Video: A 60 Year Focus on Fundamental Research
Presenting part two of a special two-part interview with Chief Investment Officer Dan Chung, reflecting on his 30-year journey with the firm, in celebration of Alger's 60th anniversary.
Presenting part two of a special
two-part interview with Chief Investment Officer Dan Chung, reflecting on his 30-year journey with the firm, in celebration of Alger's 60th anniversary. To hear the full conversation, click
here for the podcast.WHY IS HANDS-ON RESEARCH SO KEY TO ALGER’S FUNDAMENTALS?
DAN CHUNG: Well, I think it's because in our investment philosophy, which is now 60 years old, we identified correctly that essentially disruptive change in an industry in the real world means that understanding what will happen in the future for an industry or for a company cannot be easily predicted based on past results or on just the last four quarters of historical financials. So, it requires a mindset and an approach that basically is willing to handle lots of uncertainty and is able to imagine – and it is a creative job – outcomes that are both very good and very bad and not necessarily linear. One of the biggest opportunities for investors like Alger is there's a lot of linear thinking in the world.
What we try to do is find the companies whose fundamental performance, which will ultimately be reflected in their financials, is going to be nonlinear relative to expectations, and it can go on for years. Because the world is always changing and because the forces of disruption and innovation are actually accelerating, not decelerating, it seems to me that capability to discern that to add value through investing are, I believe, as great as they ever were. One thing about growth investors is I guess we’re naturally a little bit optimistically biased because having to look to the future and looking for the opportunities is already an optimistic bias as opposed to, say, looking to the future and looking for the disasters, for the problems. We of course are risk managers. So, we're always looking for the risks but, in the end, looking for the opportunities is the key.
WHY IS THE ANALYST TRAINING PROGRAM SO CRUCIAL AT ALGER?DAN CHUNG: Well, I think the nature of the real world is, where innovation is accelerating, disruption therefore is accelerating, and potentially disruption is larger in scale when it happens as well. In our modern world we're seeing time accelerated and the size of disruption greater, and that's not just on a technological basis. That's on a societal basis. That's on a geopolitical basis. It's happening across many countries, not just the U.S.
Analysts, again, at Alger are charged with being sector experts, knowing their industry, as well as an expert in the industry would. So knowing the companies, the people, the technologies, the consumers, the trends. And when you combine that with the pace of disruption and the scale of disruption that's happening, I think it's only experienced analysts and experienced portfolio managers - ie people -who can try to discern what are going to be the winners, in terms of companies. What are going to be the trends that dominate? What are going to be the trends that fail or end?
WHAT DOES IT TAKE TO BE AN ALGER ANALYST?
DAN CHUNG: Well, I like to see people who have a high degree of curiosity. They want to learn new things all the time. In a diligent fashion, in a fashion that the details matter. We don't want them totally detail oriented and missing the forest for the trees, if you will, but learners, people with the ability to go deep and detailed.
We have a very diverse background of analysts and portfolio managers here. I think the leaders here are very good at looking for people who have what I would call determination. Some would say it's grit. It's evidence of some kind of challenge overcome, and sometimes those challenges just may be meeting the high expectations of their parents, but rather than breaking them, it's definitely made them better.
HOW OFTEN HAVE YOU SEEN ALGER ANALYSTS UNCOVER SOMETHING EXTRAORDINARY, IN YOUR OPINION?
DAN CHUNG: Our healthcare team has deep scientific and industry knowledge, and some of the success they've had in like biotech companies, in figuring out which ones have the scientific platform that will result in good clinical studies has been quite amazing.
They read a lot of scientific journals. They talk to the doctors. They understand most importantly what's important and what's not important in a scientific result that might indicate success commercially or failure commercially because, again, these are very early stage. So many of them still can fail, but they've done a very good job of identifying where the science is interesting, where the approach or process could be attractive or even foundational for a new field.
I would say in tech we have another very deep, long history there, and some of the insights in the semiconductor industry that we've had over many years have been quite amazing.
But we had insights because of the deep knowledge of the semiconductor industry and the research simply that our analysts did that semiconductor capital intensity would step up across the industry, and that happened years ago. More recently we're focusing a lot of that on AI, obviously leaders like NVIDIA, Microsoft but also what will be the other winners in this. Again, it requires a pretty deep understanding of the barriers to entry as well as what are the openings for people because AI will definitely upset the apple cart in some industries, but it will also probably for some companies allow them to extend their leadership or to catapult them into a new generation of leaders.
