The New Networking

How should one define networking? It could be described as simply an exchange of information and services. But, according to Sameer Somal, a better definition that could lead to a very successful career could be “finding ways to give to others”.

 “You have one of the very best societies,” Sameer said, mentioning the many high quality events put on by CFA Society Chicago. He couldn’t resist a gentle dig on the Chicago Bears, fans of which had recently witnessed a double doink missed field goal that led to a playoff loss against his favorite team the Eagles.

His Blue Ocean Global Technology provides digital reputation management, which Somal described as building, maintaining and repairing reputations. He’s an expert who has testified on internet defamation cases in court and says that the digital identity we all have will be one of the most valuable commodities of the future, which makes reputation management important not just for companies but for individuals as well.

His message has much in common with How to Win Friends and Influence People by Dale Carnegie, which Somal said was “the bible of the subject”. According to the Carnegie Institute, as much as 85% of an individual’s success can come from ability to communicate, with only a small fraction determined by analytical skill.

One thing that Somal hears a lot from investment managers is “our business comes from word of mouth”. He said that might be true a decade ago, but now young generations (children of a client, etc.) will immediately look up a firm on the internet, and you need to manage your presence online.

His highly interactive presentation was sprinkled with giveaways to encourage participation, with Somal handing out a tin of Butterfields Peach Buds (“This is the finest candy that I send out all over the world”) to Austin Galm for being the first to answer a question.

Networking is really just the beginning step, as relationships are built over a period of time, and according to Somal, “the fortune is in the follow up”. Somal said that following up after meeting is the biggest part of networking that is often overlooked, and he asked the audience “Why would you even go to a networking event if you’re not going to follow up with the people you meet there?” And while the internet is an indispensable part of networking, Somal said that it is best to “use the internet to get off the internet”, and connect with people in person.

Somal confronted some myths he frequently hears about networking, such as it is only for salespeople and it isn’t as effective as people think. He told a story about how he was able to connect with a number of influential people using respectful and thoughtful language, often in handwritten notes. It’s also important to decide what kind of networker you want to be, Somal said. For some, it means making one important connection at an event. Somal described himself as a “speed networker”, and he tries to have memorable interactions and make as many connections as possible while at an event.

He also has a process that he follows for staying in touch with someone new, which he does within the first 6 months of meeting. When interacting with someone for the first time, it’s best to avoid the question “What do you do?”, because the answer can define a person. Better questions are open-ended, and could be something like “Tell me about your role at your firm”.

Not everyone is as altruistic as Somal when it comes to seeing networking as a way to enrich others. He is always on the lookout for what he terms “givers and takers”, and will quickly determine which side a new contact is on.

He covered topics such as body language, ways to introduce yourself and ideas for some interesting questions to ask. Things like eye contact, positivity, keeping your phone in your pocket and being confident will go a long way when meeting new people. Good questions come from preparation, and it is helpful to research who will be attending a conference in order to think about what might be good things to ask him or her. One of Somal’s favorite questions to ask is “What is giving you positive energy lately?” This question tends to get a smile on people’s faces and get them to remember you in a good way.

When reaching out to execs with mentoring and networking requests, Somal said that it’s best not to ask for anything right away, but to simply say that you’d like to build a relationship with them over time and earn their trust. After you connect with someone you met at a conference, wait about a month and then send another quick note telling them a little more about yourself. Here are three tips Somal recommended to prepare for meeting people at an event:

  1. Prepare a memorable 30 second elevator pitch about yourself
  2. Create relevant and thoughtful questions
  3. Focus on quality, not quantity

If you read an article by someone you liked, send them a note that says “I loved your article and would be delighted to invest in this friendship over time”. Going along with his digital reputation mindset, Somal will often encourage prospects and networking targets to Google him on voicemails he leaves.

In terms of methods of following up, you can use social media, email, text, phone or a handwritten note. Somal said that it’s important to use all of them. Many people he speaks with, particularly younger people, hate using the phone, yet it’s still important to have good phone skills despite all of us being better at in-person interaction.

Somal finished his speech with a quote that summed up his philosophy on networking: “Give without remembering and receive without forgetting”.

Reading List

  1. The Speed of Trust by Stephen Covey
  2. Letters from a Stoic by Seneca
  3. How to Win Friends & Influence People by Dale Carnegie
  4. Give and Take by Adam Grant

Vault Series: Cambridge Associates

Gender equality in the investment profession has been a hot topic in the industry lately, and it was addressed in detail during a January 10, 2019 Vault Series talk from Dierdre Nectow. Her firm Cambridge Associates, a large institutional investment consultant, is an outlier in the profession with half of its executives being women. Nectow discussed why her firm has much higher female representation than average, and what the state of women in finance is today.

To start, some good news: the number of women in finance is growing, yet as a percent of the workforce, women are still underrepresented. The United States is also a laggard when it comes to gender equality in the workplace, coming in at a dismal 51st place globally. One of the worst places for gender equality in finance can be seen in venture capital, where just 9 of the top 100 VCs are female. In contrast, the hedge fund industry has the best female ownership numbers, with 2% of AUM managed by women-owned firms.

Cambridge has been a bit different than its peers in hiring and promoting far more women than average in large part due to the philosophy of its co-founder Jim Bailey. His mother was a strong woman that had inspired him, and he saw women as an untapped resource. Hiring them could lead to outperformance in the industry. The firm has also spent time training workers on unconscious bias and has sought to make it safe to have those kinds of conversations while fostering more thoughtful attitudes around encouraging women and minorities in the workplace. Additionally, Cambridge has a mentorship program, a CFA women’s group and a new initiative called Prevail, which is designed to bring women at asset management firms as well as Cambridge clients and prospects together to talk about investing and issues.

Gender equality is becoming increasingly important for financial firms because pensions are using women and minority representation as a means to hire managers (or not hire ones with inadequate representation). Many companies have been hiring diversity officers to address this trend.  Cambridge is also scouring the landscape to find female and minority-owned managers due to demand.

Following the introduction, David Baeckelandt, senior investment director at Cambridge Associates, took the stage to give us a brief history of women in financial markets, beginning with ancient firms. While by day Baeckelandt is a salesman at Cambridge, in his free time he is a history buff and has done extensive reading on the subject of women in finance.

Beginning in ancient Egypt, Baeckelandt said that Cleopatra was the first women to coin her own currency and put her image on it, which was an important step in modern finance. Another famous woman in finance milestone came with Queen Isabella funding Columbus’s voyage to the new world. Baeckelandt said that you could argue that Isabella led the most successful venture investment of all time, as the exploration of the Americas led to vast wealth for Spain. Another milestone took place in the coming years, with the Dutch East India Company being perhaps the world’s first IPO, and it had a number of women investors involved.

An interesting story of women in finance came from Abigail Adams, wife of John Adams. She made a small fortune trading bonds, which she turned into a small farm that she used to convince her husband to return to from Europe. Victoria Woodhull was another luminary who spotted an arbitrage opportunity between gold bullion and US dollars and used it to make a substantial profit. She then ran a financial firm with her sister, and her story is the subject of an upcoming TV series. Baeckelandt mentioned Hortense Friedman, a story familiar to many charterholders (there is an award given out annually in her name). A number of other women firsts took place in the late 1800’s, with the first women CPA’s and the first women investment bankers in the US.

There are a number of positive signs with respect to women in finance, yet there is much work to be done, particularly with respect to compensation. Public pensions and other large investors will continue to put pressure on firms to ensure adequate female and minority representation, and the march towards gender equality will likely continue to grow in the investment industry.

Distinguished Speaker Series: Joel Greenblatt, Gotham Asset Management

Joel Greenblatt, the legendary author, Columbia B-school professor and hedge fund manager, presented his thoughts and methodology on investing to CFA Society Chicago and local investment community on Wednesday, December 5, 2018.

The title of his presentation compared value investing to the New York Jets, i.e. unpopular and out of favor. Per Greenblatt, where we stand today on a valuation basis relative to the past 25 years is that about 25% of the S&P 500 could be considered “undervalued” versus just 7% of the Russell 2000, if we assume the S&P 500 earns its long-run average forward return of 7%. Greenblatt also thought that the S&P 500 could earn a below-average 3%-5% return for the next few years.

In a statement that was likely no surprise to anyone in attendance, Greenblatt noted that “Growth” has outperformed the market the last 5 years. Greenblatt defined for attendees what the parameters were for a value investor (with all of these definitions supported by the Russell and Morningstar definitions:

  • Low price-to-book
  • Low price-to-sales
  • Low cash-flow valuation

What Greenblatt admonishes his students to aspire to, “Do good valuation work, and the market will likely agree with it”. Greenblatt noted he just wasn’t sure when the market would agree, but in theory at some point it will.

Greenblatt put up the chart that showed the classical individual stock return versus company valuation, and to no surprise to anyone, the overvalued stocks typically had the lowest forward returns relative to the lowest valuation. He also used the examples of two lectures he gave to a group of NY doctors who only asked what he thought the market would do over the next few years, versus the Harlem high school jelly bean test, and asking the kids to guess as to the number of jelly beans in the jar. Joel Greenblatt used the story to lead listeners to the conclusion that the kids in Harlem were closer to the right answer in terms of the accurate number of jelly beans in the jar, when doing their own homework versus listening to “word-of-mouth” guesses by the class.

It was clear that Greenblatt was more impressed by the analytical rigor of the Harlem high school class than the group of doctors, but he also used the story to illustrate the power of impression and what is heard by the retail investor and how emotion and psychology play important roles in investing. Greenblatt also talked about one of first books, i.e. The Big Secret for the Small Investor and the two most important points from the book:

  • 41% of the investment managers with the best 10-year track records also spent at least 3 of those years in the bottom decile of performance rankings.
  • The “Big Secret” is really just patience. Find an investment strategy that you are comfortable with and stay with it.

Greenblatt noted that the press’s preoccupation with Tesla is the “tyranny of the anecdote” contrasting that with deep value investing strategies and how they work over long periods of time.

The Q&A session noted that – not surprisingly – Greenblatt finds more opportunities in the smaller-cap universe despite the valuation comments from above. The valuation metrics aren’t “weighted” in that price-to-sales isn’t weighted more heavily than price-to-book although from his side comments and what were more impromptu thoughts by Joel, price-to-cash-flow and cash-flow health was rather significant.

Greenblatt did note that with “international” investing, the Professor’s fund trades long-only since with international there are trading costs, different forms of regulation, liquidity and other notable differences between US and Non-US investing.

 

*If you missed the event the webcast of the full presentation is still available to watch on the CFA Society Chicago website.