MARCH 2019

The Exemplary Analyst

Category: Investment Research

Erick Rawlings Athena CapitalBy Erick Rawlings, Managing Director, Research

Fed from a desire to learn more about Chinese culture and their perspective as we diligence China-based investment managers, I have been listening to a talk on The Analects by Confucius. There were two entries (1:1 and 17:2) that particularly resonated with me as it relates to what it means to be a research analyst at Athena.

Much of The Analects is about the idea of being an ‘exemplary person,’ though the term is never specifically defined in the book as we might expect.  I believe the argument is that the whole Analects is about ‘it’ and one must absorb the explicit as well as the implicit to get it right.

I’ll leave it to you to decide whether you want to tackle the whole Analects to figure out what it means to be an exemplary person, but I thought the following were very apt as I think about what it means to be an Exemplary Analyst:

Analects 1:1:

"The Master said:

-To study and then find opportunity to make use of it; is this indeed not a pleasure?
-To have friends arrive from distant places; is this indeed not a source of enjoyment?
-To be unacknowledged or misunderstood by others, and yet to harbor no resentment; is this indeed not the mark of an exemplary person?"

When I first heard the above I couldn't help but think, "My gosh, that's us! That's the Athena Research team!" Taking one line at a time, here’s why:

"To study and then find opportunity to make use of it; is this indeed not a pleasure?"

Yes, it totally is!  This line represents the research and due diligence we do on manager and market opportunities and how we translate that into portfolios and long-term knowledge.  It’s the delving into and learning about carbon credits, defining what it means to be a “quality” firm, sorting through the noise to find the signal amidst all the China/US trade news and headlines, figuring out the non-stationary distribution of market returns and its impact on forward wealth simulations, understanding the pros/cons of row versus fixed crops and the differences between flex, cash, and crop share contracts. And, once we think we have it sorted out, we make use of it by applying it to client portfolios.  In our roles, we get to learn something new, and then apply it; and yes, it is a total pleasure. One we are grateful for.

"To have friends arrive from distant places; is this indeed not a source of enjoyment?"

I interpret this line in two ways.  The first is that it is enjoyable working with a team where each of us comes from different places and unique backgrounds.  It represents our diverse perspectives, and the joy we gain from seeing things in new ways.

The second interpretation is about having managers come and visit us, as well as us going to visit managers.  It is another means of gaining exposure to diverse opinions, perspectives, and backgrounds.  It represents the time we take to ‘genchi genbutsu,’ to go and see.  And it is a source of enjoyment because it is another way we enhance our opportunities to study.

"To be unacknowledged or misunderstood by others, and yet to harbor no resentment; is this indeed not the mark of an exemplary person?"

And here’s where it comes together: to study and share and discuss ideas with others, yet be okay with being unacknowledged, isn’t that the mark of an exemplary person?  This last line is not a typical investor/analyst mindset.  In our world it’s usually all about recognition, claiming trades, and pushing our ideas.  But I think at Athena we’re different.  We adhere to the ideal that it doesn’t matter who is right, so long as we are right.  That none of us has a monopoly on good ideas, and none of us is perfect.  But collectively with our diverse perspectives and our passion for studying and using that knowledge, we rise above self-induced noise where egos can disrupt and lead us astray from the right answer.

And in the instance where we are misunderstood, that is the opportunity for learning and for us to continuously strive to lay out our arguments in the clearest terms possible so that listeners can understand our thinking and engage more fully in the discovery of what we think is right.

At each Investment Committee meeting, our packet of materials begins:

The goal is not to convince everyone you are right.  The goal is to lay out your argument in the clearest terms possible so that listeners can understand your thinking and engage more fully in debate.  If you’re right, we will build consensus, and if you’re not we, collectively, will be the better for the engaging debate.

This idea of learning and practicing gets me to the last part of the Analects I wanted to highlight. One of our greatest value-adds as analysts is our ability to convey complexity simplistically; to be able to review data, separate “the vital few from the trivial many,” and distill and share a succinct thesis.  But how do we do that and attempt to improve?  Answer: Practice.

Analects 17:2

"The Master said:

-By nature, [people] are nearly alike; by practice, they get to be wide apart."

At a cursory level, we are not that different from most research groups: we’re all smart, talented, well-educated, etc.  That we enjoy and are passionate about the opportunities we study, apply, and share separates us from many, but does not distance us.

What does set us wide apart from others is our approach to the repetitions, the opportunities to practice, which we view as opportunities for improvement.  We embrace the idea that there is “no best, only better” and that by practice we reinforce our moat, our differentiation, our distance from others.

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I began my study of The Analects to improve my understanding of the perspective of a different culture, yet I found within it a reflection of our own unique culture on the Athena Research team. A team that looks forward to and finds pleasure in the opportunity to study, to debate ideas, to strive to make collectively good decisions, and for the opportunity to practice and become better.

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