Letters to Our Clients
The first time we meet with an individual or couple to begin discussing their investment needs, more often than not they will say something along the lines of, “we should understand this stuff better, but we don't." People across the board, regardless of age, amount of savings, or professional expertise, are embarrassed that they aren’t also investment experts. This is despite the fact that unless you've gone to college for it, you likely received no teaching on the subject in school. If you are lucky enough to be employed by a company that offers retirement benefits, what should be an educational workshop or handout introducing you to their plan instead ends up being a confusing, and often times worrisome, reminder that you weren’t taught any of this stuff in school.
What we can learn about the current state of our economy by traveling and visiting with others outside of our home turf is amazing. For many of us in the investment business, our view of the economy is easily warped by statistical reports and interpretations prepared by professional economists. Even when we do leave our home turf, we often end up somewhere visiting with other individuals who see society through our same set of rose colored glasses. Yet we know the 325 million citizens of the US, from the rich to the poor and all those in-between, are the ones who produce the wealth of this nation.
Getting out and listening to others’ life stories can teach us more about our economy than graphs, statistics and opinions. It can also add to our faith that there is a positive future for all. So I want to share with you the stories of a paint salesman, a widow on disability, a valet, and a veteran.
Boeing, From Purchase to Sale: A Value Investor’s Exercise of Patience, Discipline and Risk Reduction
From the time I was a little tyke, I knew the benefits of having cash available to make a purchase. With it I could easily buy something under very favorable terms when others were in desperate need of that cash. Maybe that drive to make a purchase at a bargain price is in my DNA, or it might just be from following my Mom around to all the yard sales in town, watching as she bargained to save a nickel. So it should be no surprise that when I discovered the value approach to investing it felt right in every way. Buying a small ownership in a business, via the public securities market, at a price that was less than the value I could reasonably place on the entire business just made sense to me.
In a conversation with the master jazz musician and Pulitzer Prize-winning composer Wynton Marsalis, he told me, “You need to have some restrictions in jazz. Anyone can improvise with no restrictions, but that’s not jazz. Jazz always has some restrictions. Otherwise it might sound like noise.” The ability to improvise, he said, comes from fundamental knowledge, and this knowledge “limits the choices you can make and will make. Knowledge is always important where there’s a choice.” - The Art of Choosing, Sheena Iyengar
In one of our meetings, Justin asked a question of me. He said, “Why is it that the only investment managers telling people to be careful are old timers like you? Jeremy Grantham of GMO, whose seven year forecast is negative in all asset classes other than emerging markets. Howard Marks, whose most recent memo “There They Go Again…Again” strongly suggests people be cautious in their investing today. John Hussman, who has been screaming at the top of his lungs about the “overvalued, overbought, overbullish” markets. Seth Klarman who, at least from what we hear, is sending money back to his investors due to an absence of good opportunities. And finally Warren Buffett, the most recognized value manager in the world, whose Berkshire Hathaway is holding billions, not because he wants to sit on the cash, but because like Klarman, he is struggling to find options available at a reasonable price to purchase.
Most of us believe that experience in an occupation, measured by time spent on the job, leads to higher productivity for the employer and greater income for the employee. I agree that this belief holds true for most occupations. However, I disagree when it comes to the business of providing investment advice. In this business, the best experience is gained when an advisor’s own wealth is at risk, and his or her decisions are measured by personal dollars gained or lost. While it’s always good to be right about your investments and make money, the most valuable knowledge is gained through the experience of being wrong.
Kendall J. Anderson, CFA