In Search of Permanence
As we close one year and excitingly unwrap the new one, it’s an interesting moment to look back and look ahead. In life and investing, there are at least two categories of events and experiences. The first one, the more desirable, is that one we would like to keep forever. It could be a perfect sunset walk or this incredible investment that continues to surprise us on the upside. The other one, the unwanted one, could be that dream trip that turned bad or this lemon of an investment that we can’t sell fast enough. In the first days of 2021, we might be all thinking about how we’d like the COVID reality to be behind us and see it turn into a fading memory as fast as possible. We also realize what we would like to keep forever, what we cherish, and what we value. It’s the latter that sends us on a path in search of permanence.
During my extensive research for my second book: “Money, Life Family – My Handbook: My Complete Collection of Principles on Investing, Finding Work-Life Balance, and Preserving Family Wealth,” – I found a recurring theme across history and around the world: change is the only constant. I wrote about the oldest active merchant bank—Berenberg Bank. A publication that tells its story is aptly titled “Change Is the Only Constant: Berenberg, a History of One of the World’s Oldest Banks,” written by Clarita and Hartwig von Bernstorff. As with many of my sources, I was lucky to find a rare preowned copy and have it shipped from Europe. In my book, I shared: “This Hamburg-based bank was founded by a Flemish family in 1590 and is part-owned by its family members to this day. It represents a big part of European economic history and is a testament to the importance of endurance.”
Berenberg Bank’s story is more of an exception than a rule when it comes to business, family fortunes, and investment firms. Over time, businesses shrink and disappear. Family fortunes come and go within a generation or two. Investment firms rarely stand the test of time. Constant change makes our pursuit of keeping and growing family fortunes exceptionally interesting but also challenging.
If I were to summarize what our stock picking, managing family fortunes, and running an investment firm have in common, it’s the search of permanence. We want to make investments in businesses that will last forever, we want those investments to grow our clients’ family fortunes forever, and we want our business practice to serve our clients forever.
We are not the only ones who realized that change is the only constant, and we are not the only ones in search of permanence. A few years ago, Amazon’s founder Jeff Bezos famously shared the following with his employees: “One day, Amazon will fail, but our job is to delay it as long as possible.”
Every day, this mindset influences all three aspects of what we do, and comes a full circle: from choosing an individual investment, managing family fortunes to running an investment practice.
When we pick an individual investment, it has to pass several tests. The endurance of the business is the most important one. As long-term investors, we buy stocks for their earning potential (growing, and lasting cash flows) rather than a short-term price movement. We believe that investors hold companies for their cash flows, speculators for their price movement. If the cash flows are high and growing, we’d like to see them continue as long as possible. If a business does well, we believe that the price will follow. If a venture has no positive cash flow in sight, we are not interested.
In our August 2020 article – Future-proof portfolio, does it even exist? We wrote: “Did you know that among the 30 components of the Dow Jones Industrial Average (one of the oldest and best-known indices), only three companies have been members since before World War II? Meanwhile, 24 out of 30 have joined the index in my lifetime (in August, I was just a few days over forty). 10 out of 30 have joined the Dow Jones Industrial Average since I started my career in 2005, including today’s market darling – Apple. If it retains that pace, the Dow will have refreshed completely during my lifetime within the next five years. Clearly, it seems the odds of any large company remaining successful for three to five decades is very low.”
Permanence is not a given in business; quite the opposite. Every business eventually matures and starts a slow or quick demise. It poses a great challenge for investors, but an opportunity for active managers to really shine.
Individual investments take on a role in the bigger picture. As we manage family fortunes with the intention of keeping and growing them over time, we have to structure the investments in a certain way. We see those selected holdings as portfolios with a clear objective and investment horizon.
In our June 2020 article – How do we win a game that has no end, we wrote: “What if we saw ourselves not as winners or losers, but builders? What if we saw investing not as a game of making or losing money, but building wealth for ourselves and for generations to come?”
We further added: “Stock investing, as we practice it at Sicart, is the ultimate infinite game – infinite investing. The goal is to keep growing wealth managing family fortunes over generations. The resource (i.e., a family fortune) is irreplaceable. Once it’s lost or spent, the family has to drop out of the game, and our clients would no longer be able to participate in the future investment success of the great economy around us. If the primary objective is to be able to keep playing, and the only way to keep playing is to have the resources to do so, not losing it all takes priority over everything else.”
That’s how we look at family fortunes: an irreplaceable resource with an infinite time horizon. It changes completely how one thinks about the returns we’d need to chase and the risk we’d be willing to accept.
When we embarked on our adventure of starting an independent investment practice over four years ago, we wanted to build something that would last forever – something permanent that could outlast us all. We spent a fair amount of time choosing the right technology to make our work easier and more efficient. It is that technology that helped us smoothly transition to 100% remote work in March 2020. In the words of the best-selling author, Nassim Taleb, it made us more “anti-fragile.” It all might have started with selecting all the building blocks of an investment firm that went far beyond that.
All the tools we use enable us to conduct our business in the best way we can. However, what has the highest value in what we do is the most intangible of things – a personal touch.
In a recent article, we wrote: “It may seem that there are many options and many experienced and skilled professionals out there to choose from. When we look a little closer, though, we quickly realize that we come across one-of-a-kind practitioners. They found their true calling and know how to take care of their clients with a personal touch. It’s been an eye-opening and refreshing experience to work with so many beautiful businesses all around this year. It made me wonder what we can do to cherish further and nurture the personal touch that we aspire to offer here at Sicart Associates.”
Our other great intangible advantage comes from an intellectual heritage, the history of mentorship, which dates back at least 50 years, and possibly a lot more – with generations of trusted investment advisor mentoring the next generation, passing on their legacy, wisdom, experience.
I had the pleasure of writing a contribution to François Sicart’s – my mentor’s and partner’s upcoming book. I reminisced about our first meeting: “In many ways, our fortunate encounter in Paris, days before Christmas in 2004, had significant parallels with him meeting his own mentor, boss, and partner, Mr. Christian Humann, whom he had met back in 1969, one-third of a century earlier, days after one of the biggest blizzards New York City had ever seen forced the closure of the New York Stock Exchange, the first time such a closure happened due to weather.”
I further shared: “Though I never had a chance to meet Mr. Humann, I feel I have had the pleasure of getting to know him through stories. And I had the honor of sitting at his very desk that later François used and so generously allowed me to enjoy these last few years.”
I finally concluded: “That’s the kind of longevity and endurance one could only hope for in the investment profession. I am privileged to benefit from the intellectual heritage that dates back many generations, possibly centuries, a legacy of loyal, dutiful keepers of family fortunes for which we continue to care.”
Amazon’s Jeff Bezos shared a long time ago: “I very frequently get the question: “What’s going to change in the next ten years?” And that is a very interesting question; it’s a very common one. I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection.”
We strongly believe that as much as everything around us seems to change constantly, we, humans, don’t change: our needs, aspirations, fears typically remain the same.
We may end up selecting an ever-changing variety of holdings over time. We may end up building portfolios around different stocks, possibly owning more asset-light, asset free, or office free businesses. We may end up working remotely instead of from a traditional office. We accept that change is the only constant, but it doesn’t stop us from our ultimate goal: the search of permanence.
Have a Happy, Prosperous, and Peaceful 2021!
The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
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.