The Investor's Consigliere

A Little Self-Improvement from the Master and Others

From a WSJ article about getting rejected from your first choice college:

The truth is, everything that has happened in my life...that I thought was a crushing event at the time, has turned out for the better," Mr. Buffett says. With the exception of health problems, he says, setbacks teach "lessons that carry you along. You learn that a temporary defeat is not a permanent one. In the end, it can be an opportunity."

Charlie Munger Slate Essay

Charles Munger of Berkshire Hathway writes a sobering parable.  This may be the main disagreement between him and Warren Buffett.

Disclosure: Long Berkshire Hathaway.

Small Business Merchant Bank

The NYT has an article about Next Street, what it calls maybe "the only small-business merchant bank in the country."  I thought the article kind of muddled the definition of a merchant bank and left out some of the best history (see this Wikipedia entry instead), but it did use my favorite word.

Consigliere Case Study: Rodgin Cohen New York Times Profile

Read it here. 

Another Inductee to the Consigliere Hall of Fame: Paul McGuinness in the Financial Times

Paul McGuinness, manager of U2, has lunch with the FT. 

It's not pretty to survey the history of great rock stars and their managers.  There seems to be an almost perfect correlation between the greatness of the performer and the scumitude of the manager.  It's kept a lot of litigators in business.  And bankruptcy lawyers.  And drug dealers.  And psychiatrists . . .

But McGuinness seems to be the exception.  His longevity with the group, his sense of fairness, his psychological insight, and his business and investing acumen are the hallmarks of the great manager/consigliere. 

David Swensen Lunch with the Financial Times

Read it here.  Here is Swensen's distillation of the process of money manager selection:

Swensen says his criteria for selecting outside money managers are simple: “The most important thing is character and the quality of people. That’s also the second most important thing and the third most important thing. It’s everything.” Assessing character involves such deep background checks that, says Swensen, “Some of our managers will tease us about having tracked down their high school geometry teacher.”

Such basic research would have protected investors from the convicted fraudster Bernie Madoff, Swensen says: “If you sat down and had a conversation with him about his investment activities and couldn’t figure out that he was being evasive, shame on you.”

Il Consigliere di Tutti Consiglieri

A New Yorker profile of Niccolo Machiavelli.

The Artist's Consigliere

A WSJ profile of Frank Dunphy, who handles the money end of the Damien Hirst art empire.

Here's a good analysis of the economics of art galleries by Melik Kaylan, a WSJ arts and culture writer.  Like Buffett himself, he immediately zeroes in on the main questions investors must ask when evaluating an industry:  Who has "a good business" and why?  I wish that paper's business writers could evaluate businesses as well as he does.

Here's a Seth Roberts interview with a lesser-known artist who, like Hirst, has chosen to bypass galleries.

And finally, here's PE investor extraordinaire Luke Johnson in the FT, reminding us not to get too excited about contemporary art, as it's mostly a fraud and a gigantic bubble about to burst. 

By the way, I know nothing about art, contemporary or otherwise.  Felix Salmon, would you like to weigh in on all this?

Jeffrey Epstein: Member of the Consigliere Hall of Shame

Note to self:  Don't be like this guy.

The Thomson Family

Today's FT profiles one of my role models, Geoff Beattie, consigliere to the Thomson family of Canada.  The Thomson family is itself a model for families seeking to grow wealth across generations.  It started with Roy Thomson, the son of a Toronto barber who amassed a media empire (I remember a quote in which he described his method a simply "buying newspapers to make money to buy more newspapers to make more money . . .") worth about $300 million at the time of his death in 1976.  Even more impressive is what happened in the second generation, led by Roy's son Kenneth:  By 2005 the family fortune had grown another 100-fold, to $30 billion.  Now in its third generation, led by David Thomson and Beattie, the company recently acquired media giant Reuters.

Here's what stands out to me about how the family did it:

• First and foremost, it recognized the benefit of bringing in a consigliere, someone outside the family to help manage the family's wealth.  I know, I flatter myself and my consiglieri brethren, but it's true.

• The family are true principal investors.  When they invest, they take an active role, and for the long term.

• Responsibility for long-term strategy and capital allocation rests with the family investment company and not with the operators of the business.  This has allowed the family to act as open-minded "unsentimental traders of assets," exiting old industries and entering new ones when the circumstances called for it. 

Let me expand on this last point.  Capital allocation decisions,  over time, determine the rate of growth of your wealth more than anything else.  Capital allocation doesn't just mean buying and selling businesses or parts of businesses (i.e. stocks), it also covers dividend policy and capital expenditure decisions.  You have a business that makes money--what do you do now?  Do you give it to yourself to spend?  Do you reinvest it in the existing business?  Do you buy a new business?  Do you sell the existing business, which effectively brings its future profits into the present?  These decisions over time make the difference.  Compare the behavior of a capital allocation exemplar like the Thomson family to that of two other newspaper families:

1. The Bancroft family of Dow Jones and Wall Street Journal fame.  By the early 1980s this company bestrode of the world of financial information like a colossus.  It literally had a hammerlock on delivering information to consumers of information about US business and finance.  But its founding family was large and scattered and rich and comfortable and loved its dividends, which allowed a young upstart with a funny name to start a company dedicated to a new kind of financial information delivery.  That company became Bloomberg. 
2. The Sulzberger family of the New York Times.  In 1993, when the newspaper business was still good but not as good as it once was, it purchased the Boston Globe, essentially doubling down on an industry about to go into decline.  Its decision to build a shiny new headquarters building was another capital allocation decision that likely won't look so good in a few years.

The Washington Post, on the other hand, was smarter, more in the Thomson mold.  Its founding Graham family, Katherine then her son Donald, it never overpaid for hot cable and other media properties, and diversified away from newspapers into the Kaplan Education company. 

Then again, the Grahams benefited from the consigliere of all consiglieri:  Warren Buffett himself.