Larry Cunningham, professor at George Washington University and celebrated author, just shared some enlightening thoughts on the unsolicited Kraft-Heinz bid for Unilever. Larry sums up his concerns as follows:
…Berkshire could simply supply half the capital and cede all management and operational decisions to Jorge Lemman and the other 3Gers, and be a passive investor staying true to Berkshire values. But if Berkshire keeps going down that road, it is going to slowly sacrifice what has made it great and special. Then I would worry about the Berkshire-Buffett legacy.
Background on Larry and Berkshire: Watch Larry’s interview with Scott Phillips.
Howard Marks, Co-Chairman of Oaktree Capital Management, is not only one of the world’s greatest investors but has also been one of the most generous in terms of sharing his knowledge and experience with the value investing community. As we look forward to learning once again from Howard Marks at Latticework 2016 next Wednesday, I’d like to reflect on the following insight, one of many, shared by Howard Marks at a past ValueConferences event:
“To me, the most important single question at a point in time with regard to strategy, I’m not talking about tactics, I’m not talking about what’s going to go up tomorrow, I’m not talking about eternity, but for the middle term, let’s say three to five years, the most important thing at a given point in time is how you’re balancing offense and defense… we want to have a lot of offense when prices are low, psychology is depressed and the outlook is bad to most people but we don’t think it’s so bad. And we want to have defense when prices are high, psychology is buoyant and everybody sees a brilliant future, and we don’t think the future may live up.”
What is offense and defense in investing? On page 145 of The Most Important Thing, Howard Marks defines offense as “the adoption of aggressive tactics and elevated risk in the pursuit of above-average gains” And what’s defense? “Rather than doing the right thing, the defensive investor’s main emphasis is on not doing the wrong thing.” While on the surface there might not seem much difference in doing the right thing and avoiding doing the wrong thing, Howard Marks goes on to say that there is a big difference in the mindset needed for one or the other:
“While defense may sound like little more than trying to avoid bad outcomes, it’s not as negative or non-aspirational as that. Defense actually can be seen as an attempt at higher returns, but more through the avoidance of minuses than through the inclusion of pluses, and more through consistent but perhaps moderate progress than through occasional flashes of brilliance.”
So where do we stand today? In 2013, Howard Marks unequivocally stated “we’re in the middle.” The implication being that investors ought to balance offense and defense as that is what successful investors do in the middle. Roughly three years later, we wonder what Howard Mark’s assessment is of the current investment climate.
Howard Marks: Be Aware of the Temperature of the Market
Howard Marks is a keynote instructor at Latticework 2016.
I sat down for a wide-ranging interview with William Green, former Time editor and author of The Great Minds of Investing, in New York a couple weeks ago. William also worked closely with Guy Spier on Guy’s The Education of a Value Investor.
In our conversation, we touched on many aspects of what makes great investors different. We spoke at length about the lessons of Guy’s book. William also shared his insights into some of the investors profiled in The Great Minds of Investing.
Here is William on the role of luck in Howard Marks’ career success:
The cancellation of a dinner scheduled to take place in Gurgaon (New Delhi) serves as a stark reminder of the volatile political situation in many parts of the world. Imagine scheduling a dinner with a dozen fellow value investors in a Western city, only to have to cancel because the army was called in to put down a riot, resulting in the loss of human life. Surreal.
Yet, in countries like India, such a scenario is still not only a possibility but a reality. Writes Sourabh Soni, organizer of the value investor dinner in New Delhi:
…we are cancelling this event for tonight due to unavoidable circumstances (riots on the way from Chandigarh to New Delhi). I will publish the meetup for next weekend. Sorry for [the] inconvenience caused due to this cancellation. Regards, Sourabh
Sourabh followed up with the following message to me:
I have to cancel today’s dinner at New Delhi, because of riots… All buses and trains got cancelled. Army was deployed to calm down the situation, I think people got killed also. It is [a] protest against [the] reservation system. I will reorganize it next Saturday.
The #valueinvestors Meetup group has grown to hundreds of value investors in just a few months, and meetups are being organized by members all around the world. The MIT Investment Management Company recently hosted a dinner for a dozen fellow value investors in Mumbai.
In our zeal to meet fellow investors, learn, and share, we often forget just how fragile the world really is. This makes our engagement and our community even more important: We try to provide a space for learning and personal growth, no matter where you reside or what regime you live under. We believe that each human being has the capacity for greatness, and we are proud to contribute in a very small way to uplifting individuals, even if their own governments have failed them.
The world is unlikely to become less volatile and less dangerous any time soon.
We will keep uniting people around a positive mission of lifelong learning, personal growth, friendship, and respect.