Unprecedented is a good way to describe it. The word itself was used so many times in 2020 that it beat out “pandemic” for the people’s choice of Dictionary.com’s word of the year. Jim Gaffigan joked: “I just want to go back to the time of precedence!”
As an investor, you are always mentally prepared for something unusual to occur, and so when the coronavirus struck, we pulled out our crisis playbook. Investing is all about making good decisions under uncertainty, and the pandemic simultaneously reduced our decision-making timeframe and increased the uncertainty we were faced with. We worked overtime to absorb reams of new information, synthesize it, and rapidly incorporate it into our process.
Today we are far from the market lows of March 2020. The uncertainty we face has been reduced by the amazing science and execution behind the vaccines, and our timeframes have expanded. But we can’t be complacent. The gap between the returns investors are seeking and what the financial markets are offering has never been wider. Forward-looking expectations for stocks and bonds are as low as they’ve ever been, and the search for yield has never been more challenging. Nothing is easy anymore, so we will just have to try harder. We must look beyond our borders for opportunities, and we have to stay on top of the rapid changes occurring in sectors ripe for disruption, such as technology, health care, and alternative energy.
As is the case in many of those industries, the mantra in finance is "innovate or die." It’s essential to create, reinvent, and improve when it comes to the management of permanent capital, where the power of long-term compounding means that even small enhancements can result in massive value creation over time. And it's especially critical in a highly competitive arena where both absolute and relative performance are prized. Succeeding in this environment will require creativity, unconventional risk taking, and hard work.
I think it's partially from upbringing and partially from personal aspirations and interests. My parents taught me that every person was important and deserving of respect, and I’ve carried that with me through life. And for whatever reason, I've always been concerned with fairness and justice; I think we all are. My studies in the public policy school at Princeton heightened my understanding of externalities and underscored many of the ESG challenges we face, which today have increased attention and support from the investment community. As someone overseeing a perpetual endowment, my focus is on the long term, and these topics fall under the broader umbrella of sustainability for me. The sooner we realize that it is not “us” versus “them,” but a collective “we”—the sooner we move toward a more equitable, just, fair, stable, prosperous, and enduring world for all of humanity.
When I left the private sector to join the Ford Foundation in 2009, I was surprised at how strong the psychic rewards of supporting a mission-driven organization were. I’m fortunate to have been able to continue this type of work at the Institute for Advanced Study, and now at Carnegie. I also serve on two nonprofit boards—The Investment Fund for Foundations, which manages the endowment portfolios for hundreds of smaller nonprofits, and the YMCA Retirement Fund, which manages the pensions for Y employees nationwide. My involvement has been incredibly rewarding, and I encourage BCGers everywhere to think about contributing their time and talent on a nonprofit board. Governance is difficult but so critical, and there is a real need for experienced facilitators and consensus-builders to help guide the decision-making processes that are always fraught in a group setting.
Yes, it's humbling when you think about the history of the place. From a very modest start, Andrew Carnegie became the richest man in the world, and his influence can be seen in the many libraries, foundations, and educational centers he endowed that exist to this day.
Rather than being intimidated or overwhelmed by the history, I think you’ve got to respect it, honor it, and use it for motivation. In every industry and sector there are leaders who can be admired and emulated. Einstein’s presence and example were larger than life at the Institute for Advanced Study, so his legacy continues to inspire creativity and purpose. In investing, you always have your eye on the future. But the best investors I know don't ignore the lessons of history. They embrace them. They learn from the past and know there is value in understanding it. History doesn't repeat itself, but it often rhymes. When I was younger, I didn’t value those lessons. That was a mistake I have since remedied.
I’d have to say continued learning. My parents were both educators, and when I would complain about having to study, they would say, “You’ll never stop learning in life.” That was true. My formal studies were in engineering, but I was fortunate to be able to broaden my understanding of public policy in grad school. I then learned about business and strategy largely through apprenticeship and casework. The study of behavioral psychology, and especially decision making, has been a hobby of mine since the late 1990s, when a coworker recommended Influence—the Psychology of Persuasion by Robert Cialdini. These experiences ultimately brought me to investing, which blends the qualitative and reflexive aspects of human behavior with the quantitative analytics and empiricism of science.
Other attributes that have been key to my success and career progression: humility, tenacity, and the courage to be different. In investing, if you don’t have humility, you soon will. You have to know what you know—and what you don't. I recall words of wisdom from Ian Kennedy, who was director of research at Cambridge Associates for two decades and an advisor to the Ford Foundation: "If you don't know what the future is going to look like, then don't position your portfolio like you do."
To be successful in investing, you need an edge or a sustainable source of power. The only way to outperform your competitors or your benchmark is to be different—and be right. While the best investors are frequently “short-term wrong,” they have the tenacity to maintain their conviction until they become “long-term right.” Maintaining nonconsensus views requires substantial courage, especially over the sometimes-multiyear timeframes that long-term investment theses take to play out. A terrific book that explores the challenges faced by nonconformists is Different by HBS professor Youngme Moon.
The lessons I learned at BCG apply broadly in life. I was fortunate to work in the health care, travel, energy, consumer, and public sectors in my time at the firm. So, I had the opportunity to learn a lot of lessons. The most memorable takeaway for me is the importance of communication. BCG is filled with smart, talented, and incredibly accomplished people who are great at problem solving. But if you can't communicate your solution to the client and persuade stakeholders to act, then you're not going to achieve your objective, drive change, or create value. The “BCG way” of developing clear, simple messaging for complex topics was eye-opening for me and has influenced the way I engage with my stakeholders today.