The enrollment of the crew, maneuvers on the deck and the grub in the back of the hold, or how we work and make our decisions.

Enrolling the crew.

A management team is above all a collection of individualities. How do we choose them? Let’s listen to the good advice of Michael Mauboussin, in an article published by CSFB (A process for outperformance, Thoughts on Organizing for Investment Success):

In a classic article, the former president of Merril Lynch Asset Management supported the idea that in order to obtain superior performances in investments, managers needed to be creative. He suggested that creative people are:

- Intellectually curious

- Flexible and open to new information

- Able to recognize problems and define them clearly and accurately

- Able to put information together in many different ways to reach a solution

- Antiauthoritarian and unorthodox

- Mentally restless, intense, and highly motivated

- Highly intelligent

- Goal-oriented


If we add to this list intellectual honesty, fundamental for knowing ones limits (the famous circle of competence) and admitting one’s mistakes, we would have essentially the portrait of Warren Buffett or of Georges Soros… We are still away off, but making progress. For new playmates who could team up with us (and boost our level), we count on following Buffett’s recruitment advice:

“Look first for someone both smarter and wiser than you are. After locating him (or her), ask him not to flaunt his superiority so that you may enjoy acclaim for the many accomplishments that sprang from his thoughts and advice. Seek a partner who will never second-guess you nor sulk when you make expensive mistakes. Look also for a generous soul who will put up his own money and work for peanuts. Finally, join with someone who will constantly add to the fun as you travel a long road together.” (Extract from the foreword of Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger)

We do everything to find new “smarter and wiser” partners, who are not too arrogant, and with whom we take pride in sharing our long trip to Buffettville. As far as the peanuts, we haven’t decided yet if it is a good technique.

Everyone on deck ! Or how we organize our teamwork

It is fascinating to see how much better the results are when teamwork is involved. Take a look at some of the (old) memories of one of our managers:

“I remember my first hours at the ESCP (The European School of Management)…a class on teamwork, the game “Moon Crash”. You have thus, crashed onto the moon and you have a list of 10 articles that you can bring with you to rejoin the closest lunar base. But you cannot bring everything and you need to organize these articles by importance. In first place, the oxygen tank, good job. But what about the pistol? You make an initial ranking, alone, and you turn it into your professor. Next you redo the same activity with one of your classmates then you redo the same thing in a group of three, then four and so forth up to ten. The results inevitably stupefied me. The best scores were systematically produced by the groups of 3 or 4 people. The worst by the groups of 10 and by the individual students (the pistol helps go over crevasses: a little jump, you fire and you are projected in the opposite direction, you need to have thought of this, it was therefore not number 10…)”

Surprising isn’t it? Therefore if mathematically we could better our performances, it would be a shame to deprive ourselves. We still need to organize our teamwork well if not we could quickly arrive at a soft consensus.

Teamwork: a bad idea that works

In the stock market, good ideas are by definition those which you would have trouble convincing others. A share is undervalued because the market hasn’t realized its full potential. If you manage by consensus, as part of a team, as on the moon, it will be impossible to convince the entire management committee of a controversial idea. On the other hand, to buy at the highest, something everyone already understands, works the best.

So how does one take advantage of a good team dynamic? We found the start of a solution by listening to the great masters of the field, namely the famous Capital Group (1).

Imagine that you are a portfolio manager and that each week you can have lunch with the Paris’s top five managers. These brave people will explain to you what they are in the process of buying, why they are doing so, their information sources etc. After lunch, you return to the office, and there, you do as you please. You could follow your friends and buy the same shares, or do nothing. This is the way things work at Capital. For more than fifty years, they do lunch, share ideas and beliefs amongst managers, return to their offices and do as they please. The best ideas are shared, debated and critiqued, often with vigor, but the initiative and creativity of one another is not hindered by a committee of soft consensus. With no shame, we have put in place a similar system. The assets of you Sextant funds are divided among several sub-portfolios, each being managed in an independent manner by one of the managers of the team. There is a lot of discussion, sometimes voices are raised, and criticism is mandatory. Certain people (2) enjoy taking advantage of their colleagues’ ideas, but don’t like too much contradiction.

We all love competition and everyone wants to be first. We also love making money and helping you make money and each of us hope that the other produces great performances.

1) « No investment organization in the world has ever done so well for so long for so many clients as The Capital Group Companies. It is one of the world’s largest investment management organizations, consistently earns the admirations of clients and competitors, and decade after decade achieves superior long-term investment results” (in “Capital, the story of long term investment excellence” de Charles D. Ellis).

(2) Often alumni of ESCP

© Amiral Gestion
Warning: The performance data featured represents past performance, which is no guarantee of future results.
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