Alger Chief Investment Officer Dan Chung reflects on his 30-year journey with the firm, sharing insights into his formative years as a research analyst.
In celebration of Alger's 60th anniversary, we present part one of a special interview series with Chief Investment Officer Dan Chung, reflecting on his 30-year journey with the firm. In this conversation, Dan shares insights into his formative years as a research analyst, learning the ropes and discovering a special affinity for the tech sector. Click here to hear the full conversation with Dan.
DAN CHUNG: Sometimes there'll be great models, very detailed, thirty pages. The problem is they will not be our model. They won't be my model as an analyst. I will not have poured over the actual basic papers in the footnotes and put it together. Therefore, I won't have the feel for where the numbers came from.
HOW DID YOU GET YOUR START AT ALGER?
DAN CHUNG: I started at the very bottom of Research. I don't know if that was a tradition in those days or not, but I started in the back office for a week, before starting in the Research department, which was the plan. As a research associate, I worked for a young analyst, and I was at the very bottom.
I didn't actually start off in tech. I mean my first assignment as a research associate working for an analyst, I think we covered contract manufacturing. We covered some industrials. We covered restaurants. We covered cellular phone companies and funeral parlors. That was under the category of industries that are rolling up and consolidating. We also covered a trucking company for example. But in our process, after passing the CFA, getting promoted to analyst and getting my own coverage, in those days. I mean I got a small assignment. But the whole culture was really like, well, now you're an analyst, so now you get to basically be a hunter/gatherer. Go out. Research. Find the great ideas in the stock market. It's a wide open playing field.
But technology came anyway with that small start. Basically there was one name within the coverage that I got that was on every headline but wasn't really considered important by Wall Street which was America Online. Just to give you an idea of how small it was, I mean I think at the time the market cap of the company was essentially 200 or 300 million. It was a small cap company. But what I knew about America Online and through our investment philosophy of high growth in particular was that they were seeing tremendous demand in growth from consumers to get online. But because they were having huge outages and failures and getting a lot of criticism for that, but I saw the problems as likely solvable.
I did research on that, including visits down to their data centers. Going down to the data centers, I would ask the engineers and the data center managers, “Well, what are the biggest problems here?” and they would walk me around and show me where their problems were, and then I took those back and did research, made connections. And I realized that they had a good problem to have, which is so much demand that it wasn't that their technology architecture was incorrect or faulty. It was simply they couldn't install enough of it quickly enough with enough capacity to handle literally the hundreds of thousands that went to tens of millions very rapidly, exponentially. So they were just sort of having logon problems.
It was actually the first stock I recommended I think as an analyst. It ended up being a top holding not only that year but in successive years, and ultimately when AOL acquired Time Warner in I think 1998 or ’99. So, that’s how it all started.
WHAT WAS A DAY IN THE LIFE FOR AN ANALYST BACK THEN?
DAN CHUNG: Well, we were certainly very paper based there. Even though we had financial models, they weren't really connected to anything. Like my desktop computer in ‘94 and ‘95, was not connected to the Internet. No one was. I had to actually ask David Alger to get an Internet connection because our big holding was America Online, and also I was trying to pitch the stock. So we had one connection, and it was on a shared desktop which I kind of dominated I guess because actually, frankly, a lot of the other analysts were not particularly interested in it, or it wasn't their area, or they had other things to do.
Getting financial data, manually inputting it because you got the 10Ks and 10Qs basically through the mail, and then you carefully read them and input the data that you wanted into your models. That's a good part of the day. We spent a good part of the day on the phone calling companies or experts or just industry participants. I spent a lot of time. And frankly as a junior analyst, it’s not like I could call the CEOs and CFOs. They wouldn’t really pick up the phone call.
But a lot of time on the phone. the standard practice there would be to read newspapers, read industry journals. We’d look at press releases. Then for my research, note who was being quoted at a company and then try to call them or contact them. Or in a newspaper article, not just looking at the New York Times, but looking at a local paper in an area. I remember spending quite a bit of time looking at papers in Virginia for a while because of the development of basically now the big office centers they have there. Calling the local writers of an article on business and then asking them for further insights on whatever they were reporting on.
So a lot of time on the phone, a lot of time in front of the models and then meetings. We had some big standing meetings that you couldn't miss. Meet with PMs of course if they want to, a fair amount of travel. Go to visit the companies at their headquarters. Set up a bunch of interviews. Try and get deep inside. What's the character of a company and its insights?
I think we learned a lot in those days because the companies, especially small cap, we're often surprised that an analyst was going to fly like halfway across the country to meet just with them. Spend a day with them, and don't just talk to the CFO and the CEO but the head of Sales, the head of Manufacturing, the head of R&D, whoever they would actually let you talk to pretty much. So I really enjoyed that and I did do a lot of travel.
HOW DID YOUR TIME AS AN ANALYST INFORM HOW YOU WORK WITH ANALYSTS TODAY?
DAN CHUNG: Well, meritocracy. Giving opportunity to people kind of regardless of their age or experience, but to show that they could contribute, those were the hallmarks of the firm then, and I think preserving those attributes now is a major part of what I try to do with my partners here. It's not so easy because meritocracy requires some things that some people don't like which is rigorous accountability, sometimes quantitative, sometimes qualitative, but nevertheless accountability for results and accountability for how you get to the results.
I do believe that in a meritocracy you also have to have a culture that people can be objective. There's a whole culture that sometimes says, oh, well, try to avoid that in some way. I'm not sure why that really benefits people. It takes a pretty unique set of people to understand why that's good for not only the firm but good for them. I do think that's the hallmark of a boutique like Alger and I've seen it at other fine boutiques too. They have a different feel than say working for the household name with two hundred thousand employees. Never seen one that has a culture that like is as intense in multi dimensions, but intense as an Alger or a good boutique..
