“Having missed most of the bull market over the past nine years, a great many investors have pronounced that we are now, at last, in a bear market. I do not know. What I do know is that our companies are doing better than I could have ever hoped, their current prices seem reasonable, and their futures look very bright.”
. . . Frederick “Shad” Rowe, Greenbrier Partners, June letter
Our friend Shad goes on to write in his June letter:
As bulls and bears battle it out, stock market volatility increases, rattling our teeth and shaking our brains, we go over again and again what we are trying to do. As we have repeated ad nauseam, we attempt to invest at reasonable prices in publicly traded companies that conduct their businesses better, faster, and cheaper than their competition and whose primary motivation is to do things for rather than to their customers. We also look for that something extra that sets our companies apart. That something extra is company culture.
Of interest is that in Shad’s “investment model” 95% of his portfolio is in just 12 stocks. We call that “concentration,” and I actually like concentration. Concentration is how you get rich! Diversification is how you stay rich. You can look at just about any billionaire and see that’s how they got rich, by being “concentrated” with their investments. My own approach to investing is actually quite simple.
Personally, I start with a base position of actively managed mutual funds, but not just any fund. The funds I want to own are the ones where I know the portfolio manager. Importantly, I don’t monitor the price of funds I own, except at tax time, because I’m confident over the long run my pal Tom O’Halloran at Lord Abbett, who manages the Lord Abbett Growth Leaders Fund, is going to make me money. A couple of other such names would be my friend Mary Lisanti, who manages the Lisanti Small Cap Growth Fund, and Amy Zhang, who manages the Alger Small Cap Focus and the Alger Small Cap Growth Strategies funds. If you want to be impressed, check out Mary and Amy’s performance year to date.
So, for my own investments, I start with a base of mutual funds, but because I talk to these boys and girls that have to put money to work, I hear a bunch of good ideas. Now in a past life I have been on a trade desk, a stockbroker, analyst, portfolio manager, director of research at five different firms, and the head of capital markets at three firms. Accordingly, when Ron Baron (Baron Capital and one of the best stock pickers I know) gives me an idea, I can spend some time on Factset looking at the technicals, fundamentals, ownership, etc. and decide if I want to start buying the stock. And that, ladies and gents, is how I attempt to add alpha (read: outperformance). As stated, my personal approach to investing is really simple, but it works.