Portfolio Ajay Krishnan, CFA

Manager Portfolio Manager

30
Spotlight
YEARS OF
EXPERIENCE

30 YEARS AT
WASATCH

SEPTEMBER 2024

Portfolio Manager Ajay Krishnan reflects or other analysts. Inevitably, some of your decisions will
be wrong. But if it’s your own thinking, you can unpack
on some of the turning points that shaped that thinking and learn from it as opposed to simply
him as an investor. He also shares some of pointing out that some other “expert” was wrong.
his creative outlets outside of work. WHAT’S AN EXAMPLE OF HOW THE PROCESS OF
INTROSPECTION CHANGED YOU AS AN INVESTOR?
WHAT ADVICE WOULD YOU GIVE TO SOMEONE
Early in my career, I focused on the fastest-growing
STARTING A CAREER IN INVESTMENT MANAGEMENT?
companies because I had been taught that earnings
Investing is more than math, finance and what you growth drives stock prices. I naively concluded that if
learn from a textbook. It’s a process of self-discovery. You earnings growth drives stock prices then the fastest
and I can look at the same set of data and come to differ- growers would have the best returns.
ent conclusions or react to it differently. Spend the first
years of your career understanding who you are and how At the 10-year mark, I conducted an analysis of the
you react to situations. Why? Because a decision is a sum roughly 900 companies I had invested in. When I looked
total of your unique experiences and fears. Be introspec- at the return distribution, about 90% of the returns came
tive and reflect on the actions you’ve taken and the deci- from 10% of the companies. Then I looked at the types of
sions you’ve made. The key is not to fool yourself. Be very companies that made the most money. They weren’t the
honest with yourself. This is a business where you make fastest growers. The key attribute was duration and re-
your share of mistakes. Learn from them, and don’t re- turns on capital—companies that could withstand the
peat them. test of time and earn a high return on capital while com-
pounding earnings. They were growth companies but not
I’ve learned I can be a very impatient investor. I can be necessarily the fastest growth companies.
early. When I see a great company with a great manage-
ment team, I want to own a lot of it right away. When I That’s when I switched from being a “go-go” growth
recognize this is happening, I control the weight—I ease investor to a quality growth investor. From my own intro-
into it as opposed to getting to the full weight right away. spection, I decided that this is how I want to invest. I be-
gan thinking about the investing world quite differently.
Additionally, I would advise that it’s important to build
your own conviction. Don’t borrow it from others—experts

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WHAT ELSE DID YOU LEARN FROM THAT 10-YEAR
LOOKBACK OF YOUR HOLDINGS?
“Investing is more than math, finance
It changed how I view risk. I don’t view risk as volatility.
To me, the real risk is destruction of capital or not grow-
and what you learn from a textbook.
ing capital enough. People who are owners of capital care It’s a process of self-discovery.”
about compounding growth. If your goal is to try to pre-
serve your career by reducing volatility, then you shouldn’t
invest. questions. Be humble. We all make mistakes. The ques-
tion is—do we continue to make the same mistakes?
My 10-year introspection study also showed me that
while there are a number of interesting ideas, there are WHAT ARE SOME OF THE CREATIVE OUTLETS YOU
very few great companies. When you see one, you should PURSUE OUTSIDE OF WORK?
put more weight behind it, not dilute alpha by spreading
I get a lot of pleasure from activities that require me
capital across smaller positions. Reallocating money from
to use my hands to create something tangible and see it
a higher-conviction name to a lower-conviction, poten-
through to the end. And I love beautiful design—in rugs,
tially subpar name can increase your risk. After my study,
textiles and leather goods. On my most recent sabbatical,
I started owning my highest-conviction stocks at larger
I took a five-week shoemaking course in Florence, Italy. It
weights. I own as much as I can and then stay the course.
was a school with students from around the world. It was
I recognize that there will be volatility. That’s how you
extremely joyful to go in knowing nothing and get hands-
compound wealth. Don’t dabble in interesting ideas. Put
on training from true artisans, learning every facet of
your weight behind the truly high-conviction ideas.
shoemaking—from precise measurements to leather se-
ARE THERE IMPORTANT LESSONS YOU’VE LEARNED lection, from sewing to finishing touches—and come away
FROM OTHER PORTFOLIO MANAGERS AT WASATCH? with two working pairs of dress shoes. I was also able to
learn something new and form relationships with people I
When I started at Wasatch, I didn’t really know what
had just met.
it meant to be an investor. I learned from the senior part-
ners in those early days. Jeff Cardon’s thinking was that I also enjoy cooking, but nothing too simple. For in-
earnings growth drives stock prices. Sam Stewart’s PhD stance, there’s no challenge for me in boiling pasta in wa-
thesis was based on trying to identify the best drivers of ter and pouring sauce on it. There’s no way you can get
stock prices. His conclusion was that rising return on as- that wrong. That’s not interesting to me. It has to take
sets (ROA) was the best predictor. Jeff and Sam also be- some skill and focus—something to make it more interest-
lieved that sustained change is typically underpriced in ing than a simple mixing of ingredients. There needs to be
stocks. What we have today at Wasatch largely reflects a complexity in the process. I bake sourdough bread using
combination of those philosophies. my own starter. Every time I make it, it turns out differ-
ent. The inputs change how the outcome behaves. I think I
Roger Edgley, a former portfolio manager at Wa-
can make better quality than what you get in the store.
satch, came in and brought an additional perspective.
When Roger joined the firm, our performance was stellar. I also roast my own coffee. I keep a journal and record
He joined at a time when we had become very arrogant. the type of bean I use, the starting temperature when I
We made statements like, “We know our companies bet- put the beans in the roaster, at what temperature I hear
ter than the companies know themselves.” How absurd is the first and second crack of the bean, and how the cof-
that? Roger reminded us that the market is very smart fee tasted. I take notes on the variables that could have
and has something to offer you as well. Pay attention. impacted the outcome. I enjoy the attention it requires.
Roger also brought in more behavioral finance aspects.
He taught me to reexamine my own thinking by taking In creative outlets, I look for things that are challeng-
some cues from the market. I learned that reexamining ing, where the outcome can be different every time. I en-
my own assumptions and thinking raises better joy tinkering.

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HOW DO YOU BRING CREATIVITY INTO WHAT YOU DO India behaves quite differently from a bank in Chile, Peru
AT WASATCH? or Mexico. If you have a big weighting in the financial sec-
tor, for example, you may not be taking a big bet on fi-
I am inherently restless. I have a hard time with the
nancial services. The country risk can dominate the sector
status quo. The positive side of that is that I am open to
risk.
tinkering or innovating incrementally. I've made incre-
mental progress in how we screen for new ideas and in I also appreciate the differences within each country.
improving our risk management tools. I've made more in- It’s important to pay attention to the regulatory and gov-
novative changes by creating strategies in new areas for ernance structures in each market. Does the country have
the firm. These included a dedicated technology strategy, an independent central bank? How strong are the laws
a country-specific strategy focused on India, and going governing or protecting institutions in these countries?
higher up in market cap with our Select strategies. Does the country have the right cultural mindset—for ex-
ample, is it a meritocracy that focuses on returns or does
WHAT ARE THE MOST IMPORTANT LESSONS YOU’VE
the country support crony capitalism? In emerging mar-
LEARNED SPECIFIC TO EMERGING MARKETS?
kets, not all countries are created equal, and you don’t
I’ve come to appreciate that industries in each emerg- have to own businesses in every one of them.
ing-market country march to their own rhythm. A bank in

RISKS AND DISCLOSURES

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reflects the opinions of management as of the date of this document. These statements should not be relied upon for any other
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Investing involves risk, including the potential loss of principal.
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Commission under U.S. laws which differ from Australian laws. Wasatch Global Investors is exempt from the requirement to hold
an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to
wholesale clients in Australia.

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