Sherman’s Rant: Passion and The Quest for Investment Excellence
January 21, 2014
By now, probably everyone has heard about Seattle Seahawks’ cornerback Richard Sherman’s explosive, adrenaline-induced rant following the Seahawks’ victory over the San Francisco 49ers on Sunday. While many viewed Sherman’s rant as rude, disrespectful, and offensive, you have to give him credit for his intense passion, focus, and obsession with being the best cornerback in the National Football League.
I certainly don't condone Sherman's behavior, which inspired hours of social media tweets, criticism, and hate mail. But like him or not, his teammates love him, the NFL brass loves him, and most importantly, the fans who buy Super Bowl tickets love him because of his determination to do whatever it takes to win football games. After being drafted in the fifth round by the Seahawks in 2010—behind many players that in his opinion weren’t in the same league as him—Sherman famously recounted what was going through his mind to a reporter, "When I get to the NFL, I am gonna destroy the league, as soon as they give me a chance." And destroy it he has.
Great investors, like great football players, are also obsessed with winning. While nerdy by comparison, winning in investing is also characterized by intense passion, focus and sheer determination to beat the competition. With about 10,000 hedge funds and 7,400 long-only funds all trying to outperform each other in an environment where everyone is smart and correlations have risen, the investment game has clearly changed in the past 10 years, with Reg FD, company guidance, and the internet leveling the playing field. Being close to the company is now a necessary but insufficient condition to generating strong performance. So is being able to build a 10-year discounted cash flow model with every assumption under the sun about total addressable market, market share, pricing, and margins built in as sensitivities.
In my 25 years in the business, the men and women who get it right most are those obsessed with figuring out the one or two most important drivers of a business, and then researching those factors relentlessly until they are totally sure they have figured it out. Those most obsessed about winning, and most relentless in their research efforts, tend to be the most confident in their conclusions, and thus tend to make the most money for their investors.
At Calamos, we hire passionate, driven analysts who pride themselves on knowing their sectors better than anyone else. They don’t depend on company managements to tell them the answers; they do their own research, and speak with the companies, competitors, suppliers, and customers to find out what is actually happening. Our analysts don’t blindly depend on reversion to the mean when looking at market share, margins or returns. They think about how the company’s investments, positioning versus peers and execution will play out over time in generating cash flows that beat consensus expectations. Our analysts think like owners, and do whatever it takes to understand the company’s strategy, brand positioning, and distinctive competencies.
When looking at potential investments, our analysts identify the one or two most important drivers of the business, do exhaustive research to forecast those drivers, and come up with valuations using different approaches to determine a security’s risk/reward. Finally, they think about timing: A company may have a great business and be attractively priced, but it may not be a good time to invest, or there may allow for a cheaper entry point down the road.
Like great athletes, great analysts and portfolio managers are obsessed with winning—that is, generating higher investment returns than their competitors. It’s what drives the truly great investment athletes in our business. And when we get it right, the adrenaline rush can be exhilarating.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.