As part of the new Investopedia Influencers series, we interviewed the dynamic Sunny Vanderbeck, co-founder and managing partner of the investment firm Satori Capital in Dallas/Ft. Worth, Tx. Sunny is a highly sought-after speaker at financial and sustainability conferences. Previously, he was Chief Executive Officer of Data Return, a leading provider of managed services and utility computing. After a successful IPO, the company achieved a market capitalization in excess of $3 billion, and Sunny was one of the youngest CEOs ever to lead a NASDAQ company. In recognition of Data Return’s industry leadership, Microsoft Corp. (MSFT) named Data Return Global Hosting Partner of the Year, while Sunny received numerous individual honors including being named one of the “Top 25 Technology Executives” and Entrepreneur of the Year finalist by Ernst and Young. Leveraging his expertise in strategy, operations, and capital allocation, Sunny is actively engaged with several private businesses as an investor, advisor, and board member. Additionally, he is a member of Young Presidents’ Organization (YPO) where he served as the North American Co-Chair of the organization’s Corporate Social Responsibility Network. In this role, his charter was to develop awareness and support for more sustainable business models among YPO companies.
Investopedia had the privilege of doing a Q&A with Sunny, who offered wisdom and insights valuable to any investor, beginning or advanced.
Q: What is your investing philosophy?
At Satori, we include all of the traditional things you’d expect as an investor. For example, in the private equity business, we look at market share, profitability, strategy, and so forth. When we invest in other funds, we look at alpha, Sharpe ratio, and structural arbitrage. We find a lot of value in all of those economic or financial buzzwords and very tangible things.
What makes our investing philosophy different, though, is that we take an additional data source. We think the non-financial dimensions of business are as important as the financial or tangible dimensions. Said another way, inside a hedge fund, let’s say there are two similarly situated funds and one is among the “Best Places to Work,” while at the other, portfolio managers throw chairs at analysts. We believe that over time the one with the great culture will outperform. One reason is that a great culture encourages great ideas as well as both taking and uncovering risk.
At its core we think culture matters a lot. In fact, for our own investment business we were the winner nationwide for Pension and Investments magazine’s Best Place to Work.
Here’s how that shows up in our private equity investments. We buy a majority of these businesses. It’s one thing to have strategy and good economics and a good business model. But how does a relationship with a supplier matter long term? We think it matters a lot! And what about your relationship with a community? If you’re the largest employer in the town, and your name is on the front door and you can never sell the business, how will you behave?
And this is a second distinct way in which [Satori] is different. One of the biggest opportunities in investing is the willingness and ability to actually be a long term investor. It’s very rare, and increasingly so.
I have a lot of empathy for CEOs of publicly traded companies, who have this pressure and desire to run their company on a longer horizon, and yet they have quarterly earning calls where, if this quarter didn’t go as well, no one cares that it’s going to be better three years from now.
If you can really be a long-term investor, you will make better decisions and better returns.
Q: So in your PE business, for example, do you find that you’re able to ensure that the companies you purchase maintain the high moral standard that was there when you originally bought the company?
I want to make a distinction. Morality is a funny thing because those universal truths often turn out not to be universal. Is fracking good or bad? That’s a complicated question. That’s as complicated as, is nuclear good or bad, or is an army good or bad? We’ll never get to the end of that. But we have found is that if a company has a great culture, improving one is easier than installing a good one over one that is bad.
In our case, we will not invest when a company does not adhere to the tenets of conscious capitalism. As often as not, though, they don’t know that’s what they are doing. Our big “Aha!” moment along the way was what we call the “unconscious conscious capitalists.” They don’t use the magic words, in fact they might say “We don’t subscribe to that granola junk.”
But actions speak much louder than words. Here’s a real example: There was an employee in a company warehouse who was a refugee from a war-torn country. He wanted to take two weeks off to see his family and friends he hasn’t seen since before the war, and he was terrified he would lose his job.
The CEO gets wind of this story, sits him down, and says, “I understand you’re going back to your home country.” She hands him the cash he would have made in those two weeks. She says, “Have a great trip. We can’t wait to see you.” That happened at a company that does not describe itself as a conscious business.
This extends past company culture—it extends to supplier relationships as well. We have another company that was a very significant purchaser of steel. The way that business works is that whatever is the lowest price, wins. This company said, we think there is a better way. We’d like to have a good relationship with a supplier. They found a supplier that wanted that too. The company allowed the supplier to work more on the steel before we got it. That helped the company avoid significant amount of CAPEX and gave the supplier a higher-margin product to sell, which was core to their strategy.
So everyone in this industry said, you’re crazy; you’re paying more for steel. What they couldn’t see is a 20-year partnership where we’re the highest-margin customer. When the supply gets low, we get priority for steel. Low supply is the one time in the product cycle when you carry the highest margin—and we had all the supply.
Q: How would you rate Amazon.com Inc. (AMZN), which has great customer care but a bad reputation for employees?
I’ll give you the most precise answer I can. But I don’t have a good enough fact set—none of us do.
My experience is that there is usually more to the story. There are probably some things that need to get fixed and there are probably things that were told in a way that is consistent with the storyteller’s objectives and not with the truth. I don’t really know what the answer is on that.
But, when you see company that has a problem with one stakeholder but other stakeholders are doing well, that’s an opportunity.
The organizing principle is simple: Listen to the CEO talk! It would be interesting to have a BBQ or go to dinner with that CEO. Would you work for them? If you can answer yes to that, you have learned a lot. You’ve got some data.
Q: What is the single most important trait investors should have?
A few things come to mind. The first is humility—the willingness to be wrong or to not know. It’s the lack of humility that causes people to not sell a bad position, or fix a problem.
That brings us to the second piece: A learner mindset. If you’re not learning all the time, how can you be a good investor? Your desire to learn over time will make the difference.
The third is a long-term horizon. If you can think about what happens over the course of the next 5, 10, 15 years, you can make different decision about whether you want to be an investor in a company, fund, what have you. The quarter-long view or the year-long view is useful, but the ability to extend that over the next decade will make a meaningful difference.
Q: Who had the greatest influence on your investment philosophy?
It’s less financial, but it ties into this. Teddy Roosevelt. Anyone who gets shot in the middle of a speech and says, “I’m gonna go ahead and finish the speech”—That’s a good starting place. He was willing to take a stand and had the capacity as a human to actually move the world forward. He was willing to be different.
Q: What is your favorite financial term?
I have a couple of them, and also a least favorite.
The first favorite is conscious capitalism. It creates a different framework for thinking about how to invest.
The second one is asymmetry. This is a big part of our investment philosophy. We think that all of the different flavors and derivatives of modern portfolio theory are bunk. It’s just a cop out to say, “We can’t create enough alpha to justify our existence, so let’s use the efficient frontier and modern portfolio and say that risk and reward are symmetric.” No they’re not. The entire complex shouldn’t exist in that case. Let’s just go by the index and get on with it.
But you have to do work. It’s not easy. If you are not willing to do the work to find asymmetry, not willing to take a stand and say “I see information here that other people don’t see,” or “I make different conclusions about the data that everyone else sees,” then you can’t create asymmetry.
I also have a least favorite term: Smart beta. It’s one that has had me cracking up recently.