It’s the classic rags to riches story. Start off with a small loan from friends and family, invest it in the market, and make millions, if not billions. It’s also the story of some of Wall Street’s biggest names, including Ken Griffin, Bill Ackman, and Steven Cohen. Griffin famously started investing $100K of grandmother’s savings while a Harvard freshman. Ackman started with $1M of family inheritance in his early 20s. By their early 40s, both were worth billions.
I’m not saying every successful new fund manager becomes Griffin or Ackman, far from it, but there are surely those out there with echoes, if not downright similarities.
Recently, I spoke with the managers of Thessalus Capital LLC. Two young medical students and brothers in their early twenties, Mitchell and Kenneth Ng, manage this small hedge fund that focuses exclusively on healthcare and biotechnology.
Perhaps more importantly, Thessalus posted a 44% return last year, and more than doubled in value since it was founded in late 2015. In the investing world, it’s not a stretch to say Thessalus is doing well for itself.
Intrigued, I struck up a brief conversation with Kenneth Ng on the specifics of how Thessalus came to be, and what investing, business, and life advice worked for him to this point. Here are three that Kenneth believes are central to Thessalus’s success...
Information is power
Says Ng “whoever knows the most will win the most. Thessalus started when Mitchell realized an unprecedented opportunity in healthcare, an industry which grew in market capitalization 292% the past 3 years, and was poised to grow at least 300% the next 3 years.”
Thessalus’s biggest success to date came when it invested in Medivation, a small pharmaceutical company with a successful (and expensive) prostate cancer drug flying under the radar. Each treatment costs more than $100,000 per patient per year. Just weeks later, it was acquired by Pfizer for $14 billion and the stock price doubled.
Another came when they “made a timely investment in a diabetes company that was about to launch a drug with no competitor in Europe.” How did the two Ngs find these hidden gems? Both are the result of “staying obsessively up to date in the pharma and biotech world,” and “hundreds of hours reading research papers on NIH and FDA clinical trials.”
The brothers, who it seems are moderately well connected in the world of finance, rounded up capital from affluent friends and family and developed a unique investment approach that focused on many aspects. One of these things, according to the younger sibling Mitchell Ng, is investing in “pharmaceuticals with niche and orphan patient populations” and “finding companies with high-tech differentiated products and strong clinical potential.”
Their background in medical science proved useful as it helped them understand the healthcare market from the inside out. Instead of typical performance indicators such as P/E ratios, balance sheets, quarterly earning reports etc that are used by most investment firms, Ng and his team based their investment decisions primarily on fundamental scientific and clinical value behind companies.
Be generous when bringing in new people
“Not just for morality’s sake, but because giving people incentives to see your project succeed tremendously will benefit them too, and drive performance throughout the organization,” says Kenneth. It’s hardly news today that bringing together people with specialized knowledge and unique insight is the place to start when founding a company.
The older Ng added -- assembling the right team was crucial. Some of the people he mentioned as “absolutely indispensable to the success we’ve had so far” and “names to watch in business and entrepreneurship in the next 10 years” included some of his partners Amy Qian, Raj Bagaria, and Simon Song.
The difference between hedge funds that become huge and those that don’t is whether the managers have the knowledge, patience and intelligence to do the hours of research before making the well-balanced, rational calls.
By investing in the right people early on, a firm can (potentially) mitigate some of the risks by circumventing the years of trial and error that are a natural part of the startup process.
Be pragmatic in your investment approach
Never get too emotionally invested in anything and be willing to drop it right away if facts change. Seasoned investors see it all the time -- that urge to sell the moment a stock goes up, and hold on when it goes down. Hope springs eternal indeed!
But letting the market play you is exactly what needs to be avoided. Investment works best when it is treated as a data-driven domain. The rise of big data today is a god-sent as far as investment goes. As the amount of data available today has increased exponentially, prudence demands that we use it to guide decision making.
But data itself is not the solution. Advanced analytical models and algorithms need to be built upon a sound thesis so that all the information can be optimally implemented. In times to come, data driven strategies will be seen as a strong competitive advantage and will help progressive companies shoot ahead.
Concluding thoughts
Warren Buffet had famously once said "never invest in a business you cannot understand,” and Thessalus’s performance thus far proves it. We spend most of our time working in a few industries, and, as a result have a fairly good grasp at what’s going on in.
It’s hard for any one person to simultaneously know which fashion apparel will be a hit, which tech company is about to revolutionize communication and which energy startup will come out with a breakthrough solution. There are far too many industries to study properly — precisely why we should remain focused on businesses we already understand, or have an interest in.
By remaining focused on their respective core competencies, the people at Thessalus have beaten the pitfalls that are all too common among startups, and have proven that specialization, due diligence and remaining focused on fundamentals, not flashy objects or news items should be at the core of any firm's business strategy.