WEBVTT - Daniel C. Chung on Probability Theories for Investors 0:00:02.000 --> 0:00:07.120 This is mesters in business with very renaults on Bloomberg Radio. 0:00:09.440 --> 0:00:12.200 This week on the podcast, I have an extra special guest. 0:00:12.240 --> 0:00:14.680 His name is Dan Chung and he has been with 0:00:14.840 --> 0:00:20.200 Algier Asset Management since where he started out in the 0:00:20.239 --> 0:00:24.680 e commerce and technology sector as an analyst before eventually 0:00:24.720 --> 0:00:30.360 becoming president, chief Investment Officer, and then CEO. UH. Dan 0:00:30.440 --> 0:00:34.159 Chung has been uh running that firm for quite a 0:00:34.159 --> 0:00:38.360 while with quite a tremendous track record. The firm has 0:00:39.360 --> 0:00:42.199 dollars in assets. In addition to the CEO and c 0:00:42.360 --> 0:00:45.760 i O rolls, he also runs a couple of different 0:00:45.760 --> 0:00:50.920 portfolios to a great acclaim. Um Alger is you know, 0:00:51.040 --> 0:00:54.520 best known as founded by Fred Alger. We talk a 0:00:54.520 --> 0:00:58.200 little bit about various mentors as well as what the 0:00:58.200 --> 0:01:00.880 firm's experience was in nine eleven and what they've done 0:01:01.320 --> 0:01:04.640 after that in terms of the room philanthropy. UH, they're 0:01:04.680 --> 0:01:09.319 a fairly unique growth firm that focuses on UM tech, healthcare, 0:01:09.480 --> 0:01:13.399 variety of other things, specifically growth companies, and we go 0:01:13.480 --> 0:01:16.800 over how they're managing through uh what is both a 0:01:17.000 --> 0:01:22.440 challenging but target rich period with great opportunities. UH. So, 0:01:22.520 --> 0:01:27.280 with no further ado, my interview with Alger Managements Dan Chung. 0:01:29.440 --> 0:01:34.559 This is Masters in Business with very Renaults on Bloomberg Radio. 0:01:37.120 --> 0:01:40.120 My extra special guest this week is Dan Chung. He 0:01:40.400 --> 0:01:45.400 is the Chief Investment Officer and Chief Executive Officer at 0:01:45.440 --> 0:01:49.520 Alger Management, which runs over thirty five billion dollars in assets. 0:01:49.800 --> 0:01:52.160 He's been c i O since two thousand and one. 0:01:52.600 --> 0:01:55.440 He earned his j d from Harvard in eight seven, 0:01:55.520 --> 0:01:58.520 got a master's in law from n YU before going 0:01:58.560 --> 0:02:02.200 to Clark for the Honorable Justice Anthony Kennedy at the 0:02:02.240 --> 0:02:05.480 Supreme Court of the United States. He is also portfolio 0:02:05.520 --> 0:02:09.160 manager for multiple funds and strategies, including the four and 0:02:09.200 --> 0:02:13.400 a half billion dollar Alger Spectra Funds. H Dan Chung, 0:02:13.600 --> 0:02:17.200 Welcome to Bloomberg Than. So, I've been looking forward to 0:02:17.240 --> 0:02:19.440 having this conversation with you for a while, and I 0:02:19.520 --> 0:02:24.040 have to start by asking you had a storybook legal career. 0:02:24.639 --> 0:02:27.400 What happened? What made you say, Yeah, the hell with 0:02:27.480 --> 0:02:30.360 Harvard in the Supreme Court, I'm gonna switch gears and 0:02:30.400 --> 0:02:33.200 try something totally now. Yeah, it was. It was a 0:02:33.200 --> 0:02:38.160 storybook career, and uh, if I had a another opportunity, 0:02:38.360 --> 0:02:40.600 I probably would have tested out what the legal world 0:02:41.000 --> 0:02:43.399 would have been like, but and where where where many 0:02:43.400 --> 0:02:47.800 of my friends still are today? Um, including Justice Selena Kagan? 0:02:49.639 --> 0:02:52.240 Were you a colleague of We co Clark together and 0:02:52.240 --> 0:02:53.919 we went to law school together, and we served on 0:02:53.960 --> 0:02:57.400 the Larvae together. And she's an amazing person. So it's 0:02:57.480 --> 0:02:59.799 very weird to have a friend who becomes a Supreme 0:02:59.800 --> 0:03:03.280 col Right, that's kind of interesting. Do you guys ever 0:03:03.880 --> 0:03:05.720 stay in touch? Do you have a chat? You know? 0:03:05.919 --> 0:03:09.560 I was just getting to the point in my career 0:03:10.200 --> 0:03:11.880 where I wanted to sort of give back to the 0:03:11.919 --> 0:03:13.840 Harvard Law School. At the time, she was the dean, 0:03:13.960 --> 0:03:16.120 so she talked about a story career. She was the dean, 0:03:16.720 --> 0:03:19.240 and so that the last time I I saw her 0:03:19.240 --> 0:03:21.280 on a one on one situation, it was like, you know, 0:03:21.400 --> 0:03:25.600 talking about let's do something law and business and and 0:03:25.680 --> 0:03:29.600 my whole issue was that lawyers um are uh, you know, 0:03:29.760 --> 0:03:31.880 the vast majority of them are consulting in some way 0:03:31.880 --> 0:03:34.639 for businesses and they don't understand the business at all, 0:03:35.360 --> 0:03:37.480 and and it reduces the quality of the work. And 0:03:37.520 --> 0:03:40.760 she was she was very into it, um and um. 0:03:41.280 --> 0:03:42.640 And then I don't know, a couple of months later, 0:03:42.640 --> 0:03:45.320 she's nominated for the Supreme Court. So that's all over. 0:03:45.760 --> 0:03:50.280 So she saved you writing a check. Yeah that's true. Yeah, yeah, yeah, 0:03:50.280 --> 0:03:53.440 I save the money. So you end up at Simpson Thatcher, 0:03:53.560 --> 0:03:56.960 which was known for international law and and corporate law 0:03:57.000 --> 0:03:59.840 and litigation. Right, what were you doing for them? And 0:04:00.040 --> 0:04:06.280 then how did that end up transferring over to finance? Right? So, Um, 0:04:06.760 --> 0:04:10.600 my parents are both academics and knew absolutely nothing about 0:04:10.920 --> 0:04:14.880 Wall Street and only a little bit about business generally. I, 0:04:15.040 --> 0:04:17.719 on the other hand, was always interested in it, probably 0:04:17.760 --> 0:04:19.880 not in a very educated way, but probably from like 0:04:20.080 --> 0:04:22.680 things like the movies. Um, I did grow up in 0:04:22.680 --> 0:04:25.599 the Silicon Valley and so, but my Silicon Valley was 0:04:25.640 --> 0:04:30.600 Hewlett Packard, not undergraduate Stanford, undergraduate Stanford. So there was 0:04:30.640 --> 0:04:34.479 an interest I had there in in the business in 0:04:34.560 --> 0:04:38.000 Wall Street and and frankly in New York, you know, 0:04:38.240 --> 0:04:41.839 and like the Frank Sinmetris song, you know, if you 0:04:41.839 --> 0:04:44.240 can make it here, you can make it anywhere. And 0:04:44.320 --> 0:04:46.240 so I wanted I wanted to In some ways, I 0:04:46.279 --> 0:04:48.240 was more driven by the idea, come to New York, 0:04:48.600 --> 0:04:51.600 work at a top notch law firm. That will be 0:04:51.680 --> 0:04:54.800 a way to learn about business as well as you 0:04:54.800 --> 0:04:58.640 know business law. UM. And essentially along the way, I 0:04:58.960 --> 0:05:05.120 realized I loved the clients who were UM making deals 0:05:05.839 --> 0:05:11.839 complicated financial investments. Uh, you know, using you know numbers, 0:05:11.920 --> 0:05:16.560 accounting analysis fundamental as well as accounting analysis to figure out, 0:05:16.600 --> 0:05:19.080 you know, what's the what's the right paris to pay 0:05:19.120 --> 0:05:22.560 for something and you know, UM and UM. But I 0:05:22.600 --> 0:05:24.520 was just I was, as a lawyer, just an observer 0:05:24.640 --> 0:05:28.320 on the You're not making any decisions really, And so 0:05:28.560 --> 0:05:31.520 at some point I realized I thought I would be 0:05:31.600 --> 0:05:33.279 more interested in that, and I thought I would be 0:05:33.279 --> 0:05:36.080 good at it. So I so I started to call 0:05:36.080 --> 0:05:38.000 around Wall Street to try to get a job on 0:05:38.000 --> 0:05:42.880 Wall Street basically. And what was that process like? Well, UM, 0:05:42.920 --> 0:05:47.040 it started off extremely well in that the first person 0:05:47.160 --> 0:05:51.880 I told was a client UM. And it was like, 0:05:52.520 --> 0:05:55.720 I don't know what their title was. UM, certainly a VP, 0:05:56.240 --> 0:05:58.120 not an m D, I believe, but you're not the 0:05:58.120 --> 0:06:00.520 head of the group. UM. But it was the Financial 0:06:00.520 --> 0:06:06.240 Derivatives and Complex financial Instruments group UM Merrill Lynch. So 0:06:06.279 --> 0:06:08.040 I always think very fondly, Mary Lynch. They're a big 0:06:08.040 --> 0:06:11.240 client of ours. Thank you, Meryl UM and the associate. 0:06:11.279 --> 0:06:13.120 You know, we've been working on something in the associate. 0:06:13.240 --> 0:06:16.000 I told the associate, we've become friendly and and he said, 0:06:16.240 --> 0:06:18.880 if you're leaving Simpson, I am sure my boss would 0:06:18.880 --> 0:06:21.760 want to talk to you, probably give you a job. 0:06:22.760 --> 0:06:25.680 I said, okay, great, So so I go down and 0:06:25.880 --> 0:06:28.880 meet his boss and UM, he says, like, I loved 0:06:28.880 --> 0:06:32.919 working with you. You know, Uh, my dad was a 0:06:32.960 --> 0:06:35.560 math professor. So he actually said something to the effective, 0:06:35.680 --> 0:06:37.560 you're one of the few lawyers who seemed to actually 0:06:37.600 --> 0:06:39.680 understand and like the math that we're doing here that's 0:06:39.720 --> 0:06:43.800 around the options and derivatives, and I, you know, and 0:06:43.920 --> 0:06:47.159 uh basically gave me a job offer. Um before I 0:06:47.240 --> 0:06:49.200 left his office, and he said it's a standing offer 0:06:49.440 --> 0:06:51.640 Staya Sampson if you want, but anytime you want to leave, 0:06:51.680 --> 0:06:54.119 you've got an offer here for our group Merrill Lynch 0:06:54.880 --> 0:06:58.680 and UM. So so that that's a confidence booster right 0:06:58.839 --> 0:07:03.000 So here. Then I started looking around. So was it 0:07:03.320 --> 0:07:08.680 the pre existing math skills that translated to finance or 0:07:08.920 --> 0:07:12.320 was it some of the legal training and experience that 0:07:12.320 --> 0:07:17.240 that helps you once you started having a career in investing. Um, 0:07:17.360 --> 0:07:20.840 I would say the math skills, it's more about a 0:07:21.000 --> 0:07:28.600 numbers sense, seeing patterns in numbers, liking statistics, understanding probabilities, 0:07:28.960 --> 0:07:32.000 and again I mentioned my father again, but he was 0:07:32.200 --> 0:07:37.520 actually a professor of probability theory, so which I think 0:07:37.640 --> 0:07:42.200 is much more important for investors than the bulk of 0:07:42.240 --> 0:07:45.240 what you're gonna learn in the CFA exam. Yes, I mean, 0:07:46.000 --> 0:07:49.960 investing is basically first recognizing that nobody knows anything about 0:07:49.960 --> 0:07:52.840 the future. Anybody who tells you they're predicting the future, 0:07:53.640 --> 0:07:55.480 you know, it sounds like they're so confident that they're 0:07:55.480 --> 0:07:57.920 going to be right. It's like you know they're selling something. 0:07:57.920 --> 0:07:59.640 They're selling you something. So the only way really do 0:07:59.760 --> 0:08:03.360 pro at least from my perspective and algers, is where 0:08:03.360 --> 0:08:06.160 the probabilities of a bearer case, the base case, a 0:08:06.240 --> 0:08:09.160 bowl case. You know what's the black Swan event, and 0:08:10.040 --> 0:08:12.240 you know what works and what doesn't work? What are 0:08:12.240 --> 0:08:14.600 the values you know? And and and the stock market 0:08:14.640 --> 0:08:18.000 obviously is is I mean, it is the greatest real 0:08:18.040 --> 0:08:23.360 world probability machine, right, I mean, the price of of 0:08:23.400 --> 0:08:27.080 any asset in the stock market is essentially the combined 0:08:27.560 --> 0:08:34.559 probabilities of everybody bullish, bearish, neutral, ignorant, highly informed insiders outsiders. 0:08:35.160 --> 0:08:38.439 What is that worth? And it changes because things happen 0:08:38.480 --> 0:08:40.480 and people change their minds a little bit, sometimes too 0:08:40.600 --> 0:08:43.720 much and sometimes not enough right, And and that I 0:08:43.760 --> 0:08:47.080 think has always been, Um, I've always been I think 0:08:47.440 --> 0:08:51.200 very good numbers since I didn't had to prove it Alger. 0:08:51.640 --> 0:08:53.680 You know, I thought I had good numbers since I 0:08:53.679 --> 0:08:56.080 think I think, uh, I think I proved it an Alger. 0:08:56.440 --> 0:08:58.320 But the law, I don't want to underestimate the law 0:08:58.360 --> 0:09:02.720 did it did help me a lot, I think, um one, 0:09:03.440 --> 0:09:07.719 I like complex situations because I know that a lot 0:09:07.720 --> 0:09:10.160 of people don't or they just don't want to take 0:09:10.160 --> 0:09:12.240 the time to dig into them. And so as a 0:09:12.280 --> 0:09:16.080 fundamental investing shop, getting into the details, getting into the 0:09:16.120 --> 0:09:18.880 complex situations is sometimes where you get the most opportunity 0:09:19.440 --> 0:09:22.360 because of that. And then on the flip side, running 0:09:22.360 --> 0:09:28.559 the business. Lawyers are are very disciplined, organized, detail, deadline oriented, 0:09:29.240 --> 0:09:32.280 all of which is pretty good um for a career, 0:09:32.320 --> 0:09:33.880 but it's it's especially good if you're trying to run 0:09:33.880 --> 0:09:36.959 a business. So, so, how did you end up at Algae? 0:09:37.000 --> 0:09:41.000 You join in? Was that your first job in finance 0:09:41.080 --> 0:09:47.080 out of Simpson Thatcher first job in finance? Um? And 0:09:47.280 --> 0:09:53.319 uh I ended up there because uh I so I've 0:09:53.360 --> 0:09:57.520 gotten a couple offers um on walls rate. I had 0:09:57.559 --> 0:09:59.400 the Mary Lynch one, I had another. I hadn't gotten 0:09:59.400 --> 0:10:03.760 another off for UM, and I thought, you know, I 0:10:03.760 --> 0:10:09.720 don't really know any serious Wall Street you know, um, 0:10:10.280 --> 0:10:13.120 senior mentor types. So I should I should try to 0:10:13.160 --> 0:10:15.480 find one to ask their advice, like where should I go? 0:10:16.480 --> 0:10:18.560 And at the time, the only one that I knew 0:10:19.600 --> 0:10:22.720 was my uh father in law, my my, my just 0:10:22.920 --> 0:10:25.960 my Fred Alger had just become my father in law. June. 0:10:26.360 --> 0:10:30.720 I married his daughter, Alexandra, my wife today. Uh. Still, 0:10:31.720 --> 0:10:35.160 I can't believe it's been twenty nine years. Um. So 0:10:35.320 --> 0:10:37.760 I hadn't really met him much, UM, but I knew 0:10:37.800 --> 0:10:39.760 he was on Wall Street, and I knew that he 0:10:39.800 --> 0:10:41.720 did investing, and so I figured, this is a great 0:10:41.720 --> 0:10:44.600 guy to ask, um, I must know the whole landscape. 0:10:45.080 --> 0:10:48.319 And uh, I'll never forget that I didn't know him 0:10:48.360 --> 0:10:51.000 really very well. You know, it's sort of like, h 0:10:51.880 --> 0:10:53.760 of course we were engaged. So I met him in 0:10:53.840 --> 0:10:58.080 some really kind of formal dinner with his his wife 0:10:58.080 --> 0:11:01.080 and you know, I'm my son in law. I have 0:11:01.160 --> 0:11:03.880 to admit I didn't ask him permission to marry his daughter. 0:11:04.120 --> 0:11:06.360 I was she isn't that kind of woman, and I'm 0:11:06.480 --> 0:11:09.040 I'm not. I wasn't that kind of guy. I sort 0:11:09.040 --> 0:11:11.400 of regret that maybe I should have done it. Now, Um, 0:11:11.760 --> 0:11:15.000 her kids are doing that now again, you know, but 0:11:15.040 --> 0:11:17.800 I'm more like a seventies kid, because seventies kids didn't 0:11:17.880 --> 0:11:22.959 ask permissions for their parents. Um. Anyway, so you speak 0:11:23.000 --> 0:11:25.240 to him, so I say, yeah, I say, I'm thinking, 0:11:25.240 --> 0:11:27.360 I'm thinking I'm thinking of leaving the law firm. And 0:11:27.440 --> 0:11:31.000 I had these offers on Wall Street and like your advice, 0:11:32.160 --> 0:11:38.000 and um, he basically begins to tell me how bad 0:11:38.160 --> 0:11:42.080 both of the offers I have are and how neither 0:11:42.160 --> 0:11:48.920 of the firms that I'm talking about are particularly good. Now, um, 0:11:48.960 --> 0:11:52.400 he stops there, but I would say less than a 0:11:52.440 --> 0:11:56.079 week later, maybe two weeks later, he calls me and says, 0:11:56.120 --> 0:11:57.560 you know what you gotta really do is come down 0:11:57.559 --> 0:12:01.640 to my office and consider joining Alger. It took him 0:12:01.640 --> 0:12:04.839 two weeks to come around. Well, I think he was 0:12:04.880 --> 0:12:07.200 giving me like a little week. Just let it sink in. 0:12:07.920 --> 0:12:11.480 You know, look, he is a he is who he is, 0:12:11.520 --> 0:12:13.720 not just a founder, but it was a master businessman 0:12:13.760 --> 0:12:17.280 because he's pretty good at let's just say, the m 0:12:17.320 --> 0:12:19.520 word of managing people has another word that's a little 0:12:19.520 --> 0:12:25.880 bit motivating. Well, some people say manipulating. Um, you know, 0:12:26.280 --> 0:12:29.280 uh and I think he understood that I didn't know 0:12:29.400 --> 0:12:33.200 much and uh that his you know. So anyway, that 0:12:33.320 --> 0:12:36.800 turns out to be an insightful play on his part. Well, 0:12:36.800 --> 0:12:39.600 because not only do you join Alger, you'd be eventually 0:12:39.600 --> 0:12:41.760 become president, then you become c I O, and then 0:12:41.760 --> 0:12:46.120 you become CEO. So clearly he saw potential in you 0:12:46.600 --> 0:12:50.120 to take over his his work. I'm gonna be you know, 0:12:50.360 --> 0:12:53.120 just really really candid. I mean, his daughters all laugh 0:12:53.160 --> 0:12:56.080 about it because they said what they knew was that 0:12:56.120 --> 0:12:58.840 he had long longed for a successor that was in 0:12:58.920 --> 0:13:04.640 the family, his daughters at all past you know, I'm 0:13:04.640 --> 0:13:12.680 not interested um and and uh uh uh that as 0:13:12.720 --> 0:13:15.040 soon as I said this thing, he had no interest 0:13:15.080 --> 0:13:18.600 in actually advising me in any accurate, objective sense. It 0:13:18.679 --> 0:13:23.080 was a campaign to get me on board, using you know, 0:13:23.280 --> 0:13:27.680 a very wildly and very intelligent um sixty plus years 0:13:27.679 --> 0:13:31.520 of experience against a pretty naive, you know, thirty year old. 0:13:31.600 --> 0:13:34.120 Well it seemed to have worked out. It worked worked 0:13:34.160 --> 0:13:40.240 out absolutely. Let's talk a little bit about algiers investment philosophy. 0:13:40.320 --> 0:13:47.160 I like this description discovering companies undergoing positive dynamic change, 0:13:47.640 --> 0:13:52.559 which immediately raises the question how do you identify these companies? 0:13:53.360 --> 0:13:57.200 Is this quantifiable? How much of this is less definable 0:13:57.320 --> 0:14:04.160 and squishy and qualitative? Uh? What is positive dynamic change? So? UM, 0:14:04.240 --> 0:14:07.680 this is our our investment philosophy. It's what the firm 0:14:07.760 --> 0:14:11.480 was founded on in nineteen four. UM. It's also what 0:14:11.520 --> 0:14:18.360 we're recognized for as essentially creating the growth style of investing. UM. 0:14:18.440 --> 0:14:22.280 So what does it mean? UM? It's first a recognition 0:14:23.000 --> 0:14:30.760 UM that UH changes all around us and in our industries. UM, 0:14:30.800 --> 0:14:35.800 in our customers and the competitors and the competitive pressures 0:14:36.560 --> 0:14:41.320 UM in an industry are basically always about adapting to change. UM. 0:14:41.360 --> 0:14:48.160 So what we recognize in our philosophy is the opportunities 0:14:48.200 --> 0:14:52.360 for investors, in particular fundamental investors are where the change 0:14:52.400 --> 0:14:55.240 is the greatest. And the reason for that is because 0:14:55.280 --> 0:14:57.560 where the change is the greatest, for example, and what 0:14:57.640 --> 0:15:02.280 has driven revenue growth or profits or you know, customer demand, 0:15:02.800 --> 0:15:04.720 you know where the change is the greatest in those 0:15:04.800 --> 0:15:08.000 those those key drivers and others for an industry, it's 0:15:08.040 --> 0:15:11.640 where the opportunity for new winners to be created, you know, 0:15:11.840 --> 0:15:15.200 for old winners potentially to continue, but if they don't adapt, 0:15:15.240 --> 0:15:18.800 but potentially become losers. So the pressure to change wherever 0:15:18.840 --> 0:15:23.360 that's the greatest is always of extreme interest to us. 0:15:24.000 --> 0:15:27.080 And what we recognize UM within an industry is there's 0:15:27.120 --> 0:15:31.040 two areas where the change or the pressure to change 0:15:31.080 --> 0:15:33.760 is though is the greatest, and one is where is 0:15:33.760 --> 0:15:36.600 the highest new growth in an industry. If you look 0:15:36.640 --> 0:15:39.480 at any industry and ask what's the highest fastest growing 0:15:39.800 --> 0:15:43.240 new product or service, that is a kind of change, right, 0:15:43.680 --> 0:15:48.240 and that's inherently innovation, changing preferences by consumers or maybe 0:15:48.240 --> 0:15:51.720 a changing costs um. But whatever is growing the fastest 0:15:52.560 --> 0:15:57.320 UM is a huge challenge because you can either be 0:15:57.400 --> 0:16:00.520 a leader and innovator and capture that high growth, or 0:16:00.600 --> 0:16:02.880 you can be the company that's selling the product that 0:16:03.000 --> 0:16:06.880 is getting cannibalized. Right, it's growing, is growing, was once 0:16:06.880 --> 0:16:09.320 growing perhaps, but it's now growing slower and slower and slower. 0:16:09.560 --> 0:16:12.080 So if you think about the high growth UM, a 0:16:12.080 --> 0:16:14.880 great example I like to use is the music industry 0:16:15.080 --> 0:16:19.760 as a transition from record to tape, from tape to 0:16:20.400 --> 0:16:25.000 UH cassette, cassette to c D, c D to digital. 0:16:25.160 --> 0:16:29.000 Each one of those technology transitions, at the beginning of it, 0:16:29.080 --> 0:16:32.640 the new media is always the fastest growing. I mean, yes, 0:16:32.680 --> 0:16:35.960 it's starting from zero, but but also in each one 0:16:35.960 --> 0:16:39.480 of those we can see it's ultimately completely eaten up 0:16:39.840 --> 0:16:42.880 the past technology. And so if you're a company selling 0:16:43.800 --> 0:16:47.600 records music, or you're selling the electronics that play music 0:16:48.520 --> 0:16:51.280 um or a producer of it, you know, you have 0:16:51.400 --> 0:16:55.560 to be aware that the transitions there are important for 0:16:55.560 --> 0:16:57.320 your company to adjust too. And we can think of 0:16:57.360 --> 0:17:00.280 a lot of leading companies from say the eighties, which 0:17:00.320 --> 0:17:02.960 I you know, I grew up in loving music and 0:17:03.000 --> 0:17:08.719 going to college and but Tower Records uh hmv Records, uh, 0:17:09.000 --> 0:17:13.960 Sony with the Walkman um uh. You know that today 0:17:14.359 --> 0:17:17.800 either went out of business or are no longer leaders 0:17:17.880 --> 0:17:22.359 in you know, streaming digital music UM, which is really 0:17:22.359 --> 0:17:26.840 dominated essentially by Apple uh, Spotify and a few others 0:17:26.880 --> 0:17:30.680 as you know. UM. So we know that high growth 0:17:30.760 --> 0:17:33.399 is one area where the change is extreme and the 0:17:33.440 --> 0:17:38.080 opportunity to identify as fundamentally as investors, who are the leaders, 0:17:38.320 --> 0:17:40.439 who are the ones driving that change? Is it going 0:17:40.520 --> 0:17:43.080 to be durable? And of course you know, the examples 0:17:43.080 --> 0:17:47.800 are countless um retail it's uh, first you had department stores, 0:17:48.160 --> 0:17:51.359 then you had the big box retailers, and then you 0:17:51.400 --> 0:17:53.640 had Amazon come along and end it all, and now 0:17:53.680 --> 0:17:57.240 it's all e commerce, and well you know, and so 0:17:57.400 --> 0:18:01.080 so important to be basically be in the right position there. Um. 0:18:01.119 --> 0:18:03.919 But the other part of our philosophy again it's about 0:18:04.160 --> 0:18:07.560 change and where is the pressure to change. Well, interestingly, 0:18:07.560 --> 0:18:10.040 it's what we call life cycle change. So that's often 0:18:10.080 --> 0:18:14.000 at the other end of the spectrum, it's industries in decline, 0:18:14.320 --> 0:18:20.640 companies really struggling to and in decline negative dynamic change. Well, um, 0:18:20.680 --> 0:18:23.680 for our hedge fund, absolutely interested in the negative dynamic, 0:18:23.800 --> 0:18:28.399 meaning you could both go along with absolutely um on alongside. 0:18:28.400 --> 0:18:31.640 We're looking for the positive dynamic change. So the industries 0:18:31.680 --> 0:18:37.000 are companies with potentially new management, new innovation, restructuring, or 0:18:37.040 --> 0:18:40.879 just new opportunities that can re accelerate and reinvigorate their 0:18:40.920 --> 0:18:45.160 companies into a new growth phase. And again often companies 0:18:45.200 --> 0:18:50.359 like these sometimes their turnarounds. Sometimes it's just industries shifting. Um, 0:18:50.440 --> 0:18:55.280 they offer great investment opportunities because again, the the key 0:18:55.280 --> 0:18:58.320 inside about change is where is where change is happening, 0:18:59.119 --> 0:19:03.320 and if it's extreme, it often translates into worry, fear 0:19:04.000 --> 0:19:07.320 in the investors, and it often trans that often translates 0:19:07.320 --> 0:19:12.679 into undervaluation. Right, missed up missing an opportunity because instead 0:19:12.720 --> 0:19:16.280 of sort of leaning in to the situation, investors flee 0:19:16.359 --> 0:19:18.680 to what they think is safety. R So, so let's 0:19:18.680 --> 0:19:22.520 talk about that, because what you've been describing is a 0:19:22.600 --> 0:19:26.199 fundamental change at a company level, either with a product 0:19:26.320 --> 0:19:30.919 or service um that that's penetrating a new market, finding 0:19:30.960 --> 0:19:35.200 new consumer acceptance. How do you contextualize what's been going 0:19:35.240 --> 0:19:39.560 on in this market since sometime towards the back half 0:19:39.600 --> 0:19:44.960 of where all those fast growing, high flying tech stocks 0:19:44.960 --> 0:19:47.640 have been taken out to the wood shed. And it's 0:19:47.680 --> 0:19:51.800 not that anything fundamental has changed in these companies or 0:19:51.840 --> 0:19:56.720 their prospects. But maybe it's inflation or a new interest 0:19:56.760 --> 0:19:59.800 rate regime or the end of the pandemic. But something 0:19:59.840 --> 0:20:04.440 in macro environment is changing and causing investors to revalue 0:20:04.480 --> 0:20:07.320 these How do you look at that sort of cyclical 0:20:07.480 --> 0:20:11.719 change relative to what you've been describing as a fundamental element. 0:20:12.760 --> 0:20:17.280 Uh So, this is probably one of the most dynamic periods. 0:20:18.119 --> 0:20:21.359 Uh you know, we have really ever seen in thirty years. 0:20:21.600 --> 0:20:26.119 And uh, when I say the period, I actually want 0:20:26.160 --> 0:20:28.840 to go back into pre COVID. If you think about 0:20:28.920 --> 0:20:32.119 what we have seen in our country and across the 0:20:32.119 --> 0:20:37.680 world and in the markets pre COVID right, political change, 0:20:37.880 --> 0:20:42.359 COVID right, a global pandemic hasn't been seen in basically 0:20:42.440 --> 0:20:46.600 hundred years, right, special influence hundred years, literally hundred years, 0:20:46.760 --> 0:20:49.080 and there's no modern market back then. So this is 0:20:49.119 --> 0:20:57.760 completely different COVID forcing um and a global experiment in logistics, healthcare, 0:20:58.160 --> 0:21:05.200 e commerce, deliver vere um, remote work um and also 0:21:05.320 --> 0:21:10.040 lifestyles you know um um uh that we haven't seen 0:21:10.680 --> 0:21:13.320 and now yes, we're to me, we're still in the 0:21:13.359 --> 0:21:17.640 same period. Um. Now we're in the coming out yeah, 0:21:17.680 --> 0:21:20.720 where COVID is is ending in one way or the other. 0:21:21.359 --> 0:21:24.200 Economies are still trying to recover from it. Supply chains 0:21:24.200 --> 0:21:27.639 were tangled up before. We're barely recovering. And now, of 0:21:27.640 --> 0:21:35.680 course we've been hit by Ukrainian Russian war and uh China. Uh, 0:21:35.760 --> 0:21:38.240 they're really in their COVID crisis right now because of 0:21:38.280 --> 0:21:43.679 the way they managed to delay it through zero COVID policy. Right. Um, 0:21:43.760 --> 0:21:47.720 So there are an incredible number of things happening in 0:21:47.760 --> 0:21:52.120 this period. UM, that are are very challenging, and certainly 0:21:52.160 --> 0:21:56.120 are in the sense that algia likes UM. But yet 0:21:56.119 --> 0:21:59.800 it is, of course the challenge dynamic and changing right 0:22:00.640 --> 0:22:06.320 now to the near term UH market action clearly, UM Yes, 0:22:06.400 --> 0:22:11.480 interest rates and inflation caused by supply chain shortages exacerbated 0:22:11.520 --> 0:22:15.919 by Russian Ukrainian War, and then also the concerns about 0:22:16.400 --> 0:22:19.440 what's happening in China, because I remember China's economy going 0:22:19.480 --> 0:22:21.840 into a deep percession. It's never really had a deep percession. 0:22:21.840 --> 0:22:23.800 In the last twenty it has been a growth driver, 0:22:24.640 --> 0:22:26.960 UM and a and a huge growth driver at that, 0:22:27.480 --> 0:22:29.640 a huge growth driver on the march on an incremental 0:22:29.720 --> 0:22:32.600 basis across the globe, it's probably been half of the 0:22:32.640 --> 0:22:35.879 growth of global GDP growth. Half of it has probably 0:22:35.920 --> 0:22:39.320 been attributable to China's growth over the last twenty years. 0:22:39.320 --> 0:22:41.800 I'm not an economist, but I I bet that's a 0:22:41.880 --> 0:22:45.160 very good guess, because you know, Europe has been fairly stagnant, 0:22:45.760 --> 0:22:48.720 and uh, you're not seeing a lot in Africa. South 0:22:48.760 --> 0:22:50.879 America has its own problem, and we've been we've been 0:22:50.920 --> 0:22:55.600 a good contributor. But but you know, uh so so 0:22:55.680 --> 0:22:59.800 I think what we're seeing here is um concerns of course, 0:23:00.119 --> 0:23:04.320 that the inflation is not going to be transitory, uh, 0:23:04.400 --> 0:23:07.840 that the Russian Ukrainian War has changed things around the 0:23:07.960 --> 0:23:14.160 energy commodities complex um, and that a twenty thirty year 0:23:14.320 --> 0:23:20.800 process of globalization is actually unwinding into more localization, more 0:23:20.920 --> 0:23:24.120 on shoring, and even of course trade war conflict, which 0:23:24.160 --> 0:23:27.280 of course that didn't start with the Russian War, you know, 0:23:27.600 --> 0:23:32.200 started actually um with the U. S and China, Right, 0:23:32.280 --> 0:23:36.800 But now it's going to be potentially even more disruptive 0:23:36.840 --> 0:23:40.800 because how are the sanctions against Russia going to play 0:23:40.840 --> 0:23:43.440 out over the following years, Because it does appear it 0:23:43.480 --> 0:23:45.600 will be years, not nothing. It's going to be resolved 0:23:45.680 --> 0:23:47.959 very quickly here, right, I Mean, we could hope that 0:23:48.000 --> 0:23:51.520 it's resolved in months, but so far we're seeing no 0:23:51.600 --> 0:23:55.480 indication that that this is anything but a long haul. 0:23:55.760 --> 0:23:59.000 I could still cross our fingers and hope before ends 0:23:59.080 --> 0:24:01.600 the war ends, but that's just a lot of wishful 0:24:01.600 --> 0:24:05.200 thinking on my part, right, Well, I think so. So 0:24:05.240 --> 0:24:07.680 your question was how do you invest in what's going 0:24:07.720 --> 0:24:11.679 on with growth stocks? And the key for Algin our 0:24:11.720 --> 0:24:14.960 process it is a fundamental research process driven by over 0:24:15.080 --> 0:24:19.959 fifty UH animal supportfolio managers looking at every sector and 0:24:20.320 --> 0:24:25.119 across the globe. What we first look at is UM 0:24:25.200 --> 0:24:30.440 industries and trends. UM. You know what will be enhanced 0:24:30.440 --> 0:24:33.800 by the current environment, what will be hurt by it. 0:24:34.720 --> 0:24:38.719 UM High energy costs, high commodity costs, high labor costs 0:24:39.480 --> 0:24:42.960 will put a lot of pressure on efficiency. UM driving 0:24:43.000 --> 0:24:46.840 efficiency is usually technology, software and robotics. For manufacturing industries, 0:24:47.720 --> 0:24:51.480 UM efficiency might include remote work may get even more 0:24:51.680 --> 0:24:54.639 entrenched because saving on the commute, right if you're if 0:24:54.680 --> 0:24:56.359 you're only going to work three days a week instead 0:24:56.359 --> 0:24:58.720 of five, the two days of savings for a lot 0:24:58.760 --> 0:25:00.879 of a lot of consumer or is where they're driving 0:25:00.880 --> 0:25:03.600 to work is actually quite significant. And and all the 0:25:03.640 --> 0:25:07.639 studies have shown that businesses are getting actually more labor 0:25:07.640 --> 0:25:10.760 out of people who are working remotely. Right, So, so 0:25:10.880 --> 0:25:14.119