My Mount Rushmore of Investors
Mount Rushmore is an interesting idea. Originally schemed up to attract tourism to rugged and rural South Dakota,did you know it took over 14 years to build, starting in 1927?The premise is a shrine to democracy and the founding fathers who helped make this country great. We all should have our own pantheon of those we can reference and learn from—either dead or living. Let me introduce to you the four men on my “Mount Rushmore” of all-time great investors: Charlie Munger, Warren Buffet, Sam Zell, and Howard Marks. These men stand tall in the world of investing—not because of their net worth, but because how they played the game.
So:
· What can we learn from these giants?
· What common thread(s) do they share?
· How can we as investors avoid the fatal wipeout?
“When everyone is going left, I look right.”—Sam Zell
Mr. Zell is one of my all-time favorites. A real estate mogul who graduated from the University of Michigan, he got his start in student housing rentals while still in school. He graduated from law school but was making more money than the partners from deal making, so after ten months he quit and never practiced law again. His ability to see around corners has been uncanny.In the 1970s and 1980s he had the stones and foresight to buy mobile home parks and re-brand them as lifestyle communities. To this day, this asset is still his crown jewel. His quote reveals much on how the non-traditional investor thinks. He is usually buying when others are selling, and selling when others think the opportunity is a sure thing. What always impresses me about Mr. Zell is that he does not limit his experience only to real estate. He reads widely and is always listening to others. When the radio industry deregulated, he saw an opportunity to buy up all the local radio stations, achieve economies of scale, and then sell out to one of the big three news networks. We see this time and again in real estate. Rolling up the small properties, doing all the messy hard work in finding and acquiring, then selling up market to a bigger fish. The only difference is Mr. Zell became the big fish.
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you will get ahead, but not necessarily in fast spurts. Nevertheless, you will build the discipline to for fast spurts. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough, you will get what you deserve.”—Charlie Munger
I just love this quote from Mr. Munger. From an investing point of view, this reveals the patience required to find good opportunities and to complete the work to manage them. I think Mr. Munger is acknowledging how hard it can be at times. “Slug it out”—does that sound like the words of a jet-setting billionaire? I find it comforting, and to a degree, I believe Mr. Munger is right. If you live long enough, your character and decisions will produce their exact outcomes. If you are interested in reading more about Mr. Munger, I highly recommend Poor Charlie’s Almanac.
“Price is what you pay. Value is what you get.”—Warren Buffet
To me, the best part of the Buffet story starts when he teamed up with Charlie Munger. Buffet started out buying what he calls “cigar butts”—companies that only have one or two puffs of value left. In some cases he did well, and in some cases he did not. Enter Munger. Munger lives in California and lives a bit more flamboyant of alifestyle but has retained his Midwestern roots. The two fit like a hand in a glove. Through Munger’s influence, Buffet started to pay a fair price for great companies. See’s Candies was one the firstmajor purchases under this new paradigm. Geico Insurance came later. Both provided free cash flow to fund future investments. One of the defining characteristics of the Buffet style of ownership is that he seeks first class management. After acquisition, he keeps the core team on board to run and manage the company. This how his small office of 30 employees in Omaha controls hundreds of billions of dollars of companies and product. An often-overlooked characteristic was that he never stopped. Never stopped reading reports. Never stopped grinding. Most people let off the gas at age 50 with a billion dollars. Not Buffet.
“If we can avoid the losers, the winners will take care of themselves.”—Howard Marks
Howard Marks is the founder of Oak Tree Capital. He got his start in distressed corporate debt. In mind, the high point of Mr. Marks’ thinking came as the market heated up in 2006- 2007. Mr. Marks could find no opportunities to invest in and started to lose his investor base. As an allocator, this is a big problem. Then the financial crisis hit in 2008 and he watched prices fall to record lows. This washis decision-making process: “If you buy right now and the world ends—oh well, we lost everything, but so did everyone else. If you buy now and we are right, we will have bought at the absolute best time in history.” Wow. This is easy to say in hindsight, but when the world is melting down and historic financial institutions are going bankrupt, it is just flat-out hard to pull the trigger. As it turns out, Mr. Marks was right. It was the opportunity of a lifetime.
So what can we learn from these investors? And why does anyone care? The first common thread between all these investors is that they never got knocked out of the game. As Buffet is fond of saying, there are three Rules of Investing:
Rule #1: Don’t lose money.
Rules #2 : See Rule #1.
To take it one step further, the best investors had piles of cash on hand for the exact moment when no one else did.
A second common thread running between all three is their ability to wait. Do they miss out on opportunities? Yes; Buffet did not own tech stocks until the late 2010s. If I had to guess, none of the greats own Bitcoin—or certainly not when it was at $1,000. But over the long term, they have skipped the fabs, to zero in on value.
Which leads us to next question, “what is value?” Value can be a tough thing to grab hold of and is often only evident in hindsight. The real answer lies in experience, by looking at enough opportunities and enduring pain points in market cycles to develop a “gut instinct.” A battle-tested general with gut instinct is a tough combination to beat.
