Reflections on meeting the Investor - Mr Soo Chuen Tan
Let's read on to discover the many insights that our student panelists gleaned after they met the investor, Mr Soo Chuen Tan as he shared his investors' journey.
Wei Sheng WONG (VIP 2024)
For Tonight’s meet the investor session, it was a pleasure for me to be able to hear from Mr Soo Chuen Tan share his investor journey.
During the course of the session, Mr Soo shared with the audience his perspective on how he developed a keen interest in investing and his subsequent journey towards becoming a Partner of an Investment Fund. What stuck me by surprise was his philosophy towards investing as a professional investor.
Whilst most funds would structure their business to maximize their profits at the expense of the clients that place their trust with to manage their funds, Discerene is structured in a method that places the interest of their clients first through the incorporation structure, fees, partner selection and a longer investment horizon. Whilst such an arrangement might result in a lower collection of investment fees for the General Partners of the fund, this places a greater onus on the General Partners to demonstrate sound investment performance to allay the concerns of investors in the fund and to reaffirm their commitment towards long term performance over short-term profits.
There were some interesting points that were being brought up during the Q&A session. The first point was that for one to have a long-lasting career as a professional investor, its important for one to develop genuine interest and passion for investing. This interest and passion is reflected through the amount of effort that is made towards researching companies to invest and the justification for making such an investment. Those who build their career from a long-term perspective would benefit from practicing delayed gratification and be rewarded more than one who approaches their career from a short-term perspective.
The second point that was brought up was the qualities and values of a successful professional investor. Not only would one need to demonstrate the interest and passion for investing, but it is also important for one to develop an attitude of lifelong learning. By learning different subjects, it provides a unique perspective for the investor to identify and capture opportunities as they come by through the development of an interdisciplinary approach towards investing. Beyond the qualities that would make for a professional investor, it is important to also be able to communicate well with clients and investors through selling your investment values and principles.
Thirdly, whilst it’s not possible for all investors to have a accountancy or financial background to know what or how to invest, its ideal for investors to have an idea of accounting to understand how financial statements are being interpreted as well as the ability to conduct basic valuation to determine a fair range price for the buying and selling of their investments. Though it should also be stressed that one should not confuse Financial Credentials with investment know how, but rather to see these certifications as part of the Professional Investing learning journey.
This being my first meet the investor session, it has helped me to understand the roles and responsibilities of a professional investor firsthand and made me feel appreciative for the opportunity to be a panelist for the session.
Cai Xuan LAI (VIP 2022)
My key takeaways from the session are as follow:
Career choice
Consulting could be a great starting point for those who are unsure of what to do next as you get exposure to different industries and functions. On top of that, the nature of job is defensive against business cycles. When markets are bad, you are hired to provide advice on restructuring, when markets are getting better, you are hired to build business and pivot company’s growth strategy. I personally like Mr.Tan’s sharing on the school building project he participated back in McKinsey, providing us a new lens that the value-add you can have within the consulting industry can be impactful, not just purely in business or monetary terms.
Finding your passion
Mr. Tan used a very simple example contrasting the reaction between his dad and himself towards a business news. As someone who is still figuring out what my true passion is (and relies heavily on elimination method), Mr.Tan added a normative filter to my checklist: If you are passionate, you will always be a student yearning to learn more in that field.
Investment philosophy
“Discerene invests globally pursuing a fundamental, contrarian, long-term value investing philosophy.” As buzzy as the statement sounds, Mr.Tan explained Discerene’s philosophy in a very simple manner. Plainly speaking, Discerene invests in businesses operations which are protected by structural barriers (cash flow generative and which its present value serves as a proxy towards the intrinsic value of a business), when they are out of favor (independent of other people’s views), at prices offering significant margins of safety (cheap).
As a fresh graduate, I have always been taught that we should always try plan for our “long-term” future; as a value investing program student, I am no stranger to that we always try invest for “long-term” value generation, particularly with tons and tons of institutional investing firms on the street. However, Mr.Tan’s ambition to build a global cross-generational fund has brought in a new perspective to me, that, as an individual, you are capable of calling such long-term shots. Moreover, having a long-term view also means you acknowledge that there will be good and bad years. I believe this is crucial as it helps to instill the elements of patience throughout one’s investing journey.
From my perspective, such patience is also illustrated through the Discerene’s approach to groom its talents pool. As opposed to pushing analysts to pitch a buy or sell recommendation and advocating for an investment decision, Discerene prefers to kickstart the analysts’ journey by having them to study the businesses thoroughly and assess the businesses in a rather objective manner. This is to minimize any emotional (irrational) elements being embedded while assessing a potential investment opportunity. Such approach struck a bell within me, as there have been so many cases in which deadlines or certain purposes are used as a tool to “push” myself through to get things done. But I fail to realize that the act of “needing to get things done for the sake of something” is already a bias embedded even right before I start to analyze something.
Investment approach
It is really enlightening the way Mr.Tan argues that the micro-structural of the industry may play out in a relatively longer-term story. On the other hand, due to the nature of Discerene (long-term generational fund), macro environment (boom and bust of business cycles) becomes a relatively “shorter” term. In terms of accounting macro factors, Mr.Tan position macro-related changes towards the intrinsic value of business (e.g how would a inflationary or deflationary environment impact the businesses’ cash flow) rather than where the stock price will be heading to under different macro environment.
Investment education
Mr.Tan’s thoughts on “the (long) education of a value investor” serves as a strong reminder to me that, as an investor, it is our fiduciary duty to develop expertise in the basic building blocks of finance and accounting, regardless of which investment style that we prefer. As sexy as the business sound, it all boils down to hard-coded numbers to justify if there is any realizable return. Upon entering workforce, it is not uncommon that people like to claim that “textbook” stuff is irrelevant to practical world.
Last but not least
If there’s one thing that stood out from the sharing session, it is the word “calibration”. Investment is a calibration of different factors dependent on investors’ preference (i.e top-down vs bottom-up; short-term vs long-term, etc.) There is no fixed way on how we should do things. While each of us has to calibrate our own journey, I am grateful that I am given a chance to have a sneak peek on how Mr. Tan calibrate his investment journey.
Rebecca YANG (VIP 2022)
Once again, I am amazed at the fact that we can have time with investors like Soo Chuen through being a part of this student community. Hearing investors describe different experiences along their journey and the lessons they’ve learnt gives us a picture of the ups and downs, twists and turns that life can bring you on. It fills me with both hope for the future, and a sense of awareness of the many dilemmas that present themselves along the way.
I found many interesting crossroads that Soo Chuen brought up in telling his own story, from finding and falling in love with investing as a legal professional, to working at Baupost and setting up his own shop during the dot com bubble and raising capital at a difficult time. Throughout these phases in life, he was also a quiet observer of those around him, sharing with us his view of the sort of psychology that was driving those actions. His introspection also proved to be a crucial part of what drives him as an investor: his realization that the concept of dissonance between intrinsic value and price came naturally to him, and the joyous discovery that one could make a living learning about companies.
His sharing also made me think deeper about the motivation behind what investors do and what makes it worthwhile. He brought up how investing for the long term is very counterintuitive, going back to the principles of how our brains work by drawing connections between very few data points. He even brought up the famous marshmallow experiment and explained common investing behaviour with it, illustrating how choosing delayed gratification and focusing on longer term investments is against human nature.
I was especially inspired by Soo Chuen’s take on how to take on a new perspective by looking to the past. Making a light-hearted comparison to going out and back into the Matrix, he encouraged us to develop the ability to analyze how things play out in the long term under certain circumstances, then to take action by going back as actor in the system to fully complete the cycle of understanding the patterns and the psychology behind how the market behaves.
He also brought up how we as investors have to accept and act knowing that we will have to observe and prepare ourselves for its good and bad days. Humans are emotional creatures, but if we want to really learn and do a good job of analyzing companies, we should be approaching it with a desire not just to initiate a position but to thoroughly understand the structure of the business, regardless of whether it will materialize into an investment anytime soon. Making judgements on the quality of businesses and inviting more balanced arguments in the members’ discussions not only helps train our investing acumen but also helps us invest with more confidence and conviction. Soo Chuen’s special emphasis on what it really means to be contrarian was also very thought-provoking.
Lastly, throughout the session Soo Chuen’s passion for investing and sincerity in sharing his hard-learned lessons was palpable. Like he mentioned, it’s hard to fake a passion for investing because of the amount of effort and genuine responses that a passionate investor exhibits, and I felt very grateful to be a part of a conversation with a group full of such individuals.
Nicolas DU (VIP 2023)
Soo Chuen Tan’s ideas and aspirations for Discerene are truly admirable and I think that more people starting out and aspiring to dive in this world of investing should learn from his words. I personally enjoyed how they laid out the idea that the journey of an investor is filled with initial stages full of number-based rationalization based in Ben Graham’s principles to a more nuanced and abstract understanding of what value in a good company really means. Identifying good business models, moats, goodwill, and several other qualitative factors in any company is something that can only be achieved by having first-hand investment experience, and this means that mistakes and misunderstandings are an inevitability for anyone who aspires to become a competent investor.
However, that thought process shift should not and cannot lead to forgetting the quantitative foundations of value investing, because microeconomics and accounting are the lingua franca in the financial world. This means that we eventually should be wary of any attempt to shortcut or streamline any investment decision in an attempt to find the “Mary Sue” in the sector or hit the jackpot by investing in the next industry disruptor. Many newcomer investors in recent times have tried to throw Grahamite foundations through the window with disastrous results and we should not give in to the temptations of following that trend.
Another aspect we should keep in mind throughout our learning process is the one related to the macroeconomic conditions surrounding the companies we find worth researching about. While it is true that secular bear and bull markets can greatly impact prices over several months and even years, it is important for us to leave aside the factors that are too big to comprehend and that are beyond our scope of understanding due to information scarcity. Trying to forecast how an inflationary environment will affect the companies of our interest is like trying to learn a language by putting books below the pillows, it will only make you lose sleep. It is much better to focus on the financials of the company at hand and the moats that will make it overcome the difficulties during such trying times, we should never forget that a good company will still generate value even when the environment seems to be heading south.
In the end, the journey is much more important that the destination, becoming a good and competent investor is not something that will happen overnight and in the meantime we the soon to become investors should take advantage of ensuring that we never forget the foundational quantitative knowledge that will allow us to find the good companies we wish to invest into. I sincerely thank Mr. Soo Chuen Tan for giving us the opportunity to interact with him and learn about the experiences that led him to become an investor. His thoughts and anecdotes taught us that the call to become an investor implies a journey of learning which is inspired by cheerful curiosity and the love of learning new things that will eventually interconnect and help us not only when making investment decisions but also in the other aspects of life.
Soo Chuen's Investor Journey
We are pleased to invite Z Club members to the next Meet the Investor session with Mr. Soo Chuen TAN, President of Discerene Group LP. Based in Stamford, CT in the United States, Discerene manages almost $2 bn assets for institutional investors (according to the latest public filing). Born in Malacca, Malaysia, to two physics teachers, Soo Chuen discovered his calling as a value investor in his mid-twenties while in Harvard Business School. Soo Chuen holds a Bachelor/Master of Arts degree in Jurisprudence from Oxford University. He started his career at McKinsey & Company as Senior Business Analyst in 1999. After graduating from his business school, he joined Halcyon Asset Management as Investment Analyst, spent briefly at The Baupost Group before moving to Deccan Value Advisors where he was Managing Director and Partner. In 2010, when he was 32 years old, he started Discerene Group LP.
Discerene invests globally pursuing a fundamental, contrarian, long-term value investing philosophy. The Firm invests in businesses protected by either structural barriers to entry or hard assets, when they are out of favor, at prices offering significant margins of safety. The Firm employs private-equity-like structures to make truly long-term investments in public companies. In order to deliver on its investment mandate, the Firm believes that it is important to develop a tight-knit base of partners who share its philosophy, values, and investment horizons. The Firm does not consider its partners to be interchangeable, or capital to be fungible; the who behind the capital, and the relationships the Firm builds with them, are core to its DNA.
Discerene and Z Club
Soo Chuen is a long-term supporter and believer of Z Club. From 2022, he helped us to establish the Discerene Scholarship Program to provide financial supports to the members of Z Club with underpriviledged family background. In addition, Alaedine Belhouari (VIP, 2021) will join Discerene as an analyst from Sep 2022 after spending several years as Discerene's intern. Alaedine is the first person Discerene employed fresh out of undergraduate program (other employees have previous working experiences or master's degree).
Other Resources
Soo Chuen Tan's Linkedin
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"Channeling Buffett: Never Overpaying, Being Patient, Holding Stocks Forever", Soo Chuen Tan with AAAIM High ELI.
Soo Chuen Tan (Novus Podcast), Off-Piste Investing
Soo Chuen Tan (Novus Podcast) – Off-Piste Investing
0003 Soo Chuen Tan - Discerene Group (Value Investor), Investing in Depth
Investing in Depth: 0003 Soo Chuen Tan - Discerene Group (Value Investor)