Eyes on the (snow)ball!!
Like most people, I often get asked what I do for a living. The short answer would be, “I work in finance.” But the accurate answer would be, “I invest money for families and entrepreneurs with a hundred-year investment horizon.” More specifically, my goal is avoiding the risk of a permanent loss of capital while I compound (grow) that capital, with multiple generations in mind. A more vivid description comes from Charlie Munger, Warren Buffett’s business partner, who compares this kind of investing to rolling a snowball down a hill. The higher the hill, the longer the snowball rolls. And as it rolls, it picks up both size and speed. In other words, the longer slope (or investment horizon) nets you the bigger snowball (or investment return).
Investing made simple
Investing might not be easy, but it can be simple. The financial industry tends to overcomplicate what investing is all about, with its talk of alphas and betas, tracking errors, benchmarks, and volatility. Meanwhile, the theoretically perfect money manager would be someone who invests with no risk, and manages to track the market’s performance while at the same time beating it regularly! Obviously, that’s not possible: there are no rewards without risks, and there is no way to outperform the stock market without daring to be very different.
When you are put in charge of a significant fortune, you don’t think in terms of alphas, betas, and tracking errors. You have three most important questions:
—What do I do not to lose it all?
—How can I make it last?
—How will it grow over the long run?
This is where we at Sicart Associates can help. The renowned value investor Howard Marks says that “nobody can provide a rule that will work all the time; the best we can do is to supply a way of thinking that works most of the time.” What sets us apart as a company is that we don’t offer a product, but a way of thinking. We don’t see ourselves as a business, but rather a lifelong practice, serving our clients to the best of our abilities. What we provide is not a cost to bear, but an investment in our clients’ long-term financial success.
Our way of thinking
There are three pillars to the way we think about our clients’ capital. First, it is money they can’t afford to lose. Second, we have at least a hundred-year investment horizon. Finally, we choose our investments on the basis of value. It is important to us that we invest our clients’ money following the same principles that we employ for our own money. We eat our own cooking.
(1) Money we can’t afford to lose
If there is one common characteristic among our current and prospective clients, it is how they view their capital. To put it simply, it’s the money they can’t afford to lose. Whether it’s their lifetime’s savings or inheritance, it’s the most precious capital they will ever have because it is irreplaceable. For that reason, we treat it with utmost respect and care.
(2) The right goal, the right time frame
Even the right way of thinking isn’t enough without the right goals and the right time frame. As my dear mentor Jay Hughes writes in his book Family Wealth: Keeping It in the Family, “Families often fail to apply the appropriate time frames for successful wealth preservation.” As a result, their planning often proves to be too short-term and the goals too modest.
We at Sicart like to think in terms of at least a century. The familiar proverb “Shirtsleeves to shirtsleeves in three generations” exists across cultures, suggesting how universally family wealth is dispersed within that time span. Our generous ideal investing horizon allows us to prove the old maxim wrong. Our goal is to double our clients’ money over and over again. If we reach that goal every 5 to 15 years (which translates to 5%-15% total annual returns), our clients will do just fine in the long run.
(3) Pay less, get more
We make sure that our clients’ capital is gainfully employed at the most opportune time and at the most attractive terms. We do this – over and over again — by buying stocks for much less than they are worth. As Warren Buffett wrote in his Ground Rules, “I cannot promise results to partners. What I can and do promise is that our investments will be chosen on the basis of value, not popularity.”
Renowned value investor and CEO of Baupost Group Seth Klarman put it this way in a 2008 interview with the Harvard Business School Alumni website: “Value investing is intellectually elegant. You’re basically buying bargains. It also appeals because all the studies demonstrate that it works. People who chase growth, who chase high fliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline. Third, it’s easy to talk in the abstract, but in real life you see situations that are just plain mispriced, where an ignored, neglected, or abhorred company may be just as attractive as others in the same industry. In time, the discount will be corrected, and you will have the wind at your back as a holder of the stock.”
Our objective is not the right beta, alpha or tracking error. We simply strive to avoid the risk of a permanent loss of capital, while we compound said capital over multiple generations.
On a recent client call, as we were making our way through the biggest market sell-off in years, a longtime client made a comment that I’ve cherished. He said, “While others panic, you are doing exactly what you said you’d do.” As long as we remain disciplined, and stand by our way of thinking through the ups and downs of the market, we’ll be serving our clients well. We are not money managers only for the bull market, but for all markets, and for generations. We keep our eyes on the snowball, and we let it roll!
Published: March 18th, 2019
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.