Home Value Investing Graham & Doddsville 2015 – Alex Sacerdote Of Whale Rock Capital

Graham & Doddsville 2015 – Alex Sacerdote Of Whale Rock Capital

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The students of Columbia Business School just released the Fall 2015 Issue of Graham & Doddsville.

Alex Sacerdote is the founder and portfolio manager of Whale Rock Capital Management, a $1 billion global long/short equity manager focused on the technology, media and telecom (TMT) sectors. Prior to founding Whale Rock, Mr. Sacerdote was an analyst and sector portfolio manager at Fidelity Investments. He began his career in Smith Barney’s TMT investment banking group, and also served as VP of Finance at Interactive Imaginations, an internet advertising start up. Alex received his MBA from Harvard and earned his BA from Hamilton College. Alex currently serves on the Board of Trustees of Hamilton College and Shady Hill School, and is active on their investment committees.

Graham & Doddsville 2015 – Alex Sacerdote of Whale Rock Capital

Graham & Doddsville (G&D): Can you discuss your background and your path to investing?

Alex Sacerdote (AS): I’ve been interested in the stock market from an early age. In the early ‘80s, my father bought each of me and my two siblings a share of Apple and I watched it incessantly and was delighted when it split three for one. Although I was too young to understand that I had not tripled my money. In the second grade I distinctly remember doing a report on the stock market with crude stock charts.

Out of college, I started out as an investment banker in the Tech, Media, and Telecom Group at Smith Barney. It was a boot camp-like experience in which I really learned the mechanics of finance. We were active with M&A deals, IPOs, and high yield offerings across a range of subsectors from media, software, and wireless to semis, so it was great exposure.

But my initial interactions with buy-side investors led me to believe that was the place for me. During our roadshows for IPOs and high yield offerings, we brought our management teams to a number of buyside institutions. The buyside analysts across the table at the big firms like Fidelity were roughly my age, but they were much more knowledgeable about the industry, even though I had been working on the deal for three months. In some cases they knew as much or more than even the management teams. If you are really intellectually curious and you want to spend 90% of your time critically thinking, the buyside is where you want to be.

At the same time, the internet revolution was just beginning. I decided to work for an internet advertising start up in New York City in 1997 before going to business school. The company, Interactive Imaginations, actually pioneered the concept of the ad network. It gave me a deeper understanding of internet based businesses, and there were a handful of other publicly traded internet companies like AOL and Yahoo that I carefully followed and invested in on my own.

So at business school I targeted buy-side opportunities and secured a summer internship at Fidelity. I was very fortunate because Fidelity provides their interns with a tremendous amount of responsibility. They said to me, “There is this new thing called the Internet. You know something about this. Why don’t you cover e-commerce for the summer?” I was in heaven. I travelled the country visiting the roughly ten internet companies that were public at the time and met the CEOs and founders. I was able to attend Amazon’s first investor day and had lunch with Jeff Bezos. He had the same laugh back then too! By meeting with the companies and studying them carefully, I came to the conclusion that Amazon was going to run the tables and win in e-commerce in a big way, and it was only a matter of time before they expanded beyond books.

At the time Amazon was very out of favor, and I made a 25 page presentation to the entire equity department advocating that Fidelity buy shares in Amazon. I think half the investment team thought I was crazy because of the high valuation and losses, but some people must have liked the analysis because I got the job at Fidelity, and that’s how I got into the business.

I spent the next six years there as an analyst and sector portfolio manager primarily focused on technology. It could not have been a better training ground. First, there were so many great investors to engage with and observe: Danoff, Wymer, Tillinghast with his unique brand of value, and Myers, who actually started in my intern class back in 1999. It was a very individualistic place with so many different styles and processes. I also got some nice time with Peter Lynch who loved to mentor younger analysts. His temperament, curiosity, and love of the craft were amazing. I’ve read his book several times. You also get great exposure to management teams and a chance to really master your industry and the confidence that comes with that. Finally, you get the chance to run money pretty early on to hone your skills and investment style.

Ultimately, I decided to go out on my own. Fidelity was really about running large pools of capital diversified across industries, and I viewed myself as a tech specialist. In the technology sector, it’s important to be a specialist. The long/short format is great for TMT because there are always winners and losers, and the ability to short can dampen inherent volatility.

But throughout all these experiences and from an early age, my father was clearly the biggest influence on me. He was a great role model both as an investor and a human being. He had a wonderful career in finance at Goldman Sachs as head of Corporate Finance and then Chairman of the Private Equity group. He represented the old guard. He was a true gentlemen and was known for
his keen intellect, leadership, and mentoring. Not many bankers are known as great investors, but he certainly was. He chaired the credit and investment committees there for more than two decades and kept them out of a lot of trouble. He was an electrical engineer from Cornell and was smart as a whip and could instantly get to the heart of any issue, but he always exhibited humility and graciousness. The best thing about my father was that he was such a great mentor to so many and when he passed away in 2011, I received countless letters and stories about this.

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