Focusing on facts, numbers and things you can measure is deeply engrained in most investors´psyches. But largely neglected is the equal importance that your portfolio also reflects your values and beliefs around businesses, how the equity market functions and the impact of valuation. And last but certainly not least, that your investments are based on your personal strengths and weaknesses.
A person that is slightly impatient, with a knack for seeing trading patterns and that can easily change his or her mind is perhaps better suited to run with a more short-term focused approach. On the contrary, a person who prefers to analyze companies, is equipped with some degree of patience and yearns for opportunities to go against the tide might be better advised to invest in a select number of businesses with a long term ownership. At D&G, we squarely belong in the second camp. But the point is not to extoll that camp´s virtues, rather to emphasize the need to have personality and approach joined at the hip. There are more than one road leading to Rome (a.k.a. “alpha” in the world of investing), but there are no successful travel paths in between those roads. Just ask Peter Lynch, George Soros, Peter Cundill or Tom Gayner. All brilliant investors but in totally different ways. What unites them – apart from their outstanding track records – is the fact that they did not change their investment process as soon as they hit a rough patch. Quite the opposite, they grew in strength thanks to their personal conviction in their investment beliefs. Compare that to somebody that “invests” to live another month.
One of the more personal matters within investing is whether it is a good idea to meet with management. Some people believe today´s corporate executives are too rethorically skilled and devoid of any ability to say something useful due to strict insider information regulations. We have full sympathy for that view but just as watching the game from your couch might actually be a better and more comfortable viewing experience, we believe that there are still gains to be had from visiting the “stadium” and seeing the “players” close up. Despite the occasional blinding experience from a sweet-talking CEO. Why? Simply because of our long term ownership attitude, over which time-frame it matters dearly who the leading people are. And most times pure excellence really does shine through. Seeing Colin Day, CFO at Reckitt Benckiser, in their nondescript Slough headquarters ten years ago, was one such experience. Knowing where to set the bar (i.e. Tom Gayner high) hopefully helps you separate the raisins from the turds. And what would IKEA be without Ingvar Kamprad, Copart without Willis Johnson or Brookfield Asset Management without Bruce Flatt? Other examples abound, of course. Most people (outside of Canada and Battery Park) have never heard of Bruce Flatt. But the fact is that he has built BAM into one of the finest asset managers around with over $250bn in assets under management, primarily in real assets. The attributes making this possible go far beyond the one quantifiable – IQ (which is high enough, it seems) – are all very personal, and ones we try to seek in all leaders: down-to-earth, integrity, meaningful equity ownership, high level of engagement in daily activities, the creation of a strong corporate culture in an organization that to the best of our judgement seem to be one based on more trust than fiefdom-building. These persons and corporations are rare birds, but when you do find them you want to partner up for a very long time. To meet with them is a chance to add to the profile built up via presentations, annual letters to shareholders, interviews and conference calls, and could be the decisive piece of the puzzle.
How did we come across Brookfield and Bruce Flatt? Many years ago we discovered that a fellow Swede was on the board of a Brookfield subsidiary. After some further digging their relationship could be traced back to the early 1980s when he served as Bruce´s broker to the family office Bruce ran at the time. Intrigued, we interviewed several people about how BAM was created, becoming very impressed along the way. Our minds were primed! A few months later we read an interview with Michael Shearn (in a Beyond Proxy piece on Investment Checklists), which among other things talked about great leaders.
We look for first-class managers. Now within that group there’s some that just stand out. You can look at Bruce Flatt, the CEO of Brookfield Asset Management[BAM] as an example. You ask him what his hobby is and it’s collecting shares of Brookfield. He’s never sold any shares. We looked at his personal lifestyle, it’s not changed. He owns the same house he’s had in New York, or same apartment, same one in Toronto. Money doesn’t mean very much to him yet he’s worth half a billion dollars. You could look back at his decisions. One thing again with Factiva, you get a lot of articles and how he acted in certain situations. On September 11th, when the twin towers fell, Brookfield Properties owned the four World Financial Center towers around that and they were damaged. What Bruce did the day he heard of it, he got in a car and got down to New York, and started managing from the field. Basically figuring out what is going on with the buildings, they were saying they were structurally damaged in the news and he went in there and checked it out for himself to see if they were. Then they had some subsidiaries that provided plywood and certain materials, and he had those shipped immediately so that they could get their tenants back up and running. When you read stories like that you know you’re dealing with a first-class manager. They just pop to you, and it’s rare when they do.
In subsequent meetings with BAM we learned that several of the subsidiaries sold these materials at a hefty discount or in some cases gave them away. Many of their tenants were also small entrepreneurs and later expressed their huge gratitude towards Brookfield and how important it was to get their “homes” back so quickly in order to regroup and find a meaning in life and business again. To go beyond “caring for the client” and running the extra mile is another trait that seems to be part of these leaders´ DNA. Today, BAM is the largest property owner on Manhattan and the area around Battery Park has been named Brookfield Plaza.
Finally, who are some of the other leaders we have met that have created the most lasting impression on us? These are a handful of the ones we believe have made the difference between good and great, both during their active era but also far beyond that. As Jim Collins wrote in his insightful book: a great leader is not somebody that tells everyone what the time is, they install a watch on the wall.
- Bart Becht, Reckitt Benckiser (England) 1988-2011
- Jim Craigie, Church & Dwight (USA) 2007-2016
- Thomas Gayner, Markel (USA) 1990-today
- Johan Molin, Assa Abloy (Sverige) 2005-today
- Yukihiro Ando, USS (Japan) 2006-today
This text has previously been published in Swedish on www.didnergerge.se