The following excerpts (of Q&A) were extracted from the Ruane Cunniff Goldfarb Investor Day Transcript. For those with a little free time, I highly recommend the reading of the entire transcript. These guys are masters at dissecting businesses and identifying the heart of any topic.
Psychology, Creativity
Question:
About 36 years ago, shortly before Benjamin Graham passed away, he did an interview for the Financial Analysts Journal…This is before the explosion of information, ETFs, mutual funds. Asked if he advised “careful study of and selectivity among” individual stocks in constructing a portfolio, he answered, “In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook ‘Graham and Dodd’ was first published; but the situation has changed a good deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in light of the enormous amount of research now being carried on,” — 1976 we are talking about — “I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent, I’m on the side of the ‘efficient market’ school of thought now generally accepted by the professors.” I’m just wondering if you would comment on that and how the investment industry has changed over that period of time.
Greg Alexander:
…I would add — that it is a funny thing — I have kids 14 and 11, and I think that the next generation will go about their decision making maybe differently than us. They have every expectation that they can go and spend an hour on the Internet and become semi-expert on anything that they are interested in, whether it is figuring out how to do a Rubik’s cube, which I remember looking at and not having the least idea. But with all the information, the timeless human struggle remains judgment, the ability to think long term when there are problems that are short term, and whether we see something solid where everyone perceives uncertainty — many factors of that nature. Looking in new areas where people have not thought so much, there are many factors like that, that are timeless. I always tell people there will be men and women on the moon but we still will not understand the guy next door.
Activism
Question:
Would you be kind enough to share with us the philosophy of some of your adventures in corporate governance?
David Poppe:
I think as we said in the letter that we wrote to clients a few weeks ago, the goal is really to own best-of-breed world-class companies and to be positive and passive shareholders. Ideally for us we are going to spend a lot of time on research on the front end. We are going to identify a business that we love and a management team that we think is really strong. Then we are going to make an investment. Afterwards, I would not say we are going to go away, but we are going to be quiet. We are going to own it and if we get everything right, we are going to own it for a really long time. Where you have to get involved, you really need sharp elbows and you need a different kind of personality than we have. It’s a different — I don’t want to say effort level — but different relationship…So hopefully we are not going to have a lot of adventures in corporate governance if we are doing our jobs really well.
Team Management
David Poppe:
We do allow the analysts to trade in their own accounts; they do have personal accounts. They can buy things that we do not own in Sequoia, but I do not think they do so often. The only time that really comes up is when Bob and I reject something for Sequoia and the analyst strongly believes that it was a great idea, and he did a lot of work on it and feels good about it. We think that is an appropriate outlet for frustration.