How a Manager’s Embrace of Collaboration Brings Out His Best
As a college undergrad, Adam Calamar had one primary goal: understanding what makes things grow. Calamar was part of a team of professors, grad students and undergrads at Oregon State University working to understand how changes to a plant’s DNA affect its growth, and more importantly, its crop yield.
Because Oregon is the U.S.’s top producer of horticultural products—living plants that you’d buy at a nursery—the research team knew there was a lot at stake. Together, they helped support an industry valued with sales of over $800 million a year. During this time, Adam and his lab partners performed valuable research on growth and yield factors for blueberries, blackberries, and raspberries, some of Oregon’s highest-value and most delicious specialty crops.
Adam Calamar, CFA®
Calamar was responsible for what he calls “basic grunt work,” including taking measurements and data processing. But he saw firsthand how it took the contributions of a whole team of scientists to solve pressing problems. Now Calamar is part of the Jensen Investment Team and a portfolio manager with the Jensen Quality Growth and Jensen Quality Value Strategies. The Jensen Strategies rely on the contributions of the whole team to find the best investment ideas.
A penchant for learning
It’s no surprise that Calamar loves the research challenge of stock analysis. After graduating, Calamar set his sights on pursuing a Ph.D. program. But despite his love for science, he found the five-to-seven-year timeline less appealing and pivoted to an MBA after sitting in on some classes with a friend. Finance may not have required the scientific knowledge of his lab days, Calamar says, but it does entail the same intellectual rigor and has the same focus on research.
“You’re always learning new things, having your assumptions and your expectations challenged, and learning about new areas of the economy,” he says.
After joining Jensen, Calamar found a team of people to challenge his assumptions and drive him to dig deeper to consider every aspect of a potential investment.
“We don’t have star managers,” says Calamar. “For a boutique investment management company, there’s too much risk in having one key person.”
Leading with quality
The investment process at Jensen starts with a list of all the publicly traded stocks in the U.S. Then the team applies its signature quality screen, eliminating names that don’t show a return on equity of at least 15 percent for each of the last 10 years as determined by the Investment Team. “This is the great filter,” Calamar says. “It takes the universe down from thousands of names to just a few hundred.” The profitability screen is important because it uncovers companies with enviable competitive advantages that can weather whatever the economy throws their way. Once the potential list is winnowed down, the portfolio managers and analysts look for interesting stocks and dive in to do the research. There are no strict sector specializations at Jensen, but team members do have areas of interest. Calamar, for example, gravitates toward technology and consumer discretionary names.
A team of devil’s advocates
While stock analysis is an individual pursuit, investment decisions are not. That’s where Jensen’s collaborative process plays out. After researching a stock, portfolio managers and analysts produce a 30- to 40-page research report of their findings and present it to the rest of the team.
“There are a lot of devil’s advocate questions from other team members,” Calamar says. “Sometimes people have pages and pages of questions they want answers to, and you have to go back and do additional research and regroup.”
For a stock to get the greenlight, a majority of the team must vote for its inclusion. In the investment industry, it’s unusual for analysts to get an equal say alongside managers, but at Jensen, they have a seat at the table when investment decisions are made.
Very picky stock pickers
Only if there’s consensus does a stock get added to Jensen’s bench. From there, the analysts and managers perform valuation work using a discounted cash flow model to determine the best price. With Quality Value, for example, the managers are looking to buy names when they are trading at a discount to intrinsic value. A stock might remain on the bench for years if the price is too high, or if the company has issues to resolve. It can be a lengthy process.
A decade ago, Calamar started looking at FactSet Research Systems (FDS), which provides software, financial data and analytics to investment managers, bankers and other corporate clients. He liked the company’s superior product offerings that were taking market share from older competitors. That’s not how the rest of the team saw it. They were concerned about FactSet’s small market share and how the company was addressing governance issues.
“I made my case,” Calamar recalls. “But I was ultimately outvoted.”
The team continued to watch FactSet and took another look in 2019. This time, though, the stock was assigned to another analyst, “to get an alternative opinion,” Calamar says.
By then, the company had matured and addressed some of the earlier red flags. What’s more, “we believe we also reached a good entry point for the stock price versus our estimate of intrinsic value,” Calamar says. FactSet is now one of the top holdings in the Jensen Quality Value Strategy.
An exhaustive process? Most definitely. But in the end, the team view, which was grounded in Jensen’s strict due-diligence process, won out. And that’s the way it should be, says Calamar.
The collaboration doesn’t end there. Read our Insights article on Tractor Supply to learn how collaboration helped the Jensen team see the future growth potential for this DIY retailer.
The company discussions in this article are solely intended to illustrate the application of our investment approach and is not to be considered a recommendation by Jensen. Our views expressed herein are subject to change and should not be construed as a recommendation or offer to buy or sell any security and are not designed or intended as a basis or determination for making any investment decision for any security. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein.
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