Underperformance can lead to opportunities for improvement

As an investment manager, the stock market gives you a report card on a daily basis. Your grades are measured by performance over one-, three-, five- and 10-year time periods for the portfolios you manage. So, imagine your grade dropping from an “A” to a “D” in a single year.

At year-end 2017, the investment strategy for which I am an analyst was in the top 2 percent of funds among our style peers, with a high star ranking from Morningstar, and was featured in the Wall Street Journal Category Kings. Our assets under management were growing, along with the number of accounts we managed. By all measures, the report card was unquestionably an “A.”

Fast forward to 2018, and the narrative was rapidly changing, due in large part to the significant outperformance of growth stocks the market was seeing at that time. Instead of being in the top 2 percent of performers, we fell to the bottom 10 percent. Clients were understandably less than thrilled, and interest from new prospects dried up. The report card was now an emphatic “D.” The struggles didn’t end there, because in 2019, the report card read the same.

It goes without saying that the mental and emotional stress which accompanies underperformance, whether in the markets or in other professions, can be debilitating. That time was challenging, but I learned some valuable lessons.

  • Stay passionate and have conviction in yourself. I am fortunate in that I absolutely love what I do. Even though certain days were difficult, I always found joy in my work. Because of this, the lead manager and I were inspired to focus on ways to turn the disconnect in our performance into an opportunity instead of a weakness. We authored a white paper and shared our findings with others. Because we remained confident in ourselves and sought new opportunities, we found support in the form of new investments in our strategy.
  • Use it as an opportunity to explore new ideas. Continuous improvement should always be a part of your growth, but no crisis should go to waste. We used this time to review our process and make improvements to how we research and rank investments, which we may not have considered previously. By doing so, we felt we were better positioned for the future.
  • Don’t be so obsessed with turning your grades around that you ignore other areas of life. I understand the temptation to focus on work to the exclusion of all else and have fallen prey to it at times. The reality is that too many hours at work can aggravate stress by elevating your cortisol levels. Having physical, social and emotional outlets outside of work are important. I continued to spend time cycling, a passion of mine, and don’t use my career pressures as an excuse to avoid family and friends. Being gratified outside the office will leave you healthier for when you are in it.

Fortunately, in 2020 our performance began to turn around. While the report card doesn’t yet show straight A’s, we have conviction in the improvements we have made and find our strategy back in the top 10 percent of funds over the past year.

If you are confronted with adversity in your profession, continue to follow your passions, be open-minded to new ideas, use setbacks as opportunities for growth and stay balanced.

Matt Scullen, CFA is vice president, equities analyst at Ancora