In-bok Song – A New Learning Curve is Coming

May 23, 2019

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In-bok Song joined Seafarer Capital Partners in 2016. She is a lead portfolio manager of the Seafarer Overseas Growth and Income Fund and is the firm’s director of research and chief data scientist, responsible for the firm’s research processes and systems, new research methodology initiatives, and oversight of training for analyst staff. Prior to joining Seafarer, she was an associate portfolio manager at Thornburg Investment Management, where she focused on emerging markets. Previously, In-bok was a co-manager of the Matthews Pacific Tiger Fund at Matthews International Capital Management. She began her career in emerging markets as an analyst with T.Stone Corp, a private equity firm in Seoul, South Korea. In-bok holds bachelor’s and master’s degrees in material science and engineering from Seoul National University. She also holds a master’s in international management from the King’s College London, and a master’s in management science and engineering with a concentration in finance from Stanford University.

“I had a point at which I think my learning curve was very steep, and then it plateaued … I don’t think it means that one knows everything, just that another learning curve is coming.”

- In-bok Song

Worst investment ever

Have an anchor point. But collect data, collect information, and that will give you a good anchor point. But a good analyst does research and more research, and thinks hard about the validity of that anchor.

A strong company can die slowly. Investors and analysts need to be really careful. Trying to understand what is going on is important. In a short time frame, a company can appear to be struggling, but you can be fooled by some sound fundamentals, such as a good manufacturing base or a very good brand and a good customer base. So it may not seem to be dying. What can be happening however is that the rate of their decline is so slow that you can’t see it.

The value of the franchise is related to why a company may die slowly. That and its organizational structure. The good investor needs to understand the organizational structure. In most cases when a company’s share price falls, investors know the problem. The company comes out with a plan, and the investor believes it for perhaps a month. Some companies will turn around and some companies won’t. If a company doesn’t turn around, they tend to have an organizational problem.

Ask questions and you can detect any chinks in the organizational structure. Ask how people are structured, how much each function is co-operating with the other. Sometimes we don’t ask these questions. In-bok says she didn’t at the beginning of her career. Also ask management: “What is your organizational structure? Are employees happy? What are your plans for hiring?” Management may not give you the financial numbers, but they might answer questions such as these. And these things are very important.

Andrew’s takeaways

Do your research. It is often easier said than done.

Get to understand the management team. In most companies, the team is a mess, and they’re fighting with each other or not always working together, which is human nature. So the question really is: “How is it structured? How is the leader bringing all the best of these things together? Usually analysts don’t look at such things because we like to look at numbers. But, In-bok has shown very well that there are times an analyst think they’re using valid numbers when in fact, they can be almost fiction.

So be careful of overconfidence. Success can bring confidence, and we can carry that confidence into other areas. In the world of finance, just when you get confident about something, things change.

Even the big corporation can liquidate slowly and steadily – investors could not know what the actual problem is facing in the organization due to strong cash flow, high creditability because of strong relationships with bank and other creditors.

If you find yourself changing the reason why you invested, it’s a good time to stop and rethink. It might even be a good idea to reduce the position or bring it to zero. At this time you can also ask yourself, am I really willing to keep this in the portfolio based on this new reason.

Level of access to a company’s management and information varies greatly depending on your role. For a sell-side analyst or an individual investor, it’s hard to get the type of attention that a fund manager and an in-house (buy-side) analyst can get when the company knows that that the fund has invested already, meaning they are already stakeholders. And so that level of access is a whole different world from what most people are getting.

Also on “a strong company may die slowly”. That is a really valid point. Just because a company has a lot of cash, a lot of credibility, or good relationships with the banks, does not mean it is not going to die. So everything in the world finance, every company, can die and things go up and down.

“From an investment perspective, it can be just time to say: ‘Yep, I like this company, good management, good products, good cash flow right now, but I think it’s going to die over the next five or 10 years and I've just got to get out of it.”

– Andrew Stotz

Finance is both science and art. And because people and their infinitely varied behavior and reactions are involved, it’s beyond the kinds of physical laws that we see in physics and areas such as engineering.

No. 1 goal for the next 12 months

“I have to exercise.”

“I want to learn more about different asset classes.”

“I want to travel for myself. I always traveled for business, but never just for myself, so I want to go to New York this year.”

Parting words

In-bok earlier compared the gaining of knowledge during her career as adding dots and then connecting the dots.

“So this year, let’s continue connecting our dots.”

Andrew’s parting words

“Yes, let’s keep connecting those dots because ultimately, the true value in life is the connections that we make.”

You can also check out Andrew’s books

Connect with In-bok Song

Connect with Andrew Stotz