No. of Recommendations: 23
As someone who was looking for a few other "value guys" over 20 years ago when I was still managing my original business, I will share that this is one of the more insightful and "spot on" threads I've read in a very long time.
Without naming names,...(Was not Pabrai, Tilson or Spier).... I kicked lots of tires in person with investors who were lauded in Outstanding Investor Digest (remember them?) and elsewhere. I mostly passed but but did make some smaller investments in a few through SMA's, funds etc. for a while. When you saw the decision making up close it was nothing like what you would expect from someone who had studied Buffett and Munger closely.
In the end I just decided I would rather do it myself. If you're gonna be good at this game there is very little time for marketing in my opinion.
When Charlie closed his partnership, he said it was like lancing a carbuncle because he knew his clients were suffering in the early 70's even though he knew it would all work out in the end. You won't find many people with that attitude that also have the skill.
A few other worthy Charlie quotes on this subject:
• “We have this investment discipline of waiting for a fat pitch. If I was offered the chance to go into business where people would measure me against benchmarks, force me to be fully invested, crawl around looking over my shoulder, etc., I would hate it. I would regard it as putting me into shackles.”
• “Most investment managers are in a game where the clients expect them to know a lot about a lot of things. We did not have any clients who could fire us at Berkshire Hathaway. So we didn’t have to be governed by any such crazy construct. And we came to this notion of finding a mispriced bet and loading up when we were very confident that we were right. So we are way less diversified. And I think our system is miles better.
However, in all fairness, I do not think a lot of money managers could successfully sell their services if they used our system. But if you are investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else’s so long as it is all going to work out well in the end? So what if there is a little extra volatility.
In investment management today, everybody wants not only to win, but also to have the path never diverge very much from a standard path except on the upside. Well, that is a very artificial, crazy construct. That is the equivalent in investment management to the customer of binding the feet of the Chinese women. It’s the equivalent of what Nietzsche meant when he criticized the man who had a lame leg and was proud of it.
That is really hobbling yourself. Now, investment managers would say, “We have to be that way. That is how we are measured.” And they may be right in terms of the way the business is now constructed. But from the viewpoint of a rational consumer, the whole system is “bonkers” and draws a lot of talented people into socially useless activity.
And the Berkshire system is not “bonkers”. It is so damned elementary that even the bright people are going to have limited, really valuable insights in a very competitive world when they are fighting against other very bright, hard-working people.
• “Finally, I’d like to once again talk about investment management. That is a funny business, because on a net basis, the whole investment management business together gives no value added to all buyers combined. That is the way it had to work.
Of course, that is not true of plumbing and it isn’t true of medicine. If you are going to make your careers in the investment management business, you face a very peculiar situation. And most investment managers handle it with psychological denial—just like a chiropractor. That is the standard method of handling the limitations of the investment management process. But if you want to live the best sort of life, I would urge each of you not to use the psychological denial model.
I think a select few—a small percentage of the investment managers—can deliver value added. But I don’t think brilliance alone is enough to do it. I think that you have to have a little of this discipline of calling your shots and loading up—if you want to maximize your chances of becoming one who provides above average real returns for clients over the long pull.
But I’m just talking about investment managers engaged in common stock picking. I am agnostic elsewhere. I think there may well be people who are so shrewd about currencies and this, that and the other thing that they can achieve good long-term records operating on a pretty big scale in that way. But that doesn’t happen to be my milieu. I’m talking about stock picking in American stocks.
I think it is hard to provide a lot of value added to the investment management client, but it is not impossible.”
