Quick to Fall, Quick to Rise

about ninety years. We talked to one investor who through all the back and forth, has been looking for opportunities, and as always, will close out the episode with our tradition, the craziest thing I saw in markets this week, And Sarah, I will have you know I this podcast is a special occasion because I actually took a shower for this podcast. I can't really explain why, but I felt the need if I was going to talk to you and our distinguished guests, that that I needed to take a shower.

I have not felt that need when I'm writing and editing, though, for whatever reason, it's all mental. We're not in the office. No one knows what we look like, what anyone here is wearing. How long it's been since anyone showered but there's something about talking to someone to each other where it feels like you need to at least feel presentable. That's right. Well, everyone out there listening can take confidence that I smell that's somewhat decent. You know, better better

than I did half an hour ago. But but let's welcome to the show. Our guest for the first time. He is the CEO of the investment management firm alger. His name is Dan Chung. Dan, welcome to the show. Thank you and Sarah, why don't you tell the folks about the podcast hot line. We've we've haven't been getting much love on the hot line. What do you let them know about the number? Yeah, come on, everyone's at home. You should have more time to give us a call.

You know the drill. If you hear or see any crazy stories in the marks, you have any questions for us, you just want to give us any feedback, you can give us a call. That number is six four six three two four three four nine zero. And remember, if you leave us a message, we may even play it on the show for you to hear yourself. That's right, and you do as a listener. Do not have to shower for the podcast I'll just throw that out there.

There's no rule, no rules, no rules. But then I'm curious to hear your take on this, this ferocious rebound in the markets we've seen this week. I was reading some of your thoughts about how this will all play out, and you did mention that you think, well, the economic recovery may be kind of slow and gradual, but you did expect sort of a V shaped recovery in stocks, and sure enough this week. I mean, we've seen the dal Jones industrial rise about something like in three days

in the middle of this week. Is this the that V shaped recovery or is this kind of just a head fake and we'll get the real recovery when there's more clarity on the economic situation in the virus. I think it's a little combination of two things. So, first of all, it's a natural snap back to UM just the rapidity and the ferociousness of the decline, which, as as you've not that we haven't seen in ninety years.

But um, I think it is also fundamentally the signs of UM the market's recovery in the pattern that will that will probably unfold over the next couple of months. UM So in particular, I think we're likely to see uh you know, uh, some retest I markets falling back a bit from where we are as we process a lot of news um over the next couple of months. UM. But I am actually fairly confident that the absolute lows that we just saw will probably be um, you know,

the hold. They won't be any level. We won't going lower than that, and it is kind of the process of beginning of recovery. Actually, So how do you kind of go about couching market action with what's going on in the economy. This past week we got that unbelievable initial jobless claims number three point to eight million, more than quadruple the previous record, and it seems there's there's a worry that over the next couple of months we're going to continue to get economic data it's going to

continue to be really rough. What does the market typically do in these situations, Well, the market look past the economic data to see what's coming in the future. What

can we expect there? Right, So I think what we'll see is, um, the market is always looking forward and there therefore, oddly enough, on the rapidity of the down the decline, you know, it's sort of, uh, the fear, um the uh, the the shock of things going from basically so good in February too so bad so quickly, and also the in particularly unknown, unexpected nature of this.

I mean, this is this is really the first major health scare that we've had since uh, the influenza of But UM, I think the markets, UM will also see that. We're going to see, you know, a peek in the COVID nineteen cases. UM Italy seems to have peaked, and UM, you know that's a positive sign really for what the pattern might be in the US. And I don't want to minimize, of course, I mean, this is still a terrible healthcare crisis, and many people are sick, and unfortunately

many people will will die. But I think, you know, like in Italy, we will see a peak and then a decline of the cases. We'll see um, the beginnings of recovery in that, and the market will anticipate that. It is also, of course, the market reacting to and I have to commend you know, the Federal Reserve and even Congress, I mean, they are acting very quickly to offset, uh the economic damage that is being created by the UM.

You know, the shutdowns and the precautions that we're taking to blunt the the worst of the impacts of of COVID nineteen. You know, Dad, I think you know, the assumption is that this is a very harsh but sort

of temporary shock to the economy. But from an investing standpoint, I wonder if you you know, are there any areas of the market that you see perhaps permanently changed because of this, you know, uh, And I'm thinking obviously it's gonna be a long time I think before the say, the cruise ship businesses is back to where it was, uh, and and travel and leisure across the board. Are there any sort of permanent or semi permanent dislocations, uh, that you see that an investor should be aware of as

a result of this. That's a great question. I mean, I do think that consumers might for several years rethink um, travel, um. And you know, in terms of what do I think will come back slowly and gradually, it's definitely things like the cruise ships, airlines, you know, hotels probably probably actually you know, slowest will be cruise ships. But I think you might see consumers really reconsider a little bit um, you know how and where and what they like to

do when they travel and take vacations. UM, So that that's I don't think the industry is permanently damaged in any sense. I mean, people love travel. But I do wonder about, for example, whether UM airlines will have to adjust uh and cruise ships will adjust to consumers wanting to be a little less tightly packed into airplanes and cruise ships and therefore maybe you know, cru cruises will adjust to that, but they'll be maybe a little bit more expensive and so fewer people will be interested in

taking them. You know, there are other things that that I'm pretty sure we'll come back really quite quickly, and I would think, you know, the top of the list would be dining out restaurants. Something that hasn't changed Dan though, and I think it's been surprising to some is the fact that even on the way down, it's a lot of the areas of the market, a lot of companies that lead on the way up during the bowl market

that have actually still outperformed. So you think a lot of growth companies, particularly a lot of tech the fang name sure Amazon, Netflix might be doing particularly well in a situation that we're dealing with now, with the spreading outbreak. But is it surprising to you at all or do people maybe underestimate how healthy some of these companies have become over time. Sure they lead the bowl market on the way up, but a lot of them are pretty

muture now. And I think you're absolutely right. Actually, high quality growth companies have performed UM very well in this downturn, and and and based on history that's actually a little bit anomalous. However, I think based on modern current trends, UM,

it's actually something that we're pleased to see. It says that in many places UM investors are still understanding that there are some really strong innovation and growth drivers UM in our economy, and that the companies that are leading those trends UM, you know, despite the disruption that this will cause for their businesses near term, UM, you know, many of them still will benefit from UM you know, the trends towards big data, cloud computing, e commerce, UM

you know, and streaming media. And in fact, I do think actually you asked about the you know, if some industries will be sort of negatively impaired, I think actually what might happen is that some industries will be positively benefited by this, and it may result in sort of you know uh. For example, I mean the easiest is online shopping is clearly taking a huge surge up from

already a very long twenty five year growth trend. And it may actually um be something that consumers now that they're comfortable ordering groceries and necessities online, a large part of them uh you know uh continue to do so after the crisis has faded, because Amazon and the other groceries that are doing online delivery are doing a great

and important job right now. The same thing would be true for streaming streaming media, where clearly Netflix, Hulu, Disney plus they're all seeing a tremendous usage and interest in their um uh you know services. But on more serious side, um some of the most important cloud software and enterprise technology companies are also benefiting because we are all having to work from home and we are testing, really in a dramatic fashion, the technology some of the newest technologies

that allow us to do that. Um So a lot of that is data center based and cloud center based, but also software as a service. And you know, I think a lot of the new technologies are proving um their ability to adapt, their ability to allow us to continue to function and run our businesses at a high level. And even uh, you know, as we speak here, many are using Zoom. I just got off a Zoom conference call, and uh, I've also had my first Zoom cocktail hour

with a bunch of friends. Uh. And I think we'll find that some of these companies and the new products that they're delivering, we're already in a growth trend, and in fact, this crisis is causing us to actually uh you know, use and better fit from their products. And so I do think that there's very good fundamental reasons why um, those companies and their stocks have held up well, and I think many of them, when we come out of this crisis, will continue to reclaim their leadership in

the market. You know, Dan at Alger, you offer several different strategy strategies. UM. I wanted to ask a little bit about the dynamic opportunity strategy. It's a long short head strategy. The whole sort of long short style UM seemed to be slowly going out of style for a long time there when we had this just what seemed like an endless bowl market. UM, is this crisis kind of breathing new new life into that strategy is there.

Do you do you suspect they'll be sort of a new interest in a long short strategy going forward, even even after we recovery recover from this, well, I certainly

think so. I mean, we created this strategy for actually UM first out of a desire for Algier's own shareholders, which is a family, multiple multiple multiple branches of a family that you know, up until we created the strategy, they'd only invested in our long only strategies and basically a very simple bond portfolio, you know, almost like the classic sixty except we were more like se because we

were big believers in our strategies UM. But we created it to to you know, preserve capital and down markets UM, to be opportunistic about the opposide in in in bowl markets UM, and and also to give investors a much smoother ride. So, uh, you know, half or less than half the volatility of the SMP five. You know, it has actually performed exceptionally well recently. This year to date, it's down maybe one or two percent against an SMP

that's down I think twenty three percent. And if you look also over the last three and five years, the strategy is actually outperformed the SMP over the three year period, and it's about you know, it's about equal to the SMP. I think over the five UM. Now there's a lot of ultimate in the markets that might change a little bit.

But the point, but the point I would make is that I think long short, actively managed you get the benefit of downside protection, you know, protecting your capital and markets like this, but with a modest participation in the upside of equities over the long term, uh, you know, you're able to in particular handily outperform many bond funds. I think, you know, one of my concerns is many

many investors have too much in cash and bonds. UM. They've benefited recently from you know, low interest rate cycle, but that it really ended a few years ago and for a lot of investors, if you want to meet your long term needs, have your wealth grow, um, you really need to have a good combination of equities, bonds, cash. Of course, there's a reserve for times like this, but also I think long short strategies that can kind of

straddle between bonds and equities. Now the words bonds are obviously less volatile, but the returns on an absolute basis have not been particularly good for quite a while. I mean, while equities, of course, unfortunately it's a lot of volatility, even though they are in the end the long term winners. And you know, there's a lot of data that shows over I think a twenty year period, there's never been a rolling twenty year period where bonds that perform equities,

and in fact, over tenure periods of equities dominate. But of course the intermediate volatility, the times like this UM, you know, are very shocking, and they're they're difficult for for you know, regular investors, you know, we're not you know, professionals and watching the market. They're difficult for them to handle. And you know, the biggest fear I have is that that so many individual investors will make the classic mistake of, for example, selling out of equities now and putting it

into cash um uh. And you know, inevitably, this crisis will fade, markets will recover I think in a vciate pattern well ahead of the economic recovery. Uh, And they'll miss out on a lot of gains over the next couple of years. So that's why I believe the long short equity really has a great place UM in in everyone's portfolio. Say you're talking to that kind of individual

at this point in time where we're at now. I mean you you mentioned a couple of companies like Zoom Video, which I looked up more than this year shares have more than doubled UM, that are potentially going to advance because of an unfortunate situation like this. Is it better at this point in time, I'm seeing where we're at in markets and also with the development of the virus, to be thinking about companies that could see structural change to the upside due to an event of this sort.

Or is it better to now be looking at companies that might be miss price, may have been beaten down, brought down as people say, through the baby out with the bathwater. Um. I guess it's ultimately a question about value versus growth maybe, but is it better to be looking at companies that might be miss priced at this point in time or companies that could see positive change? So I'm going to frustrate to you it's actually better

to be doing both of those things plus one. More so, what we're doing at Algae right now is we are literally looking to make sure our portfolios have a good balance between companies that are actually going to benefit from this, and the benefits might be structural and long term and enduring. Um. I think Amazon and Netflix, who stocks actually haven't done much this year, which has been defensive, but I think actually could could could really benefit from what's happening now.

But we're also looking at stocks, you know, I would say at the opposite end where they've come down extremely hard and hopefully you know, we're trying to look for the companies that are actually quality companies. Um. Good balance sheets can wet to the storm, um, you know, and

we believe will recover, you know, nicely or fully. And then and that because of the sell off, um, you know, the returns in the near term might be well well above average, in fact, might be significantly better than to say, the first category. And you know, there really are some interesting opportunities there. Because um, in the last week or so, what we really saw that we took the markets down so sharply, and I think this is really interesting, is

correlations rose to near across asset classes. So you saw bonds as well as preferred equities also take extreme hits in the last week or so after they'd held up pretty well until then and part of the reason is at that stage of the market, this stage of the market, a lot of investors were really simply looking to raise cash and also concerns about bankruptcy. Is liquidity of companies became an issue, and so you saw extreme blowout of

spreads and the and the bond markets. Now in the equity markets, you know, we look for those situations too, and then we're trying to identify the companies that were pretty confident will survive, UM, that will have UM businesses that will come back, and and that actually won't be particularly impaired. And actually I would have to say, like you know, one of the industries that we think is very interesting is the is the restaurant industry, which has

been forced to shut down. UM. So we've been looking

at you know, the restaurant industry. It's distributor suppliers as well as its vendors, many of whom have been hit, you know, just broad swaths UM stocks that have gone down um, you know, thirty, forty, you know, fifty, and we look at them as you know, opportunities, especially when we find companies that you know, um, we think, uh, you know, have liquidity short term uh and then longer term actually you know, we're operating well, well run companies

and in vital to the success of the industry. And then and then there, and then there's a final there's a final third category, which is you know, not necessarily companies that are going to benefit from this and nor companies that are bombed out, but simply high quality growth companies,

um that we're doing well before. Um, you know, they're they're maybe not bombed out, but they're you know, they're they're cheaper than they were on average, they'd be about twenty to deeper since that's how much the market is. And there, you know, we're trying to to sort pick and short between you know, um, which ones are offering you know, the best upside, but also you know, uh uh where we think that the growth trends are stronger versus maybe slightly weaker. I mean, we are entering into

a period of economic weakness. Clearly a lot of consumers

and businesses are going to pull back. So one example I could I would highlight is we're looking carefully at those quality companies, but how much exposure do they have, for example, to small medium businesses, how much exposure do they have to say the travel industry versus the same kind of companies, but perhaps they have more exposure to China, which is already recovering apparently, or you know, more exposure to you know, Fortune one thousand companies that will clearly

pay their bills stay in business. And uh, you know, we're sorting through that with a pretty big analyst team of about fifty five analysts and portfolio managers. And so those are the three categories that we're looking at, and when we try to construct the portfolio we actually really want to be um I would say at this time we were very fortunate to be allocated mostly to sort of long term growth leaders and beneficiaries and high quality not so much of course bombed out companies a month ago.

But right now we're looking to sort of, uh, take advantage of the market dislocation. We're definitely adding to some companies that would be considered you know, bombed out, uh and also looking for those sort of UM quality companies at a discount. So I hope that helps. But those are the three buckets we're looking at. I think that's uh an excellent point, and I hope if anyone's out there in the power to to listen to Dan and

and take those recommendations they do. So, Um, Sara, I like to think of what goes up as a small mom and pop operation, you know. And uh, you know what our our main product is the craziest thing that we all are saw on markets? Very good? It's our prototype. That's that's that is our flagship product, Uh Dan, I know, I hopefully they warned you about our gimmick. Here the craziest thing we saw in markets this week, A lot of contenders, I think, Sarah, why don't you you kick

it off? What's the craziest thing you saw this week? All right? So to me, something that was really just unbelievable and encapsulates everything that we are witnessing right now is the fact that at one point on Thursday, um, full disclosure, Yes we record on Thursdays, the doll was more than twent off of its bottom. So if you are a very technical person, technically, that would mean the doll had entered a bowl market at one point, just a couple of weeks after it fell into a bear market,

just with three days of a rally, So just pretty crazy. Sure, it's very technical call at a bear market, callable market called whatever you want to, but I think it's just really highlights, uh, the manic, crazy situation that we're in right now. Absolutely, it's I know the word unprecedented has been used unprecedented amount of times, but that's got that's got to be. Yeah, but three days of a bull

market basically is that all took? Um, Dan, how about you have you witnessed study crazy things in the market this week out? That's a well in the real world market, I think the craziest thing. And I you know, we really got to ask ourselves, Um, every time there's a major crisis, you know what we seem to run out of. First toilet paper And maybe you've seen the Johnny Carson nine seventy three during the oil crisis, but like, why exactly all we all running for the toilet paper first?

People are scared of what what happens if you get stuck in your partent paper and then the other the other business. That's where were you seem to be running with toilet paper? And uh, you know, uh, Johnny Johnny Walker, you know, because uh you know it's toilet paper and booze have been I mean, people are supposed to be stocking up on the essentials, right, but those aren't essentials. But you know, I mean, you know, I've seen scientists say,

you know, driving hands free rose. Uh okay, So I need my toilet paper, and I need my Rose, and I need my Johnny Watcher. We'll have to create a national Strategic toilet paper Reserve after this crisis, I guess too, to prepare for the next one, the TPR. So what's yours? Well? Mine? Mine goes back to your observation about everyone using zoom Video now, and it's on Thursday. The SEC actually came out with an order where it it halted trading in

Zoom Technologies with the ticker zoom. And the reason was is this is not Zoom Video. This is a completely unrelated penny stock Chinese based company that is not at all related to the Zoom Video that is Zoom Video Communications at CM. But everyone had been buying Zoom Technologies because of the ticker zoom. And let me give you what SEC said in the past five weeks Zoom Video, the video that we've all been using for these virtual

happy hours and whatnot. Uh. Rose during the past five weeks, Zoom Technologies, which is a company that doesn't even really exist as far as I can tell anymore, that's stock more than tripled. So as much as you want to think of markets being efficient and you know, masters of the universe at the switch of all the trading desks.

Not exactly, not exactly, that's a good one. You get your tickers right, everyone get I have to say, every single time I try to look up Zoom video on the terminal, Zoom technology comes up first for some reason. Do you just have to go around it? Yeah? Maybe it's our fault. Blame us. All right, mikel was a good one. I give it to you. I get the w I'm back all right. Well what that said, Dan Chunk, Thank you so much for coming the show today, even if it meant uh calling in, thank you. I enjoyed it.

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