4 Questions for Award-Winning Managers

Mary Ellen Stanek: So, certainly, having done this for over four decades, the investment landscape has changed dramatically. Being bond investors, there has been this huge proliferation of different types of securities and structures, certainly, the use of technology, both in terms of portfolio management, in terms of data. Joel Fried: Being a long-term investor used to not be so uncommon, but today, we really do feel like we're somewhat of an anachronism. Al Mordecai: And I would add to what Joel just said that we don't view that as a negative. We view that as a positive in terms of how we do business. The more short-term-focused people become, we think the greater the opportunity for the few of us that are left to try to assess what this company is going to look like five to 10 years from now. Stanek: Great investors, I think, have that passion to win. But I also think it's with that servant/leadership mentality that there's a higher calling and a higher purpose and that it's not about the accolades that I'm individually going to get, but how are we winning for our investors? It's really seeing through their eyes how we're able to deliver on the promise, and we very much, while our compliance people won't want me to label it a "promise," I do and we do take very, very seriously the responsibility we have to our investors and the honor and the privilege to serve them. Fried: I think a great investor has to be able to outperform in all different kinds of market cycles. Mordecai: The best investors are people who see the same information in news that everybody else sees, but who understand it in a way that other people don't understand it. Stanek: There are some real lessons learned that are important every time. One is liquidity. Always, always, always pay attention to liquidity, both in your portfolios, in our cases, but also the market dynamics and the market structure and making sure that we always have liquidity first and foremost should our investors need it, and sometimes, being more liquid and higher quality, we will be one of the places where investors can go for liquidity when other parts of their portfolio are more constrained. So, liquidity, number one, two, and three in a crisis environment. Fried: Back in the dot-com bubble you had all these new analysts, new sell-side analysts that had never been through a bear market reinventing valuation metrics because the old ones didn't work anymore. So, it was price per pop, price per eyeball, price per click. None of these things made sense to us. So, that's when we decided to start selling. But it gets back to that point that it's very lonely and very scary when the market is telling you every day that you're an idiot. But when things change at that inflection point, you can make up the underperformance so quickly. Stanek: Try to find a way to stay very focused on relative value and back that up with the courage to act and the courage—because when market environments get very challenged and dislocated, often people, human talent is, there is a recency bias. And often people will get locked up in fear. Fried: The professional advice I would give myself if I was starting out today would be patience. This is such a long-term business. And when you think about firms like Primecap or the firms that we consider our peer group, we're trying to recruit the best and the brightest people that have only experienced academic success their entire life, and they get into a business where, if you're really good, you're right slightly more than 50%, and people coming into the business that have only experienced academic success don't believe that number. And so, you want to go out and you want to kill it right away. And that's just not the way that business works. I actually always hope an analyst will experience a difficult time when they first start out because it will firmly plant in their mind how difficult this business is. And they'll double down on the rigor with which they approach it. Because if you start out and you've got a hot group and the numbers come easily, you can really become complacent and underestimate the challenge in the business. So, that's a long-winded way of saying "patience." Mordecai: I think you have to trust yourself that when you first enter the business there's a tremendous amount of noise, and it can come across as quite intimidating, and there's the sell-side research reports, and there's other buy-siders, and the types of questions that they're asking companies, and it can feel overwhelming. But the truth is that the best investment ideas are going to come from individuals who are seeing things differently than the rest of the world is. And therefore, we feel it's quite essential that the analysts take a look at the company, get to know the company, get to know their competitors and to understand it in ways that other people don't. And sometimes that can be quite lonely. You're going to feel like you're out on a limb because you're seeing something that the rest of the world doesn't see. And so, I would say you have to trust yourself and your own judgment and your own analytical research. Stanek: To not be afraid and to work really hard to have that zest for learning and that curiosity. Ask lots of good questions. Don't be afraid to ask questions. Listen really carefully. Take the feedback you get from smart people around you and use that and incorporate it. There is no substitute for hard work, going through and being thorough. Certainly, focus is really important and some patience to understand that you go through a learning process, but at the same time to be ready, to be ready because you never know when an opportunity careerwise is going to come your way. It certainly in my case came earlier than I expected. And not to be afraid to accept the challenge and the opportunity and go for it and surround yourself with really great people.