KNOWING WHAT YOU DON’T KNOW HALF THE BATTLE, WRITES LARRY SARBIT IN HIS NEW COLUMN.
As I begin to write for the Post after a long absence, I thought it might be a good time to give you some background on my firm, our philosophy of investing and what my main objective is in writing this column.
I have been working in the world of finance for almost 40 years, the first eight with a major Canadian brokerage firm and as an equity investor for the last 32 years.
Sarbit Asset Management was founded in 2005 as a mutual fund company. In 2008, we sold the mutual fund division to IA Clarington and continued on exclusively as an asset management company — Sarbit Advisory Services Inc. (SASI) as an exclusive sub-adviser to IAC. At SASI, investing is a continual learning process. After all these years, we still are prone to making mistakes, though the good news is that we believe we have been able to make fewer errors with the benefit of experience over the years.
My desire, if I can be so bold, is to pass along some lessons I have learned over time of both mistakes and successes that will aid you in your own individual investment actions and decisions. If I can help you avoid making big blunders along the way, I will be most satisfied.
Warren Buffett, Charlie Munger and Benjamin Graham have figured prominently in our investment style. I will quote them (along with other great minds from the world of investing) often in my articles. Don’t be surprised if Mr. Buffett’s words of wisdom are featured frequently: First, because they are filled with common sense (although the practice of his recommendations remains extremely uncommon); and second, because his teachings, when applied to investing, have made him one of the world’s richest people. If you’re going to copy someone’s behaviour and philosophy, you should pick one that has worked. Before we get to some of the insights we hope you find useful, let’s start with the things we are sure we can’t do very well.
(As J.K. Galbraith said, “We have two classes of forecaster: those who don’t know — and those who don’t know they don’t know.”)
To begin, we can’t predict bigpicture economic trends on a short- to mid-term basis. And we don’t believe there are any individuals that possess that crystal ball. Mr. Buffett has said, “You have all these economists with 160 IQs that spend their life studying it, can you name me one super-wealthy economist that’s ever made money out of securities? No.” He has also said, “Any company that has an economist certainly has one employee too many.”
We are unable to tell you what interest rates will do, again on a short- to mid-term basis. I doubt whether anyone back in 1982 would have been able to predict that 10-year government treasury rates would have gone from a high of mid-teens to 2.93 per cent today. As well, I don’t think anyone can predict this statistic going forward.
We can’t tell you where the stock market levels will be in a year or two. And again, we don’t believe anyone can do this on a consistent basis. Perhaps the most infamous prediction regarding the future of the stock market ever made was by economist Irving Fisher, one of the first “celebrity” economists, who stated on Oct. 17, 1929, that “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 40- or 60-point break (below) present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months.” He made this statement days before the stock market crashed, ushering in the Great Depression.
So, many of you by now may be asking yourselves: “What exactly is it that you do? If you can’t accomplish any of the above tasks, what value do you believe you actually will bring to my understanding of equity investing and why should I waste any time reading what you write?” Very simply, we believe that purchasing high quality businesses (we’ll define those characteristics over the next several articles) at discount, “margin of safety” prices is the best way to maximize long-term returns while minimizing down-side risk. These enterprises will succeed regardless of the unpredictable macroeconomic circumstances which arise.
What we believe we are able to contribute is to first and foremost demonstrate how to behave as rational business owners. We see our role as selecting individual companies based on their ability to grow in value in a predictable, meaningful way by choosing best-of-breed enterprises at bargain prices. We perceive publicly traded companies in the same way we would think about buying an entirely private company. And, as most owners of private businesses, we view our investment horizon in these public equities over the long term. Again, Mr. Buffett sums it up, asking, if they closed the stock market for five years, and you were locked in the ownership of a publicly traded company, at the end of that time, would you be happy?
If we can give you that different, rarely followed long-term view of equity ownership, we think we will have accomplished something of value for you. Welcome aboard!