Performance put ahead of fund size
“We erred on the side of investment performance rather than maximising fund size.”
Business
Percentage and dollar gains are not equivalent
“Doubling a hundred dollars through stock picking is not economically equivalent to a ten percent gain on a thousand dollars, although the dollar profits are the same.”
The test for taking on more money
“The key ingredient for evaluating the case for taking on more funds must be that the incremental, new dollars do not inhibit performance in percentage terms for the first dollars.”
Commercial pressure favours bigger, slower funds
“The industry skirts around [new dollars inhibiting performance] and talks about relative performance instead, as commercial pressures encourage lesser performance on vastly increased pools than better performance on smaller pools.”
Two responses to the principal agent conflict
“There are two ways to approach [the principal agent conflict]: 1. maximise the conflict for the sake of maximising short-term agent revenues (standard industry practice), or 2. set about minimising the difference through behaving and thinking like principals.”
Good work takes care of the mortgages
“Our motivation is to do a good job. If we do that then the mortgages will take care of themselves.”
Comfortable travel crowds out thinking about destinations
“Travelling comfortably dominates people’s thinking when they should be thinking about destinations.”
Social proof plus envy breeds big mistakes
“Combine social proof with envy and the financial incentives available in the stock market and that’s a recipe for a sizeable mistake.”
Investors latch on to what is measurable
“In the markets, investors tend to latch on to what can be measured, aided by the accountants and to some extent by their own laziness.”
Decision trees with probabilities that change
“[Richard Zeckhauser] thinks via decision trees and attaches probabilities to the various branches. And as the facts change, change the probabilities.”
Valuing a company means weighing probabilities
“Understanding the value of a company involves assessing the likely outcomes given management behaviour and competitive forces and weighing the probable outcomes in a valuation.”
Getting rich slowly has gone out of fashion
“There is so little of [patience] about these days: has anyone heard of getting rich slowly?”
Imagined expectations create a dysfunctional spiral
“Few people honestly believe [quarterly reporting] is the right way to behave, but they think that is what is expected of them by others, and so a spiral of dysfunctional behaviour is established.”
Daily trading versus the permanence of equity
“Institutional investors have never really reconciled their ability to trade daily with the permanence of equity.”
Selling to hide analytical mistakes borders on fraud
“Being in the wrong stock strikes me as an analytical mistake, not a liquidity mistake (if there is such a thing) and hiding analytical mistakes through selling shares in my opinion borders on fraud.”
Good judgement with money means contrarian picks
“At its heart we are trying to be people of good judgement and do intelligent things with money and this necessitates that our stock picks are contrarian.”
Hunting for stocks everybody calls a bad idea
“The task in hand is to find some more ‘everybody knows that’s a bad idea’ stocks.”