Responsibly Lazy Shopping
Cover Story, by Mark Robertson, Managing Partner December 1st, 2010
We screen for the best companies. We screen for the best returns without getting too ambitious. Rinse. Repeat.
Some of you will remember our session with a guilt-ridden long-term investor and the couch (Beyond the Closet and Off the Couch, January 2006.) Can it really be this easy? This month, we start a three month perspective on performance starting with seeking the foundation of potential success and following up with a look at relative returns achieved by investment clubs. We’ll cap it with our Groundhog Gala in February. For now, we’ll start by focusing on MANIFEST Technology Manager Kurt Kowitz and his customary high ranking in the stockpicking contests where he nonchalantly engages.
Secret of Our Success? I have a feeling that Michael J. Fox in the role of Brantley Foster would have liked the notion of Occam’s Razor a lot. Sometimes the simplest solutions and shopping habits are the best.
A colleague once referred to what-we-do at MANIFEST as “responsibly lazy.”
At first, I was a little insulted and disturbed. He noticed my reaction.
“You act like that’s a bad thing. Think about it, Mark, MANIFEST deploys the key analysis milestones based on some time-honored principles. We do it without getting hung up on the rote aspects and we simply seek favorable opportunities. You cascade enough high-potential selections into the mix — and the odds are stacked in your favor.”
I shrugged. OK, but there are no guarantees.
“Absolutely. And we don’t expect them — not really, if you’ve been doing this for a while. But it’s hard to ignore the individuals and clubs who implement the process year in and year out and achieve relatively high results — whether it’s in winning those entertaining contests or achieving higher relative returns.”
Enter Kurt. He finished in 4th place in the recently finished NAIC Mid-Michigan Stockpickers contest. It’s not an unusual result and he doesn’t consider himself to be an expert investor. We notice other MANIFEST-based entrants (including clubs) achieving similar and routinely solid results.
“Every year I do a StockSearch — identify the five or six leading candidates — make sure that none of them are really negatively regarded by the CAPS crowd over at the Motley Fool. I submit the five selections and sit back and wait for the results one year later. It takes all of 5-10 minutes. I am NOT kidding.” When I say he’s a little nonchalant, it’s because his first priorities are his family (including a 1-year-old son) and keeping MANIFEST running cost-effectively. And he’s always exploring and seeking better ways to do things.
But not when it comes to overstudying investment alternatives. “Look, as you often say … we believe that George Nicholson was right … after spending years watching people do this stuff — I just think it makes a whole lot of sense to trust the process … and stay out of the way.”
Say That Again
Mid-Michigan Stockpickers Ken Kavula has been tracking the consensus results achieved by the participants in the Mid-Michigan chapter’s stockpicking challenge since 2002. This annual portfolio has beat the market benchmark every year since the contests began. Ken refers to the results as a monument to “combined wisdom.” I’d think the consensus favorites for this year’s fray shown here make for a source of shopping studies.
I’m reminded of a scene from the movie, Secret of My Success. In the movie, Michael J. Fox plays Brantley Foster. In a key scene, he says to the CEO’s wife, “Can I make personal observation?”
Vera Prescott: Um, anything but the thighs.
Brantley: You know, somebody sold you a bill of goods and convinced you you had to be 21 forever. I think you’re terrific; I think the only thing wrong with you is your husband is a jerk. You’re beautiful, you’re intelligent, you’re sensuous …
Vera Prescott: (Gasping) Say that again!
Brantley: Which part?
Vera Prescott: All of it!
There are days when I feel like our community has been sold a “bill of goods” when we’re led to believe that stock studies must be epic experiences of agony and confusion.
In that January 2006 cover story, we started out with exploring the foundation. We know that success is possible in long-term investing.
We know that discovering, studying and owning companies for extended (and profitable) periods is not only possible … many community practitioners experience success on a regular basis.
Saturday Morning
I attended an investment club meeting this Saturday morning.
Saturday mornings are important to me.
Rituals occupy an important place in our lives. One of the endearing features of monthly investment club meetings is that they encourage a discipline of regularity. Invest regularly. Monthly meetings reinforce. They make it difficult to ignore the prodding that we should regularly contemplate and explore our investment efforts.
Study. Build expectations together. Hold partners accountable. Partner to hold holdings accountable.
When I first started investing, one of my rituals was to make the sojourn to my local bookstore every Saturday morning. The itinerary included a stop for a cup of coffee and a saunter next door for that weekend’s edition of Barron’s. Like all newbies, I watched CNBC and checked my stock prices far too frequently.
On this Saturday morning, I spent some time witnessing. This particular club has a relative return of approximately 6% since its inception approximately five years ago. That’s right. This group has outperformed the market by six percentage points over a period of several years.
I wondered if they really understood their achievement? That performance is better than all but 4.6% of all domestic stock funds. (Source: Morningstar) Say that again. Which part? All of it.
Secret of Our Success?
There’s no such thing as an overnight success. Brantley Foster took two weeks.
In investing, we know that success (relatively better performance) takes time and that time is actually on our side. The more actuarial time that you have, the better.
In our November Round Table online discussion, I shared our Big Picture perspective, leading off with the phrase, “1. We’re in this for the RETURNS. 2. When in doubt, refer to Rule #1.” Following the session, I heard from a subscriber who shared, “Awesome reminder … say that again.” Hence the rekindled memories of Vera and Brantley.
During the first few months of 2010, we shared a series that itemized a number of incremental advantages that we have. The sum of these pieces of the puzzle (and how well we implement them) adds up to our collective potential for positive relative returns. Is there a secret to our success?
I don’t think so. But I believe that responsibly lazy shopping is a potentially large contributor. And our emphasis and unbending focus on return and the design basis of results-centered screening tools is a powerful foundation. Decades of time-honored results teach us that targeting the best companies and deploying patience and discipline to buy them when they’re really on sale (relatively high projected returns) is certainly a leg up. “Anything but the thighs.”
Kurt is not alone. We screen for the best companies. We screen for the best returns without getting too ambitious. Rinse. Repeat. Journey together.
Say that again. Which part? All of it.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.