The Battle of Thermopylae, dramatized in the 2007 movie 300, is the story of how a relatively small group of 7,000 disciplined Greeks in 480 B.C. held off a group of 100,000-150,000 invading Persians for three days. Due to the size disadvantage of the Greeks, their eventual defeat at this battle was inevitable. However, this group kept a calm head in battle while the Persian leader Xerxes was said to become so enraged by the delay these Greeks had caused his army that at the battle’s conclusion, he decapitated and crucified King Leonidas of Sparta, the fallen hero of the Greeks, elevating his status as a martyr. While the Greeks lost this battle, at the Battle of Plataea in 479 B.C. the Greek forces won the war. The manifestation of this Greek discipline was the Phalanx formation which lined up troops in close order to form a shield wall defense that marched forward using spears to take down any army in front of them. Given that the Phalanx was only as good as the weakest point, discipline was crucial to its success. This concept was later further refined and improved upon by the Roman legions that used it to great effect to build their empire.
May and June mark the end of another school year and the arrival of almost 20 college interns to Brinker Capital. These college students, the most successful not being strangers to discipline, have been exposed to the science of investing in their college courses but have come to Brinker in many cases to help fill the gaps regarding the art of how to identify good investment strategies. To help lay the groundwork for this understanding, we encouraged them to read Money Masters of Our Time by John Train, a book profiling 17 different investment managers of the 20th century.
While all investment managers have proven successful, there was no one right process identified. T. Rowe Price had a process of identifying leaders in very fertile growth areas and holding them long-term until they become mature businesses in a mature industry. Benjamin Graham on the other hand focused on systematically buying the stocks that were thrown away at less than two-thirds of their net current assets and selling once they returned close to intrinsic value. Warren Buffet took a Benjamin Graham initial approach to valuation but then overlaid it with attention given the quality of the businesses and patience to hold these higher quality companies long-term like T. Rowe Price. John Templeton brought a similar attention to valuation and patience but was more willing to go global to find his bargains. George Soros went global as well but speculated more than invested with much more frequent trading in an effort to time the market. This is just to name some of the “money masters” this book discusses.
It is clear that, although all of these managers have been very successful on their own, if hypothetically a super investment management team was able to be formed with these members, the fund would likely suffer from way too many and way too different processes. Like an army with too many generals, having more leaders is not always better. The only element that they seemed to have in common is the fact that they had processes in place that were fundamentally sound and that they stuck to in times of short-term market stress. Some ignored the market swings, some used it as buying opportunities, but all found success by putting their emotions in check when many market participants were caught up in fear or greed. In other words, they had discipline. Like a Roman Phalanx facing down an enemy, a steadfast commitment to a sound plan in the heat of the battle wins the day more often than not.
As such when we evaluate managers this is exactly what we look for. That is to say we need managers to have an effective, sustainable, and proven investment plan and ability to stick to the plan. Much has been made of how individual investors chase performance in good times and break rank at exactly the wrong time in times of stress. While very few of us will prove to be as successful as Warren Buffet, if we can all strive to at least have a plan and stand our ground to keep emotions out of investment decisions we all can be better off.