities to broaden as bank retrenchment, private credit growth, and real estate stress create new dislocations.