Why you can still beat the street, even if you’re investing from Portage and Main

Being away from noise and pressure can work to your advantage, Larry Sarbit says.

Many investors and advisers, over the years, have looked at me like I’m not “all there” when I tell them our team works and invests from Winnipeg.

Sometimes, they ask twice whether they heard correctly.

The answer is, proudly, Yes. This is home.

The next question is usually something like, “How do you manage to do that successfully?” Let me try to explain.

I have been investing for various firms for almost 30 years this November. So, I have seen a great deal of change in our industry from a technology point of view over that time.

Thirty years ago, the power of the internet and its ability to transmit information was unavailable to the world. Back then, living in Winnipeg made access to financial information, shall we say, challenging. The Wall Street Journal (paper format) arrived at our doorstep, if you were lucky the next day or two days late.

Access to financial documents?

If you wanted a public company’s annual reports or news releases, you had to call (land lines only) to get in touch with investor relations and make a request for the material. Then, wait a week or two (sometimes even longer) as the material crossed the Canadian border where it often was held up for inspection.

There was no online access to quarterly investment calls by company management, or instant access to financial statements. No company internet pages with details about their business, presentations used at public events, archived meeting recordings and so on.

And yet, despite the slow dissemination of information, we managed to succeed. As any value investor would tell you, a worthwhile investment has two characteristics: It is a high-quality company trading at a margin of safety price. Such a corporation would be as worthy of purchasing a week from now as it is today. A two-day delay of the newspaper’s arrival made little difference. It is ultimately the quality of analysis and the philosophy followed, not the speed of information, which dictates long-term performance.

But how things have changed! Today, thanks to the web, all the above are now rapidly available. When a company releases its annual reports (10Ks), quarterly information (10Qs) and any relevant new information about the company, it’s posted instantly on the internet as well as on the SEC website. In Canada, we have SEDAR to get this data on publicly traded companies electronically, all readily retrieved on your computer, tablet and cellphone. Most companies, when they release earnings, have live broadcasts (on the web, of course) for all to listen to at the same time. In a relatively short period of time, I’ve lived from the media horse and buggy era to interplanetary travel in accessing financial information.

The questions we Winnipeggers get has changed from that earlier time. Back then, I would be asked: How can you compete with the Bay Street and Wall Street boys when they got all the newspapers in the morning and financial information shortly after release; way faster than you could, living out in the “Winter-peg”? That question has evolved to: how can you compete now that all this information is readily available to anyone/everyone at the push of a few buttons on their electronic devices? They argue that since everybody can have this information at the same time, doesn’t this instantaneous dissemination of data make the market and stock prices even more efficiently priced making your job of producing added value to your clients even more difficult?

Two examples of outstanding investors that have operated outside the physical boundaries of New York are Warren Buffett and John Templeton. Buffett, after working for Benjamin Graham at Graham-Newman Corporation, in 1956 returned to his hometown of Omaha, Neb., to start the Buffett Partnership. He had said that he didn’t like living in New York. His performance is of course, legendary, and has made him one of the world’s richest individuals — from Omaha.

Then there’s John Templeton, one of all-time great investors. After many years on Wall Street, he renounced his American citizenship in the 1960s, became a British subject and moved to the Bahamas, a Commonwealth nation that has long been a tax haven. According to Investopedia, when he was asked how working from the Bahamas affected his performance, he said his results were actually better: “When you’re in Manhattan, it’s much more difficult to go opposite the crowd,” he said.

The above are just two examples of that being “on the street” is not a necessary precondition for success as an investor. In fact, being away from the street — Wall or Bay — may actually be conditions that truly enhance the chance of outperformance. That physical space, distant from the hustle and bustle of these centres of the financial universe, may in fact give an investor a chance to “sit in a quiet room” where one can read and think on an individual basis.

The conclusion one might draw from this is that perhaps it’s not instantaneous access to information that makes for a successful investment strategy. Instead, it’s the opportunity to think without all the noise and pressure for short-term results. That, in combination with the right investment philosophy and discipline, is a much better recipe for success.

Financial Post

Larry Sarbit is the CEO and CIO at Winnipeg-based Sarbit Advisory Services. Sarbit is the sub-advisor on three funds for IA Clarington.