News from the Applied Portfolio Management Program

Matt Hekman, APM Alum and Waddell & Reed PM, discusses rules to investing and career success with class

By Group 1: Yi Cai, Matt Goehausen, Robert Hite and Doug Johnson

Matt Hekman, Assistant Vice President and Portfolio Manager at Waddell and Reed, visited the APM class on March 8. He spoke about his work at Waddell and Reed and gave his insights and advice about finding success as a money manager. Mr. Hekman, an APM alumnus, also discussed what he sees as the main benefits of taking the APM class.

As Mr. Hekman sees it, the main reasons to take APM are to learn 'the rules of the game,' learn how to apply the rules in real life, and to preserve and grow the APM fund's value so next year's class is 'dealt a winning hand.' He also said that he took APM for the practical experience it offered and because he thought it was a necessary step toward a career in investment finance. He discussed the three main rules of money management:

1. It is a 'loser's game.' Mr. Hekman described money management as a game in which the best strategy is to make the least mistakes and to try not to lose. He referred the class to an article by Charles D. Ellis entitled "The Loser's Game" which said that mutual fund managers on average do not beat the market. The article compared money management to tennis, where often the best way to win is to just keep the ball in the lines and let your competitor make mistakes. While he acknowledged that there are many factors that were not considered in the article, Mr. Hekman did say that the main point of the article was accurate. In order to have success under this rule, you should make fewer mistakes, invest in what you know and minimize the 'shots' you take.

2. Value beats growth. If you compare stocks over time, more often than not, value stocks provide a higher return than growth stocks, especially in passive investing. An active investor can create more Alpha with growth stocks, but overall, value beats growth.

3. Understand how much you stand to lose. Mr. Hekman stressed the importance of being aware of the risks and never losing big. He discussed the idea that in money management, as well as in APM class, you are managing other people's money and it is wise to act as a steward rather than a gambler.

In addition to the rules, Mr. Hekman also offered investment advice.
·        When analyzing stocks, think in terms of buying a business, not a stock.
·        It's important to find a business with a sustainable competitive advantage.
·        Learn to filter information. We're bombarded with more information than we can possibly read. Learning to recognize the important ones is key.
·        A sell discipline will set you apart from your peers. Most analysts want to make primarily buy recommendations.
·        Valuation matters!