Since I have been thinking and writing about how investors benefit from experience, a commodity of which I have significant quantity, I decided to review some other factors that might influence our investment results. That led to consideration of whether arguing with my partners about stocks has improved or hampered results. Even if I came to no conclusion, it was an interesting topic to explore.
Having spent over two decades at the mutual fund giant, Fidelity, I was raised on autocracy. What I mean is that, in those days, fund managers had complete authority and responsibility for the stocks in their portfolios. During my tenure on the Large Cap Fund, Destiny Fund and many sector funds, I had the final say on my positions, as long as I adhered to guidelines on elements such as cash and overseas holdings. I never remember having a debate or argument, at least outside of my own head, about whether I should buy or sell a stock once I had determined it was the correct move.
My despotic ways all changed in 2005, when we started our present company and intentionally built a portfolio that would be jointly managed by two of us. At first, my voice was louder and perhaps carried more weight, but over time, that disparity vanished. Now there are three of us, with the partner who is our director of research included in the process.
Does this structure lead to chaos and paralysis? Amazingly, it doesn’t. While it’s impossible to quantify the impact of our duo or trio management versus what it would have been for each of us individually, (and the IRA I inherited from my mother nearly 20 years ago, and manage very aggressively, doesn’t count) I truly believe our performance benefits from the team approach. The structure isn’t for everyone, but I think it’s good for us. It also leads to arguments.
Having more than one decision-maker can only work if the participants can handle the fights and come away scuffed-up but, basically, uninjured. As a non-contact sport, our debates must conclude with resolution, not knock outs; if not, we don’t buy or sell. Plus, it would be unfair, since I weigh half of what at least one of those two guys do.
The memorable arguments — and they are definitely memorable — involve either stocks or ideas that are controversial at the time or become so. BlackBerry, Lululemon, Charter Communications, Boston Scientific and Amazon come to mind. We argue about whether a current weak environment is fully reflected in the current price, potential market size for a firm’s products, growth rates, risk factors, how much to buy, when to sell and so many other things.
In the past few years, we had a long debate about whether Apple’s iPhone would succumb to the evils of maturity. While I was eventually right, I was three years too early and we fortunately held onto our stock.
I fought tooth and nail, and several models-worth, to own a small fallen, industrial stock called Harsco, because I believed the resumption of overseas manufacturing and construction, in 2015, would revitalize its business. After several impassioned efforts, and probably a threat to walk out, which seemed to have limited or no impact on my partners, we bought the stock, and it worked out very well. When I insisted that the decimated energy sector should be bought, my colleagues refused to give in, convincing me that the oil surplus would be a continuing drag through 2018. They were right.
There is a world of battleground opportunities, which, funnily enough, has made us more efficient. Since we all know the investing preferences of the other two and recognize that our triumvirate style yields solid results, we tend to pick those battles where we have some chance of winning. The effort also improves our debating skills, teaches us how to argue less offensively, and, to borrow the old Wonder Bread slogan, builds strong bodies 12 ways (maybe not that far).
Do I miss the old days, when I just entered those trades or called them into our trading desk, totally unfettered? I suppose, but I like to build a case, be challenged, win approval, learn something from the interaction and end with a consensus. Besides, who has ever made much money buying a stock when everyone agreed that it was fantastic idea?
When I look at our best buys and sells over the years, they were generally very tough decisions at the time, loaded with controversy, dissent and baggage. The fact that we arrived at the right choice makes the final effort a group win.