This interview with Meridee A. Moore, founder of Watershed Asset Management, was conducted and condensed by Adam Bryant. Watershed is a $2 billion hedge fund based in San Francisco.
Q. Talk about some of the most important leadership lessons you’ve learned.
A. I’ve always had a job. I always liked to work. My most interesting job — where I learned a lot about how I think about the world now — was on a tomato harvester when I was about 15 in Woodland, Calif. There were two of us, friends of the girl whose dad owned the farm, and we worked with migrant farm workers. It was 110 degrees, and we worked 10 hours a day for $3.10 an hour. It gave me an appreciation for different kinds of people, where they come from and how they work.
Q. How has that affected your leadership style?
A. That experience made me realize how important it is to connect with people who are not like me. Especially in our business, we’re always trying to find nuanced ways of predicting outcomes. So, if you can include someone who comes with a different perspective — as long as they embody the same values — it’s a great way to get to the right answer. It helped me to understand that hard work, intelligence and willingness to go the extra mile can come in all shapes, sizes and colors.
Q. What’s it like to work at your hedge fund?
A. We sit in one big open room. It’s the ultimate flat organization. We all have the same size desks. I can hear how the analysts are communicating and asking questions. There are no interoffice memos or office hierarchies. There’s not much that is distilled or screened. When we’re working on something, there’s a lot of back and forth.
Q. Have you always worked in an open-floor setting?
A. I was trained as a lawyer and I lasted for only 18 months in my first job out of law school. I was 25. I had a beautiful office. And I hated it. One day, I just put my head down on my desk and wept.
Q. Why?
A. It was so lonely. All day I read documents. I didn’t understand the importance of the work, and it seemed so repetitive. Luckily, right around that time, I got a call from a guy who had left the same firm to work as an investment banker in a new products area for bonds at Lehman Brothers. It was 1985, right when the merger boom was starting, and Lehman was just looking for bodies. I took the job immediately and I loved it. Everybody worked together in a sort of mosh pit of ideas. It was more fun, more energizing, and I realized that you do better work if you get input from people around you.
Q. How do you hire?
A. We look at grades and scores, of course. We want the person to be competitive. Also, if the person has had a rough patch in his or her past, that’s usually good.
Q. Why?
A. Well, if you’ve ever had a setback and come back from it, I think it helps you make better decisions. There’s nothing better for sharpening your ability to predict outcomes than living through some period when things went wrong. You learn that events aren’t in your control and no matter how smart you are and how hard you work, you have to anticipate things that can go against you.
It’s also important to be a good communicator. Our strategy involves negotiation, and you have to understand management’s perspective, the judge’s idiosyncrasies, the different professionals and principals involved, and what they might do in a bankruptcy. When I screen for people, if they have a good sense of humor and are engaging communicators, they tend to be good negotiators and seem to be better at reading the qualitative side of human decision-making.
Q. What are some other screens?
A. We give people a two-hour test. We try to simulate a real office experience by giving them an investment idea and the raw material, the annual report, some documents, and then we tell them where the securities prices are. We say: “Here’s a calculator, a pencil and a sandwich. We’ll be back in two hours.” If an analyst comes in there and just attacks the project with relish, that’s a good sign.
Q. Is this one of those impossible tests, where you’re asking them to do seven hours of work in two hours?
A. Yes. But you’d be amazed at how well people do. After two hours, two of us go in and just let the person talk about what he’s done. The nice thing about my being trained as a lawyer, and never going to business school, is that I’m able to ask the basic, financially naïve questions, like: “What does the company do? How do they make money? Who are their customers? What do they make? How do they produce it?” That throws some people off.
Q. Really?
A. Often, analysts go right to the financials and forget to think about the company’s business model. If the person avoids answering the basic questions and instead changes the subject to talk about the work they did, that tells me the person is a bit rigid. Instead of trying to respond to what’s being asked, they’re trying to get an A on the test.
Also, if they’re a little too worried about pleasing me, that’s not good, either, because it’s not a please-the-boss competition. The point of the exercise is to make sure that we’ve thought about the issues critically, so we are in a position to make a good investment decision.
The other quality we look for is whether the person can distill a lot of very complicated information down to its essence. Can you figure out the three or four issues that are most important for understanding this investment? Or do you get distracted by aspects of the company that really have nothing to do with making an investment or determining value?
Q. What else do you ask job candidates?
A. I try to ask something that inspires the person to talk a little bit about their family, whether it’s their brother and sister, their parents, where they lived. And usually it’s, “Why do you want to be in San Francisco?” And they’ll say, “Oh, well I have an uncle in the East Bay.” And I’ll say, “Oh really? What does your uncle do?”
I find that guys who have had strong relationships with women — whether it was their mother, their sisters, a teacher — tend to be secure in who they are, and tend to do well in our business.
Q. Why is that?
A. Well, they have to work with me, for one thing. And they have to be able to challenge others and have me challenge them without taking it too personally.
The other question I ask is if they’ve ever been in anyone’s wedding party. If someone has asked them to stand next to him on the most important day of his life, at least one person thinks they are responsible. It means they’ve been able to establish and continue a relationship. It’s not always true, but if you build strong relationships with people, you tend to go into a management meeting or a negotiation and come out of it with some respect. You go into it thinking: “I’m going to leave this situation better than I found it. I don’t have to kill everybody to get to the right result for myself.” These are good qualities in a person and a partner.
Q. Talk about the transition from player to coach.
A. When I started managing people, when something would go wrong I would tend to go in and try to fix it myself without really bringing the analyst along. This came up with some management coaching I did, and I wish someone had told me sooner. Now I realize that, just like coaching a basketball game, if your player misses the free throw, you’re not allowed to go out there and take the second one yourself. You have to sit on the bench and yell: “Bend your knees! You’ve got this one!”
I feel like I’m much better now at trusting people who have inspired me to trust them. If they know that I’m really going to count on what they do, the person grows and feels much more responsible for the work product.
I’ve gotten better at taking a step back, but it’s very, very difficult to be compassionate when things go wrong, because we have responsibility to our investors to make sure that we prevent mistakes, and if we do make them, we need to fix them even if it hurts someone’s feelings. Hopefully, our people behave like owners and feel responsible, so we’ll make fewer mistakes up front.
One thing that is very important to me is that if there is a mistake, you bring it to my attention right away. There’s no fixing it first and telling me later. Investing is all about learning from what you did right and what you did wrong. If you are too afraid to admit what you did wrong, you are setting yourself up to make an even bigger mistake in the future. Even if I am upset, I try to say: “O.K., thanks for telling me. Now let’s figure out what to do from here.”
Q. How do you get feedback on how you manage?
A. I ask people all the time, but at least once a year I ask everyone in the firm to write 360s on everyone they work with, including me. I do it confidentially so people can be honest. Then an outsider, a management coach, synthesizes the comments and doesn’t tell me who said what, but he says, “These are the directional comments that people have about you.”
Q. What’s the feedback you’ve gotten?
A. Sometimes people are afraid to approach me because they’re afraid I’m too involved in what I’m doing. So I try to be aware of that. I’ve also gotten good feedback on our all-hands meetings. Every six weeks or so, we ask everyone in the firm to come into a room and I tell people what’s going on in the different areas of the firm — how the portfolio is doing, what’s happening with our investors, with accounting, legal and compliance, and whether we’re going to be hiring people in different areas. It’s amazing how this simple communication defuses a lot of stress because everybody feels like they’re rowing in the same direction.
Q. What’s your best career advice to somebody just graduating from undergrad or B-school?
A. Find a mentor. And it doesn’t have to be a mentor who looks like you. They can be older, a different gender, younger, in a different business, but someone you admire and respect, and just attach yourself to that person and learn everything you can. I’ve done this my whole career. It is so valuable, especially if you choose a good one and they end up teaching you everything and then rejoicing in your success.
