If you don’t know the jewellery, know the jeweller. – Anon
An earnest MBA student once asked me for the secret to choosing the right interest rate to use in a discounted cash flow model. He was clearly agonising over this question. I wished I’d answered, "It’s always the humans!" Instead, I smiled politely and thought to myself, that’s not the right question. Yes, investing is a maths exercise. Price sensitivity is crucial. But because we’re looking into the future and trusting people to make good decisions on our behalf, we absolutely have to choose the right people and cultures.
If we recognise that portfolio performance is usually driven by a relatively small number of long-term winners, and that these winners most often are run by passionate managers, often founders or a second generation with a deep-rooted interest in the success of their offspring, we must then redouble our efforts to find more of this type of company. The market will occasionally give us an attractive price on a great business that is, nevertheless, not run by a founder or an unusually entrepreneurial leadership.
We’ll go where we find value. But we will gravitate back to the fields where we’ve enjoyed the most success. We are never inclined to compromise on management quality. Peter Lynch once said he wants to own businesses that could be run by an idiot, because one day most of them will be. We feel differently: when mediocrity rises to the top, it’s time for us to go. — David Poppe
When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever. A market downturn doesn’t bother us. For us … it is an opportunity to increase our ownership of great companies with great management at good prices. — Warren Buffett