Podcast Summary: "What Blackjack Taught Me About Investing"

How I Invest with David Weisburd – Episode 303 featuring Ari Levy
Release Date: February 12, 2026

Overview

In this episode, host David Weisburd sits down with Ari Levy, an activist investor best known for his expertise in small-cap equities and sophisticated risk management. Levy shares how his early fascination with probability and strategy games—especially blackjack—shaped his investing philosophy. The discussion dives into parallels between card gaming and public markets, risk assessment, small-cap activism, and timeless investing wisdom.

Key Discussion Points and Insights

1. Early Fascination with Probability and Blackjack (00:00–03:00)

• Ari’s love of probability theory originated from sports statistics and simulating baseball seasons on early computers—it honed an analytical, strategic mindset.

  “I would simulate baseball seasons…trying to think about advanced statistics at a young age and just games of strategy, played a lot of cards, try to figure out how to win things good. Risk adjusted, asymmetric calculated bets effectively.”
  — Ari Levy (00:08)

• At Stanford, Ari took a formative seminar with Prof. Tom Cover, learning about probability, game theory, and real-world blackjack teams.
• Core lesson: Card games offer known odds, unlike the stock market, which is a “random walk”—but both require careful risk management.
• The Kelly Criterion: Ari uses this mathematical formula from card counting to optimize position sizing and limit “risk of ruin”.

2. Understanding and Mitigating ‘Left Field’ Risks (03:00–08:17)

• Even rigorous strategies can be undone by idiosyncratic, unforeseeable risks.

  “If you have this rule that you can create redeem and that’s going to keep it at nav, well what else could go wrong? …that was an example of something that was kind of out of left field.”
  — Ari Levy (04:30)

• Ari illustrates with the VXX ETF incident—the inability to create new shares drove huge price divergences.
• Takeaway: Unexpected legal, regulatory, or operational snafus can break even seemingly ‘risk-free’ trades.
• Risk management: Position sizing is vital. No single position, even seemingly certain, should be large enough to sink the portfolio.

  “So even if it blows up...maybe you lose 2, 3% so you don’t have to know how it’ll blow up to size it correctly and to keep your entire portfolio from getting ruined.”
  — Interviewer (05:59)

3. Portfolio Construction and Correlated Risk (07:44–08:17)

• Position caps are essential: Don’t let any one trade dominate exposure.

  “If they all or multiple of your spreads or trades or investments, whatever you want to call it, have some similar idiosyncratic risk...then you know, if you lose 2% on multiple different 10% trades, obviously it adds up to more than 2%.”
  — Ari Levy (07:59)

• Watch for hidden correlations or shared vulnerabilities in disparate trades.

4. The Opportunity in Small-Cap Stocks (08:17–13:54)

• Small-cap inefficiencies: Thousands of small-cap stocks globally are less well-covered, leading to greater mispricing.

  “They tend to be less efficiently priced than large cap stocks because there’s informational inefficiency there.”
  — Ari Levy (08:29)

• Regulatory burdens (e.g., Sarbanes-Oxley) fall more heavily on small firms, hindering profitability and public presence.

  “We probably spent a third of our board meetings just talking about things that had nothing to do with other than regulatory Sarbanes, Oxley and compliance costs...”
  — Ari Levy (09:29)

• Impact of passive investing: Assets have gravitated out of small caps, increasing both inefficiency and opportunity for diligent investors.

5. Combining Arbitrage and Activism (11:31–14:29)

• Ari’s preference is for “arbitrage trades”—low risk, compounding, but scarce.
• Activist investing steps in where arbitrage is unavailable: buying significant stakes (5–15%) in overlooked small caps, often engaging directly with management and boards.
• Private equity interest: Many niche public firms trade below private market value—PE would buy them, but usually won’t go activist.

  “We call ourselves friendly activists...if you have boards and management teams that are not acting in shareholders best interests...we will try to get board seats.”
  — Ari Levy (12:40)

6. Real-World Case Study: Quip Home Medical and Del Taco (15:44–18:00)

• Quip Home Medical: Levy details activism in this $100m market cap firm (filed a 13D), trading at four times EBITDA, focused on at-home respiratory services.
• Describes process: Gaining board influence, pushing for sale, and realizing value above public market price.

  “The stock price is ultimately the scorecard…in the short term it could be a voting machine, in the long term it could be a weighing machine.”
  — Ari Levy (15:54)

• Del Taco Example: Board involvement led to a sale to Jack in the Box, demonstrating both the value and risk of public-to-private transitions.

7. Activist Process and LBO Math (17:53–21:31)

• Workflow: Sourcing ideas, deep analysis, holding conversations with other managers and industry players, and building a robust LBO (leveraged buyout) model to determine private market value.
• Challenges: Public filings don’t reveal the full picture; the LBO model’s reliability rests on conservative exit multiple and growth assumptions.

  “Such an important metric for the LBO model is what are you going to sell it for five years?”
  — Ari Levy (18:42)

• Caution: Highest bidder often makes the rosiest assumptions—be wary of aggressive projections.

8. Timeless Investing Advice (21:31–24:16)

• Growth vs. Value: A deep-value approach outperformed for decades, but massive technological change has flipped the dynamic—growth dominates value.
• Pitfalls of value “traps”: Some businesses (e.g., retail) face existential headwinds from technology—classic value metrics can mislead.

  “Be mindful of, more mindful of technical technological change trying to understand what that means for some of these value companies to avoid value traps.”
  — Ari Levy (22:53)

• Today, combining value investing with a focus on return on invested capital (Joel Greenblatt-style) is best practice.

  “We’ve pivoted from very much deep value stock picking to more of a...Joel Greenblatt style...companies trading at the biggest discounts but also that generate the highest return on invested capital.”
  — Ari Levy (23:39)

Memorable Quotes by Ari Levy

• On Arbitrage Opportunities:
  “If you could give me only trades that make five basis points a day ...that adds up to 18% a year return...it’s hard to get...in picking stocks.”
  (11:47)
• On Risk Management:
  “You have to cap the size of the exposure you have to any one individual thing.”
  (07:44)
• On Value Investing’s Limitation Today:
  “To just buy deep value companies based on where they trade to book value is, is an important lesson that I’ve learned.”
  (23:14)
• On Public vs. Private Valuation:
  “If they were private they would do 25 million because they didn’t have to spend that $5 million to do that.”
  (09:04)

Timestamps for Key Segments

• Early Strategy & Blackjack: 00:00–03:00
• Risk, Arbitrage, and the Unknown: 03:00–08:17
• Small Cap Inefficiency: 08:17–13:54
• Activism in Practice: 13:54–18:00
• Activist Workflow & LBO Models: 18:00–21:31
• Timeless Advice & Value vs. Growth: 21:31–24:16

Concluding Thoughts

Ari Levy’s investing approach fuses the statistical rigor of a card counter with the real-world flexibility required to navigate public markets. He advocates for rigorous risk controls, sharp focus on inefficiencies in small caps, and a willingness to adapt as the “rules of the game” shift with technology.

Final word:
“This has been absolute masterclass. Thanks so much for jumping on the podcast...”
— Interviewer (24:16)