Idea Brunch with Chris Hammond of Jaguar Capital
Welcome to Sunday’s Idea Brunch, your weekly interview series with great off-the-beaten-path investors. We are very excited to interview Chris Hammond!
Chris is the Founder and Chief Investment Officer of Jaguar Capital, a long/short healthcare-focused investment management firm he launched in January 2020. Before launching Jaguar Capital, Chris was a Portfolio Manager and Senior Investment Analyst at Millennium. Before that, Chris was a Senior Investment Analyst at Surveyor Capital (an arm of Citadel) and a healthcare Equity Research Analyst at Goldman, Sachs & Co.
Chris, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, why you decided to launch Jaguar Capital, and your passion for healthcare investing?
Edwin – first of all, thank you very much for having me on your Idea Brunch series. It’s a pleasure to take part as I’ve known you for several years now and I’ve been impressed with what you’ve accomplished with The Bear Cave and I’ve watched you continue to grow as an investor.
So as a way of background, I’ve had a pretty diverse career path relative to those who do the ‘standard’ business school/analyst/associate/hedge fund track. It’s been about 20 years, but I first started in this business in investment sales. I didn’t really consider investing as a career until after I was on the law school track at Emory University (thank goodness I changed course!). But when I finally found this new passion, I was relentless…I read every book I could get my hands on, started my CFA, and went back to graduate school to get my finance education (I was a Political Science & Psychology double major in undergrad, so I needed to sharpen my financial/business acumen). Beyond that, I networked constantly and finally landed myself in an equity strategy role at a large mutual fund house on the buy-side (Columbia Management in Boston) and that was really the start of my investing career. Unfortunately, it wasn’t long before the Global Financial Crisis struck and half of the company got let go in early 2009 (right at the bottom!). After that, I was just looking for a job and ended up moving to NYC to take a sell-side research role and that’s when I started doing Healthcare. Ever since then, that has been my primary focus and I’ve made my career by being a Healthcare specialist – I’ve always thought it to be rewarding to “do one thing, and do one thing really well.” I moved back to the buy-side in 2015, joining a team at Surveyor Capital (an arm of Citadel) where we ran an enormous portfolio and where I was the lead on MedTech investing.
After several years at Surveyor, I ended up moving to their competitor Millennium across the street where I also ran a Healthcare portfolio (focus on MedTech, Diagnostics, HCIT, and Healthcare Services). At that time, life started to change for me…I was now married, had my first son, and unfortunately was having some creative differences with my boss at the time. But my numbers were great, my ideas excellent, and importantly, they were highly marketable…I knew then that I wanted to run my own firm, run investments my way, and have the flexibility to see my ideas through to fruition without working in the confines of a very rigid (beta-/market-neutral) portfolio construction environment at the major long/short equity funds. I knew that if you could manage risk and understand book construction in a rigid environment, you could also be successful in a ‘looser’ environment as risk management protocols were already beat into your head. So that was it for me…I set out on my own and launched Jaguar in January 2020 (right before COVID changed the global economy).
So, as I mentioned, I’m a true believer in doing one thing and doing one thing extremely well as a path to success. I consider myself a Medical Technology (MedTech) specialist, where primarily I cover Medical Devices & Supplies, Diagnostics, and Life Science Tools. I also do Healthcare Services, but within that, I focus most on Healthcare IT (HCIT). The other thing that Jaguar does is run a proprietary derivative overlay strategy on top of the portfolio which is incredibly unique and adds tremendous alpha and risk enhancements to the portfolio over time. Volatility/Option trading is often misunderstood (mostly by plain vanilla equity traders), but we’ve created a protocol where it helps amplify our alpha generation and risk management practices above and beyond our simple long/short hedge fund peers.
That’s great, can you tell us a little bit about how it has been going so far?
Well, to be honest, it’s somewhat of an embarrassment of riches. One of the great things about working at some of the bigger hedge funds was that you got a lot of access to emerging, interesting technology companies. The problem was that they were often so small in capitalization that we could never touch them given how big our portfolio was then. So if that was the case (that the company seemed interesting, but was too small), you could just pass on a fund investment and put it in your personal account and hope that one day it would be big enough for a ‘real’ fund to buy into it [all Compliance Department approved of course]. So in that regard, I did pretty well investing personally alongside my normal work obligations. As my bankroll got bigger, I just rolled all that forward into opening my own shop. I normally wouldn’t be talking about all this but it’s important to Jaguar because those personal returns gave me the confidence to go out on my own, and it gave me the capital to do so. [Jaguar Master Strategy Portfolio Return for 2019-2022: +328%, +139%, +34%, TBD.] That’s one thing that I think is very important to future investors in Jaguar – that they know that we [I] have significant skin in the game and we eat our own cooking. I don’t get paid unless my clients get paid…we’re confident in our long-term, disciplined alpha-generation strategy so we’ll go toe-to-toe on fee arrangements with the larger (‘plain vanilla’) hedge funder fee-generators out there. Of course, I didn’t get to be successful on my own – I learned so many bits and pieces (and hard lessons) from so many smart colleagues along the way, I simply cannot be any more thankful for all of my lessons learned [you know who you are].
In healthcare, investors are extra reliant on management statements. What do you look for when meeting with management teams or reviewing quarterly calls? What are some common red flags, or positive signs, you see?
Hmmm, well I’m not sure that Healthcare investors look at management commentary much differently than any other sector specialists, but I get what you’re aiming at in terms of what you think is important.
Most importantly, I look for long-term honesty from management teams. Ideally, as a hardcore / long-term investor, we’re looking for stock ideas that can be 2-5x baggers (+200-500%) and that might take 1-3 years or more for that idea to play out. I mean first, you have to have the thesis correct. Secondly, you have to have the rest of the market wake up to what you see (in an underfollowed/undiscovered idea, which can take a long time) and “incept” the idea. If management is not doing what they say it makes trust/honesty impossible. So before I take a big stake in anything, I like to look management in the eye and feel like there is an environment of common understanding before I move forward. I have a short leash on managers that don’t do what they say. It’s one thing to be an investor in large-cap, S&P 500 names where they regurgitate the company line, but in micro- and small-cap names (where Jaguar thrives), management tone and commentary are often less ‘buttoned up.’ That’s totally fine, but I look for when that tone has changed or sentiment has shifted [“Did he just extend the timeline on his new product release? Did they say the FDA asked for more clarification? Did he just imply that he’s gaslighting investors on his cash profile?]. I think it’s also worth noting that a lot of buy-side guys overthink these ‘interviews’, but over time you generally learn managers and their sentiment, so tone can actually be important.
As far as red flags on conference calls, I don’t really have much of a rigid internal screener alert (as long as the facts presented are truthful) unless there’s just some ridiculous nonsense happening…for example, Pulse Biosciences (NASDAQ: PLSE) just “pivoted” and shut down their entire company, took on stupid debt, and then refused to take investor calls on their 3Q public call…that’s a clear red flag [I mean they have zero revenue and zero products, so why not lie?]. Beyond that, I just look for changes in commentary – did they change any product timelines, imply margins would miss, talk up M&A, etc…? Just pay attention, you’ll know when something has changed (and you might need to change your investment/trade as a result).
The history of healthcare investing is littered with smart generalist investors making very big bets on companies that collapse (e.g., Valeant, Mallinckrodt, Insys, Teva…). Why are smart investors so often wrong about healthcare companies?
Man, I was going to skip this question because I’m not a Pharma / Spec Pharma specialist, but I think the answer is as simple as corporate fraud / general fraud is pervasive. Look at the messed up times we live in…my grandparents get 10+ calls a week from someone that wants to defraud their Medicare Advantage billing, but we expect more from some jerk that accidentally migrated to the Russell 1000 CEO lifestyle with no actual background performance? Who cares? Why does this matter to Healthcare? Sorry, it’s just a shame everywhere…and hopefully, there will be other great people like The Bear Cave to help expose the ‘no-gooders’. As far as generalists taking down healthcare companies, I don’t really see that as true…I think those generalists attack anything that stinks, and sometimes there are some smelly operators in healthcare. (Any business with a lot of government sponsorship is prone to manipulators, and hopefully, good short sellers will expose them.)
What are two or three interesting ideas on your radar now?
My favorite part! Honestly, we’ve got a lot that we’re excited about right now given how much carnage there’s been in public equity markets over the past two+ years. There are literally great earlier-stage growth companies that are down 80-90% despite having strong growth and margin profiles, tons of cash, and easy upside to Street expectations. I already mentioned that I’m a Healthcare Specialist, but within the sector, I tend to be more weighted to small- and mid-cap (SMID-caps) ideas. We are primarily looking for ideas that can have 200-500% upside over the next 2-3 years, where the Street has fundamentally overlooked the companies, and where there is a clear inflection point in fundamentals that has yet to be appreciated by investors. These smaller “multi-bagger” names are what drive a ton of alpha generation over time; whereas our large-cap names tend to be more trading vehicles (e.g. pair trades) to grind out consistent returns, but we really want to allocate capital to ideas where the market has yet to discover them. Also, we literally just started posting research online to our website trying to highlight some of these underfollowed names and we plan to keep doing that in the months/years ahead. Readers can find our reports at www.jaguarcapitalllc.com (and we’re currently working on a new idea that we aim to publish soon).
So our top idea, which we just published on in September, is DarioHealth (NASDAQ: DRIO — $114 million), which is a micro-cap chronic condition management company in the Digital Health space that is absolutely on fire. Management has transformed the company from a small direct-to-consumer (DTC) diabetes monitoring company into a diversified business-to-business (B2B) solutions provider covering diabetes, pre-diabetes, hypertension, weight loss, musculoskeletal, and behavioral health. Dario is essentially a miniature version of Livongo Health (LVGO) that was acquired by Teladoc (TDOC) a couple of years ago, but Dario is much further along in their life cycle relatively with a broader portfolio which is a competitive advantage in the RFP process for self-insured employers and health plans. They recently signed a strategic partnership with Pharma large-cap Sanofi (SNY) and are being embedded into the digital health ecosystem at Aetna (owned by CVS; which our prior research correctly highlighted). We see those partnerships as pure model validation and expect to see more of these in relatively short order (very strong catalyst pathway).