This is likely the first of a few, explaining how my investment style has changed/is changing over time.
The more time I spend investing, the more I understand that it in the general scheme of things, I am not that bright. I work daily with people who are outstanding in their niche - whether on the buy side or the sell-side. Increasingly I am convinced that being brilliant is not a prerequisite for achieving excess returns in markets.
One of the things I increasingly believe is that who you invest with, rather than what you invest in, is the driver of sustainable excess returns , particularly if you control for business quality. I think there are some business models that will always deliver sub-par returns - an exceptional manager in that industry will always be pushing the proverbial up hill. I also think there are some industries that should deliver strong profits that are plagued by a succession of “professional managers” who consistently become CEOs for five years in order to maximise their own personal wealth.
None of this is new - Buffett has written about it, so anyone likely reading this is already aware of the importance of management. But like everything he writes, even though you might think you understand, typically something needs to occur that will crystallise the understanding for you.
For me, a recent incident that highlights the concept is Ian Narev essentially becoming CEO of Seek, while Bassat becomes a full time investor and Executive Chairman. While Andrew Bassat was in charge of that company, I had faith that the investment would turn out well. With Narev in charge, I found myself triple checking my (largely useless) financial model. Is Ian Narev a bad manager? Probably not. Do I have faith that he will take care of Seek as well as the Bassat’s did? Absolutely not.
I don’t really comment on Australian markets because its a little to close to home with the day job (its also why I have previously posted mostly graphs and statistics work). Most of my personal investing is done internationally for compliance reasons.
I’ve done better internationally than I have domestically, mostly because I focussed on finding businesses that were run by owner operators or had a significant commitment to a culture that had historically driven excellent returns.
The next posts will look at the what and how.