“We always have a list of the best businesses in town. Imagine you’re in a Clint Eastwood western and you’re walking down the dusty road of an old mining town.  There’s the general store on the left and the saloon on the right.  And there’s a Wells Fargo there too, probably.”

Mike Winston, Sutton View Capital


 

Mike Winston and I recently enjoyed a conversation together in New York City on risk management and portfolio strategy.  Mike cut his teeth at Millennium Partners with a focus for nearly five years on arbitrage and special situations.  He launched Sutton View Capital in January 2012 and the advice below is terrific!

We always have a list of the best businesses in town. Imagine you’re in a Clint Eastwood western and you’re walking down the dusty road of an old mining town.  There’s the general store on the left and the saloon on the right.  And there’s a Wells Fargo there too, probably.   Imagine the town extends as far as the eye can see; there’s a thousand stores on the right-hand side and a thousand stores on the left-hand side.

 

Every day we walk down that dusty road and we look at each store.  Sometimes we get to walk into a store and buy a business is someone has has spent thirty years building and it’s immaculate.  Pay cable television, diamond rings, computer programming services…who knows what it is, but you go in and you think, ‘Wow, I would love to love to buy this business from this owner — but there’s no way he is going to sell to me!”

 

You can see where this analogy is going: it is the stock market.  I get to walk in and buy the store.  And I can buy the store for far less than the owner would ever agree to sell it to me privately.  That’s the beauty of the stock markets.  Our financial system and our legal system, when mixed with human misjudgment and fear, create incredible opportunity.  This specific analogy blends the concept of Mr. Market and my own thinking about the fact that there are about two thousand businesses that are liquid enough and big enough for a larger institution to buy.

(Slightly edited for readability)