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Transcript: Dan Chung – The Big Picture


 

 

The transcript from this week’s, MiB: Dan Chung, Alger Funds, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast I have an extra special guest, his name is Dan Chung, and he has been with Alger Asset Management since 1994, where he started out in the e-commerce and technology sector as an analyst before eventually becoming President, Chief Investment Officer and then CEO. Dan Chang has been running that firm for quite a while, with quite a tremendous track record. The firm has $35 billion to $40 billion in assets. In addition to the CEO and CIO roles, he also runs a couple of different portfolios to a great acclaim.

Alger is, you know, best known as founded by Fred Alger. We’d talk a little bit about various mentors, as well as what the firm’s experience was in 9/11 and what they’ve done after that in terms of their own philanthropy. They’re a fairly unique growth firm that focuses on tech, healthcare, a variety of other things, specifically growth companies, and we’d go over how they’re managing through what is both a challenging, but target rich period with great opportunities.

So with no further ado, my interview with Alger Management’s Dan Chung.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is Dan Chung. He is the chief investment officer and chief executive officer at Alger Management, which runs over $35 billion in assets. He has been CIO since 2001. He earned his J.D. from Harvard in ’87, got a master’s in Law from NYU, before going to clerked for the Honorable Justice Anthony Kennedy at the Supreme Court of the United States. He is also a portfolio manager for multiple funds and strategies, including the $4.5 billion Alger Spectra Funds. Dan Chung, welcome to Bloomberg.

DANIEL CHUNG, CEO AND CIO, ALGER ASSET MANAGEMENT: Thank you, Barry. So I’ve been looking forward to having this conversation with you for a while, and I have to start by asking, you had a storybook legal career, what happened? What made you say, “Yeah, to hell with Harvard and the Supreme Court, I’m going to switch gears and try something totally new?”

CHUNG: Yeah. It was — it was a storybook career. And if I had another opportunity, I probably would have tested out what the legal world would have been like, but — where many of my friends still are today, including Justice Elena Kagan.

RITHOLTZ: Were you a colleague of hers?

CHUNG: We co-clerked together, and we went to law school together, and we served on the law review together. And she’s an amazing person. It’s very weird to have a friend who becomes a Supreme Court Justice.

RITHOLTZ: Right. That’s kind of interesting. Do you guys ever stay in touch? Do you have a chat?

CHUNG: You know, I was just getting to the point in my career where I wanted to sort of give back to the Harvard Law School. At that time, she was the dean. So you talked about a storied career, she was the dean. And so I — the last time I saw her on a one-on-one situation, it was like, you know, talking about “Let’s do something law and business.” And my whole issue was that lawyers are — you know, the vast majority of them are consulting in some way for businesses, and they don’t understand the business at all and it reduces the quality of their work. And she was — she was very into it. And then, I don’t know, a couple months later, she’s nominated for the Supreme Court. So that’s all over.

RITHOLTZ: So — so she saved you writing a check like almost —

CHUNG: Yeah, that’s true. Yeah, yeah, yeah, saved some money.

RITHOLTZ: So – so you end up at Simpson Thacher, which is known for international law and corporate law and litigation.

CHUNG: Right.

RITHOLTZ: What were you doing for them and then how did that end up transferring over to finance?

CHUNG: Right. So I — my parents are both academics and knew absolutely nothing about Wall Street, and only a little bit about business generally. I, on the other hand, was always interested in it, probably not in a very educated way, but probably from things like the movies.

RITHOLTZ: Right.

CHUNG: I did grow up in the Silicon Valley, and so — but my Silicon Valley was Hewlett-Packard, not –

RITHOLTZ: Undergraduate Stanford, right? I recall.

CHUNG: Undergraduate Stanford. So that was an interest I had there in the business and in Wall Street, and frankly, in New York. And like the Frank Sinatra song, you know, “If you can make it here, you can make it anywhere.” And so I wanted — I wanted to — in some ways, I was more driven by the idea to come to New York, work at a top-notch law firm. That will be a way to learn about business as well as, you know, business law.

And essentially, along the way, I realized I loved the clients who were making deals, complicated financial investments, you know, using numbers, accounting, analysis, fundamental as well as accounting analysis to figure out, you know, what’s the — what’s the right price to pay for something? And — but I was just — I was, as a lawyer, just an observer.

RITHOLTZ: Right.

CHUNG: I’m not making any decisions, really. And so, at some point, I realized, I thought I would be more interested in that and I thought I would be good at it. So I — so I started to call around Wall Street to try to get a job on Wall Street, basically.

RITHOLTZ: Really? And what was that process like?

CHUNG: Well, it started off extremely well, and that the first person I told was a client and it was like a — I don’t know what their title was, certainly a VP, not an MD, I believe, but not the head of the group. But it was a financial derivatives and complex financial instruments group, Merrill Lynch. So I always think very fondly of Merrill Lynch, they’re a big client of ours. Thank you, Merrill. And the associate — you know, we’ve been working on something and the associate — I told the associate we’d become friendly. And he said, “If you’re leaving Simpson, I’m sure my boss would want to talk to you, probably give you a job.” I said, “Okay, great.”

So — so I go down, meet his boss, and he says like, “I loved working with you.” You know, my dad was a math professor, so he actually said something to the effect of, “You’re one of the few lawyers who seem to actually understand like the math that we’re doing here.”

RITHOLTZ: Right.

CHUNG: That’s around options and derivatives. And I, you know — and basically, he gave me a job offer before I left his office, and he said, “It’s a standing offer. Stay at Simpson if you want, but anytime you want to leave, you got an offer here in our group, Merrill Lynch.”

RITHOLTZ: Wow.

CHUNG: And so — so that’s a confidence booster, right?

RITHOLTZ: So here’s the question —

CHUNG: That’s when I started looking around.

RITHOLTZ: So — so was it the pre-existing math skills that translated to finance, or was it some of the legal training and experience that helped you once you started having a career in investing?

CHUNG: I would say the math skills, it’s more about a number sense, seeing patterns in numbers, liking statistics, understanding probabilities. And again, like I mentioned, my father again, but he was actually a professor of Probability Theory.

RITHOLTZ: Right.

CHUNG: So —

RITHOLTZ: Which I think is much more important for investors than the bulk of what you’re going to learn in the CFA exam.

CHUNG: Yes. I mean, investing is basically, first, recognizing that nobody knows anything about the future.

RITHOLTZ: Right.

CHUNG: Anybody who tells you they’re predicting the future, you know, or sounds like they’re so confident that they’re going to be right, it’s like, you know —

RITHOLTZ: They’re selling you something.

CHUNG: They’re selling me stuff. So the only way really to approach it, at least from my perspective, and Alger’s is what are the probabilities of a bear case, a base case, a bull case? You know, what’s the black swan event? And you know, what works and what doesn’t work? What are the values, you know? And the stock market obviously is — I mean, it is the greatest real-world probability machine ever, right?

RITHOLTZ: Exactly. Yeah. Absolutely.

CHUNG: I mean, the price of it — of any asset in the stock market is essentially the combined probabilities of everybody, bullish, bearish, neutral, ignorant, highly-informed insiders, outsiders.

RITHOLTZ: Dollar-weighted.

CHUNG: What is that worth?

RITHOLTZ: Right.

CHUNG: And that changes because things happen and people change their minds a little bit, sometimes too much, and sometimes not enough, right? And that, I think, has always been — I’ve always been, I think, very good in number sense. I didn’t — I had to prove it at Alger. You know, I thought I had good number sense. I think — I think — I think I proved it at Alger.

But the law I don’t want to underestimate. The law did — it did help me a lot. I think, one, I like complex situations because I know that a lot of people don’t, or they just don’t want to take the time to dig into them. And so, as a fundamental investing shop, getting into the details, getting into the complex situations is sometimes where you get the most opportunity —

RITHOLTZ: Sure.

CHUNG: — because of that. And then on the flip side, running the business, lawyers are very disciplined, organized, detailed, deadline-oriented. All of which is pretty good for a career, but it’s especially good if you’re trying to run a business.

RITHOLTZ: So — so how did you end up at Alger? You joined in ’94.

CHUNG: Right.

RITHOLTZ: Was that your first job in finance out of Simpson Thacher?

CHUNG: The first job in finance, and I ended up there because I — so I’ve gotten a couple offers on Wall Street. I had the Merrill Lynch one. I had gotten another offer. And I thought, you know, I don’t really know any serious Wall Street, you know, senior mentor types. So I should — I should try to find one to ask their advice, like where should I go? And at that time, the only one that I knew was my father-in-law. Fred Alger had just become my father-in-law. June ’93, I married his daughter, Alexandra, my wife today still. I can’t believe it’s been 29 years.

So I hadn’t really met him much, but I knew he was on Wall Street and I knew that he did investing. And so, I figured it’s a great guy to ask. He must know the whole landscape. And I’ll never forget that — I didn’t know him really very well. You know, it’s sort of like, of course, we were engaged. So I’ve met him in some really kind of formal dinner with his wife. And you know, I’m the son-in-law. I have to admit I didn’t ask him permission to marry his daughter. I was — she isn’t that kind of woman and I’m not — I wasn’t that kind of guy. I sort of regret that, maybe I should have done it now. I hear kids are doing that now again.

RITHOLTZ: It doesn’t surprise me.

CHUNG: But I’m more like a ‘70s kid, because ‘70s kids didn’t ask permissions from their parents. Anyway —

RITHOLTZ: So you speak to him about?

CHUNG: So I say — yeah, I said, “I’m thinking of leaving the law firm and I have these offers on Wall Street. And I’d like your advice.” And he basically begins to tell me how bad both of the offers I have are.

RITHOLTZ: Really?

CHUNG: And how neither of the firms that I’m talking about are particularly good. Now, he stops there. But I would say less than a week later, maybe two weeks later, he calls me and says, “You know, what you got to really do is come down to my office and consider joining Alger.”

RITHOLTZ: It took him two weeks to come around?

CHUNG: Well, I think he was giving me like a little week to let it sink in. You know, look, he is a — he is who he is, not just a founder, but he was a master businessman because he’s pretty good at, let’s just say the M word of managing people has another word that’s a little bit, you know —

RITHOLTZ: Motivated?

CHUNG: Well, some people say manipulating.

RITHOLTZ: Okay.

CHUNG: You know, and I think he understood that I didn’t know much. And that is, you know — so anyway —

RITHOLTZ: That turns out to be an insightful play on his part —

CHUNG: Well —

RITHOLTZ: — because not only do you join Alger —

CHUNG: Yes.

RITHOLTZ: — you eventually become president, then you become CIO, and then you become CEO.

CHUNG: Right.

RITHOLTZ: So clearly, he saw a potential in you to take over his work.

CHUNG: Well, I’m going to — I’m going to be, you know, just really, really candid. I mean, his daughters all laugh about it because they said what they knew was that he had long longed for a successor that was in the family. His daughters had all passed —

RITHOLTZ: Right.

CHUNG: — you know, not interested. And that as soon as I said this thing, he had no interest in actually advising me in any accurate objective sense. It was a campaign —

RITHOLTZ: Got it.

CHUNG: — to get me onboard —

RITHOLTZ: Oh, that’s funny.

CHUNG: — using, you know, a very wildly and very intelligent 60-plus years of experience against a pretty naive, you know, 30-year-old.

RITHOLTZ: Well, it seemed to have worked out.

CHUNG: It worked okay.

RITHOLTZ: It worked out well.

CHUNG: Absolutely.

(COMMERCIAL BREAK)

RITHOLTZ: Let’s talk a little bit about Alger’s investment philosophy. I like this description, “Discovering companies undergoing positive dynamic change,” which immediately raises the question, how do you identify these companies? Is this quantifiable? How much of this is less definable and squishy and qualitative? What is positive dynamic change?

CHUNG: So, this is our investment philosophy. It’s what the firm was founded on in 1964. It’s also what we’re recognized for, as essentially creating the growth style of investing. So what does that mean? It’s, first, a recognition that change is all around us, and in our industries, in our customers and competitors. And the competitive pressures in an industry are basically always about adapting to change.

So, what we recognize in our philosophy is the opportunities for investors, in particular fundamental investors, are where the change is the greatest. And the reason for that is because where the change is the greatest, for example, in what has driven revenue growth, or profits, or, you know, customer demand, you know, where the change is the greatest in those — those key drivers and others for an industry, it’s where the opportunity for new winners to be created, you know, for old winners potentially to continue. But if they don’t adapt, they potentially become losers. So the pressure to change, wherever that’s the greatest, is always of extreme interest to us.

And what we recognize within an industry is there are two areas where the change, or the pressure to change is always the greatest. And one is, where is the highest new growth in an industry? If you look at any industry and ask what’s the highest, fastest growing new product or service, that is the kind of change, right? And that’s inherently innovation, a change in preferences by consumers, or maybe a change in costs. But whatever is growing the fastest is a huge challenge because you can either be a leader and innovator and capture that high growth, or you can be the company that’s selling the product that is getting cannibalized, right? It’s growing — it was once growing perhaps, but it’s now growing slower and slower and slower.

So if you think about a high growth, a great example I like to use is the music industry as it transitioned from record to tape, from tape to cassette, cassette to CD, CD to digital, each one of those technology transitions. At the beginning of it, the new media is always the fastest growing. I mean, yes, it’s starting from zero.

RITHOLTZ: Right.

CHUNG: But — but also in each one of those, we can see it’s ultimately completely eaten up the past technology. And so, if you’re a company selling records, music, or you’re selling the electronics that play music, or a producer of it, you have to be aware that the transitions there are important for your company to adjust to. And we can think of a lot of leading companies from, say, the ‘80s which I — you know, I — I grew up loving music and going to college. But Tower Records —

RITHOLTZ: Sure.

CHUNG: — HMV Records, Sony with the Walkman, you know, that today either went out of business, or are no longer leaders in, you know, streaming digital music, which is really dominated essentially by Apple, Spotify and a few other, as you know. So we know that high growth is one area where the change is extreme, and the opportunity to identify fundamentally as investors, who are the leaders? Who are the ones driving that change? Is it going to be durable? And of course, you know, the examples are countless. In retail, first, you had department stores, then you had the big box retailers.

RITHOLTZ: Right.

CHUNG: And then you had Amazon come along and end it all. And now, it’s all e-commerce. And so it’s important to basically be in the right position there. But the other part of our philosophy, again, it’s about change and where is the pressure to change? Well, interestingly, it’s what we call lifecycle change. So that’s often at the other end of the spectrum. It’s industries in decline, companies really struggling and in decline.

RITHOLTZ: Negative dynamic change?

CHUNG: Well, for our hedge fund, absolutely interested in the negative dynamic.

RITHOLTZ: Meaning you could both go along with short?

CHUNG: Absolutely. On the long side, we’re looking for the past positive dynamic change, so the industries or companies with potentially new management, new innovation, restructuring, or just new opportunities that can reaccelerate and reinvigorate their companies into a new growth phase. And again, often companies like these, sometimes they’re turnarounds, sometimes it’s just industries shifting. They offer great investment opportunities. Because again, the — the key insight about change is where — is where change is happening. And if it’s extreme, it often translates into worry, fear in investors and it often — that often translates into undervaluation, right, missed up — missing an opportunity, because instead of sort of leaning into the situation, investors flee to what they think is safety, right?

RITHOLTZ: So — so let’s talk about that, because what you’ve been describing is a fundamental change at a company level, either with a product or a service that’s penetrating a new market, finding new consumer acceptance. How do you contextualize what’s been going on in this market since sometime towards the back half of 2021, where all those fast-growing, high-flying tech stocks had been taken out to the woodshed? And it’s not that anything fundamental has changed in these companies or their prospects, but maybe it’s inflation, or a new interest rate regime, or the end of the pandemic, but something in the macro environment is changing and causing investors to revalue these. How do you look at that sort of cyclical change relative to what you’ve been describing as a fundamental element?

CHUNG: So this is probably one of the most dynamic periods, you know, we have really ever seen in 30 years. And when I say the period, I actually want to go back into pre COVID. So if you think about what we have seen in our country and across the world and in the markets, pre COVID, right, political change.

RITHOLTZ: Right.

CHUNG: COVID, right? A global pandemic hasn’t been seen in basically a hundred years, right? Especially influenza —

RITHOLTZ: Literally a hundred years.

CHUNG: A hundred years, literally a hundred years. And then there’s no modern market back then, so this is completely different.

RITHOLTZ: Right.

CHUNG: COVID forcing a global experiment in logistics, healthcare, e-commerce, delivery —

RITHOLTZ: Remote work. Right.

CHUNG: — remote work and also lifestyles, you know, that we haven’t seen. And now, yes, to me, we’re still in the same period. Now, we’re in the coming out, yes, where COVID is ending in one way or the other. Economies are still trying to recover from it.

RITHOLTZ: Right.

CHUNG: Supply chains were tangled up. Before, we’re barely recovering. And now, of course, we’ve been hit by Ukrainian-Russian war.

RITHOLTZ: Right.

CHUNG: And China, they’re really in their COVID crisis right now because of the way they managed to delay it through zero COVID policy, right? So there are an incredible number of things happening in this period that are very challenging, and certainly are, in the sense that Alger likes, but yet is, of course, a challenge, dynamic and changing, right?

Now, to the near term market action, clearly, yes, interest rates and inflation caused by supply chain shortages, exacerbated by Russian-Ukrainian war. And then also the concerns about what’s happening in China, because remember China’s economy going into a deep recession, it’s never really had a deep recession in the last 20 years.

RITHOLTZ: Right.

CHUNG: It has been a growth driver.

RITHOLTZ: And a huge growth driver of that.

CHUNG: A huge growth driver. On an incremental basis across the globe, it’s probably been half of the growth of —

RITHOLTZ: Right.

CHUNG: You know, global GDP growth, half of it has probably been attributable to China’s growth over the last 20 years. I’m not an economist, but I bet that’s a very good guess.

RITHOLTZ: Sure.

CHUNG: Because, you know, Europe has been fairly stagnant.

RITHOLTZ: Right.

CHUNG: And —

RITHOLTZ: You’re not seeing a lot in Africa. South America has its own problems.

CHUNG: Yeah. And we’ve been — we’ve been a good contributor, but — but, you know. So — so I think what we’re seeing here is concerns, of course, that the inflation is not going to be transitory, that the Russian-Ukrainian war has changed things around the energy commodities complex.

RITHOLTZ: Sure.

CHUNG: And that a 20- to 30-year process of globalization is actually unwinding into more localization, more onshoring and even, of course, trade war conflict, which of course that didn’t start with the Russian-Ukrainian war.

RITHOLTZ: Right.

CHUNG: You know, it started actually in 2016 with the U.S. and China, right? But now it’s going to be potentially even more —

RITHOLTZ: More disruptive. Yeah.

CHUNG: — more disruptive because how are the sanctions against Russia going to play out over the following years? Because it does appear it will be years, nothing is going to be resolved very quickly here.

RITHOLTZ: Right. I mean, we could hope that it’s resolved in months. But so far, we’re seeing no indication that this is anything but a long haul. We could still cross our fingers and hope before 2022 ends, the war ends. But that’s just a lot of wishful thinking on my part, right?

CHUNG: Well, I think — so — so your question was, how do you invest in what’s going on with growth stocks? And the key for Alger and our process, it is a fundamental research process driven by over 50 analysts and portfolio managers looking at every sector and across the globe. What we first look at is industries and trends. You know, what will be enhanced by the current environment? What will be hurt by it?

High energy costs, high commodity costs, high labor costs will put a lot of pressure on efficiency. Driving efficiency is usually technology software and robotics for manufacturing industries. Efficiency might include remote work may get even more entrenched because saving on the commute, right? If you’re — if you’re only going to work three days a week instead of five, the two days of savings for a lot of — a lot of consumers where they’re driving to work is actually quite significant.

RITHOLTZ: And all the studies have shown that businesses are getting actually more labor out of people who are working remotely.

CHUNG: Right. So — so what we’re always looking for is the technologies, the services, the products that increase efficiency, that benefit from the trends that we think are durable. There are some trends that, of course, cyclical, but others are more durable. What’s durable, in our view, ecommerce, AI, machine learning. I think we always believed in renewables, solar, wind, and energy efficiency, generally. Very clearly, in a high oil and natural gas price environment, that’s going to be even more in demand than it was.

Consumer lifestyles, that’s harder to predict. I think we’re clearly going to have a significant portion of our population as well as those across the world that are going to feel a lot of pain because of higher energy food prices. However, we should also note that the upper 60%, 65% of Americans are actually going to be able to weather this quite easily. Food and energy costs are not significant to — in particular, the upper 40%, it’s not really a significant part or effect. The middle band, there’s some effect, but actually they’re doing quite well.

You know, we entered this period partially because of COVID, with consumer savings at record levels, businesses, lots of — lots of deferred CapEx, and therefore financial situation and corporation is quite strong. You know, the only thing that concerns me about the consumer mostly is higher interest rates affecting the value of their homes, which clearly is going to be, you know, a negative wealth effect for a lot of consumers. Of course, a lot of us had seen a wealth effect that we never really expected nor needed. And so, some of that’s probably going to unwind.

RITHOLTZ: Right. That giant boom in home prices, if we roll 10% or 20% of that back, it’s really not the worst thing in the world.

CHUNG: That’s right.

RITHOLTZ: Quite interesting. So — so let’s talk about a couple of different sectors that you mentioned. On –on the one hand, we’re seeing stores like Home Depot do pretty well. On the other hand, stores like Walmart and Target have had, you know, the worst drop post earnings since 1987. What do you make of this environment where, even within a sector like retail, you have to slice the market very finely, very thin to separate the winners from the losers?

CHUNG: So I would say in in the consumer landscape, you know, the combination of a couple things is really pretty negative and it’s reflected in the results of like Walmart and Target, and why we’re generally actually not — we’re not really very much invested in retail or in consumer goods. One is high labor costs and high inflation matched up against not so easy for some of these companies to pass that through to the consumer with higher prices, right?

RITHOLTZ: Right.

CHUNG: Especially when many like Walmart and Target customers are feeling pressure from higher energy and food. And also — and very important to remember, many of those companies, of Walmart’s and Target’s, they were able to stay open during COVID. They benefited from remote work stay-at-home.

RITHOLTZ: Right.

CHUNG: People not going to restaurants, eating at home more. They benefited from being open when other retailers had to close, like department stores. And so, they saw — a lot of them saw strong growth and demand for apparel, home goods, furnishings, that kind of stuff, sporting goods. And Walmart and Target, in many ways, we’re beneficiaries of COVID relative to other — other retail.

So, right now, we think in the consumer sector — and we’ve had this actually sort of trend for — a belief and a trend for a long time, which is that, over time, the demographics of the U.S. consumer in particular, it’s a trend towards experiences over things.

RITHOLTZ: And that’s definitely pre pandemic. The pandemic seemed to have temporarily reversed it when everybody is stuck at home getting deliveries.

CHUNG: Exactly. Exactly right. And so, I think in the consumer, you know, there are still things that, in that experiences category, that have not yet recovered from COVID’s effects. Live entertainment, travel are great experiences, restaurant industry to many respects, hotel industry. Obviously, they’re travel related, but it’s a little bit far and few between because if you look at the stock market of — the dominant part of the consumer area is really goods, you know, many of which did fairly well during COVID.

Now, you know, I think we’re still leaning in to companies like Amazon, which obviously was a COVID beneficiary. But Amazon is much more than just a store now. AWS, Web Services —

RITHOLTZ: Sure.

CHUNG: — is, you know, the leading cloud services provider. The transition to the cloud is a major re-platforming of business processes from, you know, running computers and storage, and network equipment in your office to letting a public cloud provider do it for you.

RITHOLTZ: Right.

CHUNG: And Amazon is a winner there. And I think it’s, you know, important to note how significant that business is to Amazon because it’s much higher margin than the retail business, and they are the dominant leader there. And it’s still growing very, very fast, growing over 30% right now.

RITHOLTZ: So — so you mentioned AI and software and robotics, in that same space, I got to think Microsoft is a credible competitor. I think their, what is it, Azure is the second —

CHUNG: Yeah.

RITHOLTZ: — biggest cloud provider after Amazon. What else is catching your eye in areas like AI and robotics?

CHUNG: Right. So you know, I think a lot of the leading growth companies, many of which have come down significantly, you know, in the last six months. In software, like Microsoft, Adobe, but also, for example, in semiconductors like AMD or, again, going into software, ServiceNow, Datadog, I think many of these companies have come into — in the case of the bigger larger cap ones, I think they’re absolutely attractive in terms of the valuation now.

And the need for what Microsoft provides, cloud services, of course, enterprise computing, you know, they own LinkedIn. I mean, this is an incredibly well capitalized company. It’s hard to believe Microsoft at scale, it’s growing revenue 16%. You know, the P/E right now is below that, of companies like — you know, in the staple sector, I think, is one of the most overvalued. I mean, staples, you’ve got a lot of the leading staple companies of 26 to 30 times P/E, most of them struggle to grow revenues more than 5%. So I think a lot of the leading tech companies are attractive and continue to play into a lot of the trends.

Digital transformation, again, this is, you know, businesses — this seems to happen about once every 10 to 15 years, you know, what happened in the ‘90s with the move to the Internet.

RITHOLTZ: Right.

CHUNG: But then there wasn’t a lot of tools yet for digital business, right? So what is digital business? This is — instead of paper documents, it’s digital documents.

RITHOLTZ: Right. By the way, both of us work in firms that live and die in the cloud, and yet the two of us have papers spread out all over the desk. Are we just — are we just the old school old timers, or is there still — is it still just a — is this a generational thing? Are the people who are the millennials, who are 20, 30 years younger than us, stuff like this doesn’t happen or — because I don’t see anybody doing this on a tablet all that easily.

CHUNG: I think you’re actually absolutely right because I tried to do it on a tablet and I realized there’s no way. You can see me here, right?

RITHOLTZ: Right.

CHUNG: I’ve got one, two, three, four, I got seven pieces of documents that I can easily just — you know, my hand is a pretty — my hand is better than the mouse.

RITHOLTZ: It’s a better style, right?

CHUNG: My hands, so far, has not crashed on me ever.

RITHOLTZ: That’s right. Or frozen.

CHUNG: And I can reach out and you know, one piece of paper I have, you know —

RITHOLTZ: So let me ask you about another sector. You guys are fairly focused on health sciences.

CHUNG: Yeah.

RITHOLTZ: And — and given what took place with mRNA and companies like Pfizer and Moderna. This obviously is going to be a giant sector with the ageing of the population, oncology advancements, lifespan extension. What are you looking at in the healthcare space and the health sciences space?

CHUNG: Yeah, this is a great question. I’m glad you brought it up, because healthcare is one of our favorite spaces and I think it’s a very good example of a sector that has actually opportunities both on the high growth innovation end, but also great companies that are great free cash flow, stable businesses, and probably improving their prospects. So we — we’re like quite a bit across the healthcare spectrum and from pharma and biotech, med tech, as well as healthcare services, and even health tech software.

You know, healthcare is, of course, not economically sensitive. But it is driven, of course, by major trends and demographics, as you mentioned. It’s one of the big ones. But I would say, within healthcare, two major trends that are occurring right now and one that’s more of a market phenomenon. So the market phenomenon is simply that a lot of the leading pharma and biotech companies, household names look severely undervalued relative to their profitability. And while their growth is more modest, it’s certainly competitive with, say, the staples that I mentioned earlier, right?

RITHOLTZ: Right.

CHUNG: Meanwhile, some of them are coming out of like patent expirations in periods where they were challenged to growth with new products. And so we think, you know, it might, in our lifecycle change theory, sort of accelerate their growth going forward. So these are leading companies like AbbVie, or one of our most interesting ones right now is Bayer.

RITHOLTZ: The big German pharmaceutical?

CHUNG: The big German boring company. Why is Bayer interesting? Bayer bought Monsanto, almost at the very peak of the last agricultural fertilizer cycle, and then also inherited the roundup litigation —

RITHOLTZ: Right.

CHUNG: — which has cost it about a decade. As a result, it became extremely undervalued and hated. But they are coming out of, you know, the roundup litigation, they have sort of ring-fenced what the liabilities were. They’ve reserved for them — their litigation will continue. But the — you know, the unknown factor there is rapidly diminishing.

Meanwhile, first of all, they should be created. They’re not a bad pharma company, including some aspects like Bayer, and you know, like Johnson & Johnson, but they do also have innovation there. But finally, also — and yes, pretty much driven by the commodities, that problem that we’re seeing now. The Monsanto business, you know, looks poised like a lot of agricultural businesses to actually accelerate tremendously in the next few years as commodity prices go up.

So — so there’s a lot of examples in big pharma. But I want to note, there’s also a lot opportunity on the high growth side of healthcare, because in healthcare, how are we — how are we meeting the need for healthcare with an aging population? A lot of it is better technology, better software, and better services — better delivery of services. We all know that the healthcare system is pretty, pretty inefficient. It’s also one of the slower adopters, in particular, of things like cloud, software, digital, you know, business processes.

RITHOLTZ: Are we ever going to see the healthcare sector come up with some form of uniformed standards for healthcare records? You would think there’s a massive opportunity there. Nobody seems to have come up with a way to create a standard thing so that your doctor, your hospital, your radiologist, your whatever, your pharmacy can all easily access the same data as directed when needed. It just seems like the recordkeeping and the oldest specifics, and I’m dealing with, my mom is 86, trying to move her records from Florida to New York. It was just a nightmare and it feels like your back in the 1970s. What do you mean I have to submit a fax request? It’s 2022, just email this. They don’t do email.

CHUNG: It’s going to get better. And I think you and I are too old to benefit, and your mother and my mother are way too old. Why? Because some of their records are old and they’re in old systems buried in a doctor’s office.

RITHOLTZ: File cabinet.

CHUNG: They’re in a file cabinet of a doctor who retired.

RITHOLTZ: Right.

CHUNG: So they’re lost —

RITHOLTZ: Forever.

CHUNG: — kind of lost.

RITHOLTZ: Yeah.

CHUNG: So they’ll do the test again. I mean, a lot of the efficiency in healthcare is going to be more driven — there’s going to be some there, but it’s always going to be a messy process. I think it’s getting better, though. But you know, a lot of things were focused like robotic surgery. So —

RITHOLTZ: What companies do you look at in that space?

CHUNG: Intuitive Surgical is the leader in that space. And then a lot of —

RITHOLTZ: And some of — by the way, some of the things I’ve read in that space are really quite astonishing. What — what is — the advances that have taken, what used to be somewhat risky surgeries or somewhat complicated surgeries, and turn them into fairly routine procedures, is that a fair statement?

CHUNG: Yes. I think it’s — no, I think it’s absolutely amazing, what med tech has done for all kinds of stuff. I mean, think about hip/knee replacements —

RITHOLTZ: Right.

CHUNG: — that are just routinely done now and so successful. Cardio, heart valve replacement, minimally invasive, no more, you know, no more — not needing open heart surgery.

RITHOLTZ: Not crashing. You open up the —

CHUNG: They’re not crashing, you open anymore, obviously massively improved results and lower cost. And frankly, you know, the — important to note, the — with COVID, the development of the vaccines, you know, the rapidity of with which the mRNA technology was proven out by both Pfizer and Moderna and others. And I think we can look forward to sort of, you know, increased use of that technology to solve other — other diseases. So —

RITHOLTZ: Really fascinating stuff.

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RITHOLTZ: So what other sectors besides software, robotics, healthcare are really standing out as offering a lot of potential for positive dynamic change?

CHUNG: So let’s see. We talked about tech. We talked about healthcare. I’m trying to sort out. I think —

RITHOLTZ: AI, Big Data.

CHUNG: Well, so I guess what I would say is, look, the markets are highly uncertain. We are — you know, with the interest rates and inflation, the way they’re going. I think our portfolios in Alger, we’re positioning a little bit more diversified than perhaps we have been in the past few years, and exempt — so — so you’re so there isn’t any one sector that I think I would say that’s next most important. But I would note that, for example, energy and renewables, I think, given, you know, high energy prices now, it is absolutely important, as an investor, to have a part of your portfolio exposed to the opportunity in solar in particular.

RITHOLTZ: Who do you like in that space? Solar, wind or any other at all?

CHUNG: It’s mostly — it’s mostly providers of solar, electronics, inverters.

RITHOLTZ: So not necessarily the panel makers, but —

CHUNG: Not the panel makers. Yeah.

RITHOLTZ: Which is almost mostly Chinese.

CHUNG: Yeah, mostly Chinese, and there’s actually some issues around, you know, import/export.

RITHOLTZ: Well, there’s ongoing litigation in California.

CHUNG: There’s ongoing litigation. Right. And circumvent, it’s called circumvention.

RITHOLTZ: Right.

CHUNG: There’s a lawsuit about this, whether importers of solar panels circumvented tariffs. But, you know, it’s a good — it’s a good example. That controversy is important, but I view that as relatively short term. The big picture trend shouldn’t be forgotten. If we are going to be living in $80, $90, or $100 oil, and natural gas is no longer going to be $2 or less, right?

RITHOLTZ: Right.

CHUNG: It’s going to be $5.

RITHOLTZ: Still cheap, but —

CHUNG: The — and I believe, yes, these prices could recede by the end of the year, particularly, if we get slower economic growth and a better resolution of the Ukraine-Russian situation. But nevertheless, I don’t think we’re going back to $2 and $30 oil. I think we’re — pre COVID, we were in the $40, $50, $60 oil range.

RITHOLTZ: Right.

CHUNG: And I think there’s a lot of reasons why Europe, having to move away from reliance on Russian gas, will maintain higher prices for gas and oil globally. I think that’s — I think, you know, there will be negative effects of that. But you know, we’re looking for the positive dynamic change. And to me, it is clearly from renewables.

RITHOLTZ: Right.

CHUNG: And so the longer term growth there is only more likely to be durable. Solar, wind, hydro, many things will be beneficiaries. Frankly, in the industrial space, it’s harder to talk about any particular company because there’s no pure play.

RITHOLTZ: Right.

CHUNG: But many of the industrials that do electrical equipment, pumps, or other kinds of mechanical equipment, you know, do have significant exposure to the electrical grid, right, or natural gas transmission, or old school oil and gas, refining, and drilling, right? All of which is going to, in my view, pick up an activity. So I think the energy sector is one place where you want to have some exposure. You want to think about, for example, electric vehicles. They are clearly a rising trend. Tesla is obviously the leader. There are now newer players.

But I’ll note within the industrials and materials complex, there are some very interesting plays within lithium batteries and companies that supply critical components and substrates for the — you know, the electric vehicle battery of not only the car, actually, I should say, but —

RITHOLTZ: Storage at home.

CHUNG: — storage for the home.

RITHOLTZ: Sub — subunits for — that’s been an ongoing issue is how do you store energy from a wind farm or a solar farm so that it’s accessible when there’s no wind and no sun?

CHUNG: And so in the theme of this diversification that I want to note, like financials, we are also, you know, currently interested in what are the opportunities within financials. The biggest change for financials for us, where we have long been very minimally exposed, is we are looking at a steepening yield curve, right? Interest rates have risen off — off zero essentially. And if we get a steepening yield curve, that is generally good for bank earnings, potentially for the earnings of credit card companies.

The offset, of course, is will the higher rates and inflation recession, will that end up in defaults on loans and slower credit card growth and spending. Now, I think we’re right now trying to be balanced there. But if you think about desire for experiences, travel, you think about American consumer is actually entering this cycle now in very good financial shape, and in particular, you think about the upper 40% or 60% spending on travel. What do we pull out? We pull out the American Express card? A lot of us.

So you know, we like — you know, we like — I think it could be wrong. You know, recession could hit all that spending. But again, I think in the interest of a diversified portfolio, I think, you know, there are interesting opportunities within financials. So that’s one example. Others are — there are growth for your banks that have been hit pretty hard recently. Many of them are now trading as if they were sort of, you know, like just any regular bank. The ones that we like are the ones who have been innovative within banking. So —

RITHOLTZ: Give us a few names.

CHUNG: Silicon Valley Bank has long been a leader in the Silicon Valley. Obviously, all of their tech customer stocks are down so people are taking their stock down. But actually as bankers —

RITHOLTZ: They’re doing well.

CHUNG: They do well when — as long as — as long as the Silicon Valley doesn’t go bankrupt, as a whole. You know, the fact that some company stocks are up or down doesn’t actually do anything for them. In fact, if anything, the potential for deal-making increases, which they are often the banker. So – and I should note, they did an extremely savvy acquisition of a healthcare franchise a few years ago, one of the leading investment banking, banking, healthcare franchises. And again, as I noted, the healthcare is a very active area.

You know, we should note that not only is it not economically sensitive, but healthcare, because of the COVID crisis, has received a huge boost in funding, recognition and interest in investment for the future, not just for preventing the next COVID pandemic, but also for, you know, how can we improve the telemedicine? You know, how can we improve outcomes in the healthcare system? It’s a — it’s a — it’s been a big challenge for the healthcare system, but I guess, appropriately, they’re getting rewarded by a lot of interest in investing in that to improve it, right? So — but then — but then again, going back to financials, there’s a lot of banking — there’s a lot of banking opportunity in that.

RITHOLTZ: Let — let’s talk a little bit about those different strategies; the Alger 35, the Dynamic Return Fund, Dynamic Opportunities, Capital Appreciation, Spectra. We talked about health sciences earlier. Tell us a little bit about these different strategies. What is the goal of all these different approaches to investing?

CHUNG: So as growth specialists, you know, all of these strategies reflect basically different market caps and market cap ranges, with the exception of the Healthcare Fund and Dynamic Opportunities. Dynamic Opportunities is a hedge fund, so long/short, and the Healthcare Fund obviously is a sector fund.

RITHOLTZ: What about 35, and the Dynamic Return or Capital Appreciation Funds?

CHUNG: So Alger 35 is actually very special to us. It is a fund and it’s also one of our first ETFs, Alger 35 ETF, which we launched actually in just last year. It’s named actually in memory, in honor of the 35 colleagues we lost on September 11th. And we are donating a part of the management fees to charities, either in their memory or that we or the firm’s support today in their memory. But 35 is meant to reflect the best ideas across all of Alger, so regardless of market cap, regardless of whether it’s U.S. or international, best ideas, focused fund. And so that’s the Alger 35 idea.

Capital Appreciation is a large cap strategy. Spectra is an all caps strategy. Both of those are really very much U.S. oriented, although they can invest in international or foreign stocks. And then, finally, Dynamic Return, Dynamic Return is a hedge fund. So it’s our — it’s our private version of a hedge fund. We also have a 40 Act mutual fund called Dynamic Opportunities Hedge Fund.

RITHOLTZ: But only — only the Dynamic Opportunity can go long and short, is that right?

CHUNG: No. Actually — so Dynamic Return, Dynamic Opportunity, and actually, Spectra does a little bit of shorting. Spectra can do 10 — up to 10% short.

RITHOLTZ: Is that really just as a hedge or why —

CHUNG: At 10% shorting, we can’t really hedge, you know, the larger portfolios. So actually, the idea of the 10% short for Spectra is to generate returns by identifying the, as you said earlier, the negative dynamic change.

RITHOLTZ: Right.

CHUNG: The companies that are going to be Amazon, the companies that are being disrupted by trends in their industry, the companies that are being mismanaged. So —

RITHOLTZ: Really interesting.

CHUNG: Yeah.

RITHOLTZ: Tell us a little bit about the ETF experience, your history is, as a mutual fund and hedge fund shop, what’s it been like playing in those waters?

CHUNG: So it’s — it’s new and you know, we — I think, you know, the major theme at Alger, as growth specialists, we want to be, you know, offering our services, investment services in whatever format, context, you know, the clients want them. And in particular, you know, keeping up with what lowers costs, increases transparency for the clients. And ETFs, actively managed ETFs are, you know, the first opportunity to do that for an active manager. You know, we’re not interested in offering passive index ETFs.

RITHOLTZ: Right.

CHUNG: And so it’s been interesting. You know, they’re both just barely a year old and still small. But we see a lot of interest from, in particular, financial advisors on larger platforms who, you know, have clients who are interested in, you know, the ETF format.

RITHOLTZ: And that’s a concentrated portfolio of 35 names across every style? So — so —

CHUNG: Right. And we also have a 40 too. That’s run by Amy Zhang, who’s our small cap, mid cap specialist.

RITHOLTZ: I was going to say not — not — so that particular — the Alger 40 mid cap and small caps, not all cap?

CHUNG: Correct.

RITHOLTZ: So — so Cathie Wood recently said, “We’re nearing deep value territory for a lot of growth stocks.” I’m not getting the same sense from you that you think we’re heading into deep value for growth given how diversified and broad your focus is, looking at everything from finance to energy, to staples, to what have you. What are your thoughts on where we are in this cycle, and how inexpensive have growth stocks become?

CHUNG: So I sort of have three answers. One is I think leading growth names, so the larger cap names have gotten to valuations where historically and relative to the market, they are very attractive. The higher growth names, so some that have been hit the hardest, these are a little trickier. You know, many of these are cloud computing names, cybersecurity names, you know, part of the new generation of digital business, enterprise software. They have very high growth rates. You know, we should note that in this entire decline, we’ve now had two quarters, the fourth quarter of ‘21 and the first quarter ’22. They’re pretty much all done.

And these most by and large, over 80% of the companies, they’re hitting their numbers, and you know, growing at rates 50%, 40%, over 70%. I mean, I’m looking at, you know, a list of holdings that we have. Yes, they are still expensive on near-term multiples. Some of them, of course, are only just now ramping in profitability. So the P/E multiples are essentially not meaningful. But that is the wrong way to look at higher growth names. Companies that are growing 40%, 50%, 70%, say, this year, you know, are likely to be probably growing in our view 25% for the next few years.

RITHOLTZ: So — so —

CHUNG: You have to be able to look out and value them on that future earnings.

RITHOLTZ: So — so that’s where I was going to go, I want to ask you given this pullback, and some of the highest growth names have gotten cut in half or worse —

CHUNG: Or worse.

RITHOLTZ: — is this — is this a target rich environment for a growth stock picker?

CHUNG: I think — I think it’s definitely a target rich environment. We’re increasingly getting excited about the opportunity to build larger positions in these high growth names. But in our experience, and it’s pretty extensive since 1964, and mine personally since 1994, you can overshoot to the downside —

RITHOLTZ: For sure.

CHUNG: — because — and we’re seeing that now. We’re seeing days where 90-plus percent of the stocks are down, you know, where nothing is up.

RITHOLTZ: Right. Well, we’re recording this on a day that is going to end up being one of those days.

CHUNG: Great.

RITHOLTZ: I’m just looking up at the screen and I see lots of red. We’re down about 2.5%, 3%. But that raises an interesting question. I’ve heard a number of growth investors say, “Hey, we’ve had a huge period of outperformance in the growth space. And therefore, we should discount future returns and expect a lower rate of growth going forward.” On the one hand, you’re saying there are a lot of really interesting companies that have really seen their prices come down. But I’m not hearing that you expect to see growth rates to disappear completely. Tell — describe how you consider forward expected returns from here.

CHUNG: So as a fundamental investment team, bottoms-up fundamental, right? So we have sector experts, analysts, and portfolio managers with extensive experience across every sector. You know, our healthcare sector head is actually a doctor, a PhD, and an MBA, has all three degrees, most degreed person I think I’ve ever seen, except for maybe one of my PMs who also has a PhD and a bunch of other degrees and patents. So what we’re looking at is the trends, right? The big economic, the big business trends, that the big societal trends that are growing, regardless of, yes, near-term economic cycles.

So one thing that many people, you know, did experience was in ’08. ’09, e-commerce continues to grow right through the recession.

RITHOLTZ: Right.

CHUNG: And that was a crushing recession.

RITHOLTZ: Right.

CHUNG: Right through it, double digits, even as the department stores were falling apart. What we’re trying to identify now, fundamental bottom-up stock pickers, is what are the companies that are in the right trends that are going to grow regardless?

RITHOLTZ: So rising rates, inflation, maybe even recession next year, all those are short term concerns you’re looking out 2025 and beyond?

CHUNG: Exactly. And we know from our experience, as investors, that if we’re not quite there, we’re getting close to — you need two things. Yes, I want to see better valuations and we’re seeing them. But I also want to see timing. I want to see some fundamental changes in the market that says the sentiment is shifting because, you know, the nature of investing is, yes, it’s quantitative and qualitative. Right now, you know, clearly, the negative narrative is overwhelming, and it’s natural. A lot of investors are — I earlier said how many things have changed and there’s so much change going on, and a lot of it seems negative.

But, you know, when I look at this list of high growers that were sort of on our shopping list, and most of them we were owning, the question is, at what time do we think it’s better to upsize them? I mean, you know, we’re talking about companies that are, for example, leading software company in healthcare technology, helping manage regulatory risk, clinical trials, data storage, safety, a vertically dominant company within an industry.

We’re talking about cybersecurity. Now, we should — you know, we should note that the company, they’re going over 40%, very high P/E, but we’re looking at like 60% plus earnings growth because it’s going from little to more. Cybersecurity, I’ve been surprised that we haven’t seen a major cybersecurity attack as part of the Russia-Ukraine conflict, but we’ll see. We know that they’re happening.

RITHOLTZ: Right.

CHUNG: Maybe the good thing is that we haven’t experienced it, because we’re getting great defense from some of the new generation of cybersecurity companies that are, you know, defending us literally. And so, that’s the part where I think, you know, being more diversified, looking for opportunities to cross sector. So for example, I mentioned financial services earlier. One thing to know is financial services and technology are almost acting like hedges to each other. When tech is up, financials are down. When financials are up, tech is down. That again has a lot to do with interest rates.

RITHOLTZ: Sure.

CHUNG: So I think, you know, we’re still looking at what are the fundamental opportunities to buy the best growth companies that will grow right through this. But we’re also cognizant that in the near term, a lot of uncertainty. Nobody really knows what will happen, right?

RITHOLTZ: To say the very least. So — so before I get to my favorite questions, there were a couple of things I wanted to touch base with you about, involving both Alger and involving some of your philanthropic activities. Starting with, you mentioned the Alger 35, you guys also fund something, We Remember 9/11. And I’ve been pretty active in September 11th philanthropy. Tell us a little bit about what you do and the basis of that.

CHUNG: So yeah, I mean, September 11th, again, we lost 35 people, including David Alger —

RITHOLTZ: Including — yeah.

CHUNG: — who was — who was my boss. He was the CEO and CIO of Alger, and the lead portfolio just like I am today. And so, I took over the firm and led the rebuilding of the firm after 9/11. And, of course, the first thing we dealt with was really the families who had lost someone. And these were — I mean, this is just an amazing generation of people. And you know, in all — I think that — I think I remember even in the darkest times and support for — these really good people far outnumbered bad people. You know, we’ve seen some horrible shootings over the weekend, right?

But I could not believe some of the families that we saw after 9/11, they’ve lost, you know, their only son, their daughter, and they are heartbroken, but they are actually also wanting to help. And many of them, the first thing they did was create charities in their kid’s memories, or their husband’s memory. Many, many husbands were lost, and moms and everything. And we just realized, you know, our mission has to be support these families. And part of that is that to support them in the memory of their lost one.

So the charitable efforts, since then, I mean, obviously, just multiplied by magnitudes. We continue to support essentially every charity that is an Alger 35, as well as many more. And I think, you know, a few years, you know, after 911, I sort of formalized it with the creation of employee committee, we call it the Candlelight Committee, and so employees run that. And I think the two things I request that they do, and we still focus on, is we’re trying to make an impact in our community where we can, so helping more locally rather than, say, globally.

Secondly, we’re trying to recognize and support charities where we’re not just giving money, or giving of our time or our talent, or in some ways doing something that maybe helps trigger, frankly, in our own individual, you know, I mean, myself and the Alger employees, you know, our appreciation for how lucky we are. Because, you know, there’s nothing like doing something, whether it’s planting trees, or Habitat for Humanity and helping build a home for someone, or going to a Harlem Educational Fund and seeing kids who didn’t have the economic opportunities, you know, education that we had, right?

So I always believe that seeing that it is good for a person, makes them appreciate the world around them, but also how lucky they — we generally are. And so, it’s you know — they always say that the person who gets the most from giving is often the person who’s supposed to be, you know, is the giver. Yeah, I get more back, you know, then that I’m really giving. So — so that’s it.

And then the final thing is, you know, we do support some art and things like that. But it’s the arts that are more community-based, smaller. You know, I love the big institutions. But you know, I don’t believe that they — we make as much an impact there as we do as if we support more, you know, community-based, smaller local organizations.

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RITHOLTZ: The other thing I had to ask you about, which really stood out when I was doing my research, was Alger is really kind of unique in terms of your portfolio managers. 46% are either women or minorities. That’s astounding compared to the rest of finance. Tell us a little bit about how that developed. Is that relatively recent? When did those numbers tick up to such a — you know, that’s just nothing like what we see in the rest of finance.

CHUNG: So it comes from two things that are very, very ingrained in our culture, and old, and maybe one that’s newer. The two old things are the firm has always had a meritocratic culture and a belief that if you followed our investment process and philosophy, that, you know, anyone who was hardworking, smart, and of course, motivated, could become a great investor. And in particular, part of a great investing team, we always believe in the team more than, say, a single individual. So we’ve had a robust training program that has gone on for decades, and is really widely recognized. And many of our leading PMs are actually from that program as I was when I — when I changed careers.

The meritocratic part, you know, is about recognizing, and I think our clients benefit directly from it, that as a boutique investment firm, specializing in growth, we need to be significantly better than our competition, many of whom are much larger, or they’re part of a big bank, or at least they’re part of an asset manager that has trillions of dollars, right? We need to be much better in our specialty than the competition. And the way you’re going to get that as if you recognize and promote within your organization, the people who simply deliver the best results, you know, without much regard to anything else. And that has — that has long resulted in what you see today. I think today, we are also, of course, more aware, and making sure that as we recruit, as we mentor, and as we promote, that we’re — that we’re — you know, we’re recognizing people that way.

But we’ve always had a very diverse leadership. The firm has always been very meritocratic. And we’ve always had a culture of people sort of coming from different industries and wanting to prove themselves. And often those people who come from different industries are the ones who sort of, you know, really passionately get into the stock market. We have — you know, one of the biggest changes, I’d say, in the last 30 years of my career is the industry has become more professional.

RITHOLTZ: Sure.

CHUNG: Like, in the ‘90s, there weren’t investment management programs at business schools or — and certainly the undergrad, undergraduates completely uninterested in what we did.

RITHOLTZ: Half the trading desk didn’t have college degrees.

CHUNG: There you go. And so in some ways, it was — it was nice because the people who found their way to the industry and a bit like me, you know, we had no formal training. We weren’t going there because it was a major or something like that. We were going there because somehow we had found it and we had fallen in love with it. Today, of course, you know, it’s very different. You’ve got undergraduates that are taking investing courses, and that’s all well and good, but —

RITHOLTZ: High school courses are now offered.

CHUNG: Yeah. And while I’m much in favor of education, there’s not — there’s nothing that — there’s nothing that replaces passion and drive. You know, you don’t — you don’t need to be a rocket scientist to do well in our industry.

RITHOLTZ: It doesn’t hurt.

CHUNG: It doesn’t hurt. And we have — we have at least one person who might actually be a rocket scientist, but — I mean, I have a doctor who’s definitely a —

RITHOLTZ: So — so I know I only have you for a few more minutes. Let me jump to our favorite questions that we asked all of our guests starting with, tell us what kept you entertained during lockdown. What have you been streaming or listening to? Amazon, Netflix, whatever.

CHUNG: Okay. I mean, it’s — it’s a —

RITHOLTZ: And you can say “Bridgerton,” you don’t have to be lost.

CHUNG: Yeah, I love TV movie.

RITHOLTZ: Yeah, well —

CHUNG: I will pretty much watch any science fiction junkie put in front of me.

RITHOLTZ: Okay. So you’re talking to the right guy.

CHUNG: I’m watching —

RITHOLTZ: Let’s stick through your favorites.

CHUNG: Well, okay.

RITHOLTZ: And by the way, Season 3 of “The Boys” is coming up.

CHUNG: Oh, yeah, looking forward to that. That’s a good one. But I’ll give you one that I’m like — I’m not sure why I’m still watching it.

RITHOLTZ: Yeah?

CHUNG: It’s because there’s eight seasons of it. So — so I’m like, in my mind, this is actually a bit of a researcher mind.

RITHOLTZ: Right.

CHUNG: If there’s eight seasons, some audience must like it.

RITHOLTZ: Somebody liked it.

CHUNG: I want to understand why even though I — so I’m — “The Expanse.”

RITHOLTZ: I love “The Expanse.”

CHUNG: Oh, you like “The Expanse,” too.

RITHOLTZ: I finished — no spoilers, but what’s so fascinating is how many different storylines and setups are in that, because it began in a specific way and changed into something else before it — it —

CHUNG: But you asked what I was watching, actually it’s not —

RITHOLTZ: Now foreign too.

CHUNG: I don’t really like it. What I really liked —

RITHOLTZ: Yeah?

CHUNG: I really liked “Vikings.” I really like the “Vikings.”

RITHOLTZ: Stay with “The Expanse,” by the way.

CHUNG: The “Vikings” and “The Last Kingdom.”

RITHOLTZ: Oh, really?

CHUNG: I love that.

RITHOLTZ: Oh, that’s very interesting.

CHUNG: Yeah.

RITHOLTZ: If you’re a sci-fi junkie —

CHUNG: It’s like “Game of Thrones Light.”

RITHOLTZ: Right. If you’re a sci-fi junkie, I’m going to give you a couple of things that you will really like. And one is just two seasons, it could be the best thing I’ve seen on lockdown.

CHUNG: I also have to say “New Girl.” I think —

RITHOLTZ: I love that too.

CHUNG: I think Zooey Deschanel is just —

RITHOLTZ: Yes, she’s hilarious.

CHUNG: — hilarious.

RITHOLTZ: Have you watched “Altered Carbon,” have you seen that?

CHUNG: Yes. I watched like two seasons. I’ve kind of faded —

RITHOLTZ: That’s it. It’s done, two seasons. That’s all you —

CHUNG: I thought there was a third. No? Okay.

RITHOLTZ: No. That’s all. Well, there may be a third coming. But so far, it’s only two seasons, or at least the last time I loaded. I think that was Netflix, I don’t remember. And then I’m going to go off on a little tangent —

CHUNG: You know what’s also really good, though?

RITHOLTZ: Go ahead.

CHUNG: Italian Mafia series.

RITHOLTZ: Oh, really?

CHUNG: It’s called – what’s it called? Roma.

RITHOLTZ: I haven’t seen that. There was a movie also Roma.

CHUNG: Yeah, that — that one, the movie is a great, great movie, a very nice portrait of whatever. But Roma, I think, yeah, it’s called Roma. It’s like — it’s a little bit like Narcos, except set in Italy.

RITHOLTZ: Right.

CHUNG: And I love Italy. So — so you see it’s shot in Italy. It’s — I guess it’s Italian and translated. So I love a lot of these shows that are — there’s this ridiculous one from Denmark. It’s about a prime minister. There’s a lot of foreign, you know, TV that’s now being, you know, dubbed or whatever, in English that I find kind of quite interesting because it’s like a —

RITHOLTZ: “Call My Agent,” which is a show, great, fabulous.

CHUNG: “Call My Agent,” excellent. Excellent.

RITHOLTZ: Really fun. And the thing that a lot of people don’t realize is the people playing French actors are actually famous French actors in France, we just don’t know them.

CHUNG: Right. But the one in Spain where they’re all — it’s about like a murder mystery.

RITHOLTZ: Oh, really?

CHUNG: A brother dies in Spain, somehow sister from England, you know, goes to Ibiza to try to find. But, you know, I realized that there is a theme here. I love travel. I think a lot of these shows during COVID were a nice way to sort of see —

RITHOLTZ: Right. You work at home. Exactly.

CHUNG: — and then learn about foreign countries.

RITHOLTZ: I’m trying to remember the name of the show where there’s a cop in Japan whose brother is in the Yakuza, who disappears, and he has to come and chase him down, turned to be in Chicago, in London. I’m drawing a blank on the name. Same concept —

CHUNG: I would like that probably.

RITHOLTZ: But same — same concept as what you’re talking about in Spain —

CHUNG: Right.

RITHOLTZ: — where it’s — some of it is subtitled and it was really —

CHUNG: So you haven’t watched “The Last Kingdom?”

RITHOLTZ: I haven’t watched “The Last Kingdom.’

CHUNG: I seriously recommend watching that.

RITHOLTZ: Okay. I’ll put that on my list.

CHUNG: What it’s about is England — before England, when it’s five different kingdoms, and Vikings are raiding England. And it’s kind of like the English have to unite into a country if they’re going to fend off the Vikings who, of course, are the awesome warriors. And the Vikings are basically trying to figure out, “We like raiding, but is this really a sustainable lifestyle?” You know so —

RITHOLTZ: So — so my wife and I — like I’ll watch a show that she wants to watch. She’ll watch the show I want to watch. And that’s a compromise. The show similar to that, or maybe it’s a few hundred years, it’s 1500s, is Reign, R-E-I-G-N, which is the — it’s France. It’s England and Scotland.

CHUNG: Yeah.

RITHOLTZ: It’s just post Viking but before the Enlightenment. And the Vatican is very involved. And it’s not quite as era accurate as “The Crown” was, but it’s still, you know, entertaining. What goes on in the court politics and the various wars between different — different crowns. And it sounds like it’s a few hundred years after “The Last Kingdom.”

CHUNG: Right.

RITHOLTZ: I’ll put “Last Kingdom” on my list. And there’s a bunch of others, I’ll send you the name of that other show if I can — if I can dig that up.

CHUNG: I don’t listen to podcasts, I have to tell you.

RITHOLTZ: At all? I don’t think that you’re going to catch on.

CHUNG: I can’t think if I —

RITHOLTZ: I don’t think they’re going want anyone.

CHUNG: I do listen to, like in the car, my wife and I like to listen to Howard Stern.

RITHOLTZ: But still? Really?

CHUNG: He’s hilarious sometimes.

RITHOLTZ: That was not going to be my first guest.

CHUNG: Well, I have to credit her. She — she sort of rediscovered it. Okay. I mean —

RITHOLTZ: To be fair, he’s become an amazing interviewer.

CHUNG: Well, that’s it. So yes, a lot of it is nonsense, and you know, funny.

RITHOLTZ: Right.

CHUNG: But we have sometimes like that, you know. But the interviews that he’s done of rock stars —

RITHOLTZ: Great. Just tremendous.

CHUNG: — he’s incredibly good at.

RITHOLTZ: Yeah. Well, he’s doing it for 40 years, he’d better be good at this point.

CHUNG: And there’s a — there’s a — there’s a — there’s a show where we actually replayed the show a couple times because it’s just too funny, where, you know, he asks viewers to call, what are the three greatest rock bands of all time? And you know, a music teacher calls in and on that music teacher’s list is Rush. And he doesn’t have like The Beatles on his list.

RITHOLTZ: No Beatles, no Stones.

CHUNG: And Howard Stern riffs on this for like —

RITHOLTZ: An hour?

CHUNG: — two hours. I mean, by the end of it, you’re just — you know, you’re feeling sorry for this guy.

RITHOLTZ: There’s an argument over who is number three. But I think we can all agree that numbers one and — you and I are comparable age.

CHUNG: The Beatles, Rolling Stones.

RITHOLTZ: And then, you know, number three, you can rotate —

CHUNG: But it’s Rush. Three, you can’t be Rush.

RITHOLTZ: Right. I don’t even know if Rush makes it Top 10.

CHUNG: I mean, right, because he got — you got, look, Led Zeppelin.

RITHOLTZ: You want during the —

CHUNG: You know, I don’t know if we could start — we could keep going. The Who? The Who?

RITHOLTZ: Right. You know, it’s, yes, Pink Floyd.

CHUNG: Pink Floyd.

RITHOLTZ: The Who. You start — you start just working your way down, Bruce Springsteen.

CHUNG: Yeah, yeah.

RITHOLTZ: I’m just thinking about — it’s funny because when you go digital, you lose the visual — visual cues you used to get with, gee, look how long — how many albums I had under the Rolling Stones. That’s like eight inches of vinyl —

CHUNG: Right.

RITHOLTZ: — versus a half an inch of Van Morrison and a half inch of Creedence, but — and The Doors are like two albums. So how do you — anyway, let’s — let’s keep working our way through these questions before they kick us out of the studio. Tell us about your early mentors who helped shape your career?

CHUNG: You know, that’s an interesting one and —

RITHOLTZ: Obviously, Fred Alger has to be one of those folks.

CHUNG: Well, he was, Fred and David. And Fred retired in ‘95.

RITHOLTZ: So you overlapped —

CHUNG: A year after — a year after I joined, he retired.

RITHOLTZ: He had completed his task. He found you and he was able to step out.

CHUNG: But David Alger absolutely. And you know, really, Ron Totaro and Seilai Khoo. I worked for Ron. He was an analyst when I — I worked for him as his junior. He then became a portfolio manager. And Seilai Khoo was a leading tech analyst who became portfolio manager. Both of them — actually, all three of them died on 9/11. They were — so you know, I’ll be frank. I mean, I — I was a little — I was — it took very long time to get me to come because I did not like the idea of going to be the son-in-law, you know?

RITHOLTZ: Right.

CHUNG: And he did show me some stuff. I met these people. And then one of the things he showed me about the meritocracy is we measured like individual analyst’s performance very rigorously. And he said, like, “This is posted like on the bulletin board.”

RITHOLTZ: Right. The fact that you’re son-in-law, it doesn’t matter.

CHUNG: So I said like — he said like, “You’re going to have a year where you’re not on the bulletin board, then you’re going to be on the bulletin board. And if you don’t look good on the bulletin board, you’ll know.” And I said, “I will leave.” He said, “You won’t have to.” And I said, “I’m going to leave if I’m not any good at this,” you know. So I actually did go in thinking, I’ll take the training. And then I’ll probably go — need to go somewhere else to get like my sense of — you know, that I’m not just, you know, some guy.

But those guys, Ron and Seilai, they’re treating me like everybody else in both the good and bad ways, so did David. David probably — I mean, David once actually told me he was a little harder on me than anybody else because he had to be, which included like yelling at me in public and stuff like that. I mean, he was — he was a very colorful guy, but he did — he did have a — he did like to yell when you made a mistake. But he would also stand up in front of 500 people and say, “He’s the best tech analyst on the street right there.”

RITHOLTZ: That’s fantastic.

CHUNG: Yeah. So those — those were my business mentors.

RITHOLTZ: For sure.

CHUNG: Yeah.

RITHOLTZ: So — so let’s talk about everybody’s favorite question, tell us some of your favorite books and what you’re reading right now.

CHUNG: Oh, I was an English major in college. I should have said I did do a lot of reading during — I didn’t just watch Netflix and —

RITHOLTZ: Right.

CHUNG: — “Game of Thrones.” I did a lot of reading. Right now, I am reading “The Committed,” which is the second book after “The Sympathizer” by a Vietnamese author, his name I can’t quite remember. I finished reading a book given to me by my brilliant daughter who is going to up PhD in English literature, by an author named Ocean Vuong. Yes, there’s an Asian American theme going on here, although that’s unusual for me actually. I am reading a book on environmentalism actually, and I cannot remember the name. It was sent to me by somebody at Stanford University. It’s about, you know, what we need to do to make a more sustainable world and how difficult that would be, but why we should do it anyway. And I wish I could remember the name but —

RITHOLTZ: “The Committed,” is that Viet Thanh Nguyen?

CHUNG: Yes.

RITHOLTZ: Did I get that name right?

CHUNG: Yes, yes.

RITHOLTZ: Google to the rescue.

CHUNG: Yeah. And —

RITHOLTZ: And what’s the name of the — what’s the author or name of the other one?

CHUNG: I just finished reading a book called “American Dirt.”

RITHOLTZ: “American Dirt.”

CHUNG: Yeah. That’s an interesting book. I think I had the name right.

RITHOLTZ: Yeah.

CHUNG: It’s about — it takes place in Mexico.

RITHOLTZ: Jeanine Cummins.

CHUNG: It’s a story of a woman who has to flee her country because of drug trafficking. And just — it’s like the journey to America from that perspective, and it’s a pretty amazing novel, I think.

RITHOLTZ: Quite, quite interesting.

CHUNG: Yeah.

RITHOLTZ: What sort of advice would you give to a recent college grad interested in a career in growth stocks or investing?

CHUNG: Do not go on Robinhood and just trade stocks. I would say you want to try to start your career, this is important, at a place with a disciplined investment philosophy. This is not a place, an industry, where I think, you know, going with the startup, or the kind of small shop is necessarily a good place. I do think a lot of the value that the larger firms bring — and Alger is large enough, you know, is that we do have an investment process and philosophy. And so we will train you in it. And it may not fit you ideally, but you’ll have a good, clearer foundation for whatever you’ll do later.

The second thing, actually, I would tell you is I know that you’re — you know, the tech, the tech world, ecommerce world suggests you got to job hop a lot. That’s the way. In our business, I think it’s actually the exact opposite because seeing — wherever you go, if it’s a good place with a disciplined process, you want to see it through a full cycle. You know, if you go to a firm for two years, and then go to a known, you know growth shop for two years, then a value shop for two years, and then a macro shop for two years, I know that some people would say, “Oh, you’ve learned a lot there.” I would say, “No, you haven’t because what you really need to do is see how growth works through a full cycle, how value works through full cycle or how macro does.”

If you — if you job hop like that, you can become very articulate on the surface. But our business is a really tough one. I mean, it’s as tough as competitive professional sports because a number gets put up. Ours is worse. We get a number every day. Even professional athletes don’t play every day.

RITHOLTZ: That’s right.

CHUNG: We get a number every day, and then they add up to weeks, months, quarters, years. And frankly, you can have a 50-plus year record like Alger, and then have a horrible six months. And you know, you’re like, “Wow. Did we get out — did we get out too far over our skis?” I don’t think we did. But you know, it’s a challenging business.

RITHOLTZ: To — to say the very least.

CHUNG: And so you need to know the details and the depth, and you need to do that consistently through a period of time that matters for our business. Otherwise, you’re going to be superficial and shallow. And you might find yourself floating around too much longer than you ever thought you could.

RITHOLTZ: And our final question, what do you know about the world of investing today that you wish you knew when you were first starting out back in 1994?

CHUNG: I think that I was so focused on what was put in front of me, which was technology, that I didn’t really learn much about other sectors or other styles of investing. Now, being that I was at Alger, my boss and everybody around me did not — I mean, we learned about value investing and I’m okay with that part.

RITHOLTZ: Right.

CHUNG: But I think I wish I had to learn more and listened more to what the healthcare guys were saying about healthcare investing. And frankly, there wasn’t that forum at work. And maybe — I’m thinking now, maybe it still isn’t like that and maybe I should help create one. I try, but I realize a lot of times, you know, if you’re the tech guy, you just tune in for the tech. And when the person starts talking healthcare, you tune out.

RITHOLTZ: So cross-sector experience and knowledge might be useful.

CHUNG: Yes. And I think —

RITHOLTZ: That’s a good answer.

CHUNG: I think because when you see what works in your sectors — you know, my key sector was tech and e-commerce, which I led for Alger in the ‘90s. What you see what works there, and then you don’t realize, well, does it work in another sector? You know, maybe it will and maybe it doesn’t. That’s very important learning when you are a portfolio manager. Or as I am really trying to make sure that my analysts are better analysts, because I think if you learn what doesn’t — doesn’t work in other sectors, you know, how they work as well, I think it will come back in some way and help you understand your own sector better.

RITHOLTZ: It makes a lot of sense.

CHUNG: And now that I’m — I guess I’m at the level that I’m at, I know this because often when I’m doing training sessions or discussions with the younger end of our analysts, I can see how they’ve kind of myopically focused on a very set of narrow metrics, or very set way than an industry works.

RITHOLTZ: They’ve self-balkanized.

CHUNG: Yes. And they — yes, and that’s the professionalization of our industry over the last 30 years, right? And so — so they’re not only unaware of how things might work in other sectors, they can get completely blindsided when, say, a business model or a practice in one sector jumps over into another sector.

RITHOLTZ: That’s the risk of specialization when you become a half-inch wide and a mile deep —

CHUNG: Yeah. Correct.

RITHOLTZ: — because it’s so specific and so detailed. So if I can ask you a question that sends you back to the office and say, “Hey, maybe we have to make some changes.” Well, that’s a — that’s a good question.

CHUNG: Yeah.

RITHOLTZ: Really interesting. Dan, thank you for being so generous with your time. We have been speaking with Dan Chung. He is the CEO and CIO of Alger Asset Management.

If you enjoy this conversation, be sure and check out any of our previous 400 interviews. You can find those at iTunes, Spotify, wherever you get your favorite podcasts. We love your comments, feedback and suggestions. Write to us at [email protected] Sign up for my daily reading list at ritholtz.com. Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack staff who helps put these conversations together each week. Paris Wald is my producer. Sean Russo is my research director. Atika Valbrun is our project manager. Jack Halstead is my audio engineer.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

 

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