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  • Writer's pictureChris Mayer

City Cinderella

Updated: Jan 15, 2020

I was flipping through my library of investing books, as I sometimes do, and I came across a book titled City Cinderella: The Life and Times of Mercury Asset Management, published in 1999.

I enjoyed the book and I remembered I wrote about it back in 2015. I thought I’d dig out that essay and republish it here. Besides having some funny bits, there is a lot of good investing wisdom in this book. Chuck Akre of Akre Capital Management recommended it to me, and I’m glad he did.

Here it is, with some minor edits. Hope you enjoy it!

Blue Monday

The market tanked in 1962.

From December 1961 to June 1962, the S&P500 lost 22% of its value. On June 5th – dubbed “Blue Monday” – the market had its worst single-day slide since 1929.

Volume was so high the tape – which showed stock market prices – lagged real-time by over two hours.

Peter Stormonth Darling was an investment manager at Warburg at the time. He strolled in to tell his boss, Tony Griffin, how the much the market had fallen.

“Tony sat back, paused to reflect a moment, and just laughed,” Darling wrote of the incident in his memoir, City Cinderella: The Life and Times of Mercury Asset Management, published in 1999.

He goes on to write:

“This was not because he had anticipated the crash or sold his own investments – he had not. It was his way of keeping the event in perspective. I’m sure it was the right way to act.

“It was a useful lesson and it helped me to view with some equanimity subsequent market collapses such as those in 1974, 1987 and 1998. Depressing as it is to stand by helplessly and see the prices of your shares tumbling day by day, the correct investment response to a market crash, I learned, is to do nothing.”

City Cinderella is a fun read and one of the best such memoirs I’ve read.

Darling was chairman of Mercury Asset Management from 1979 up until Merrill Lynch acquired it in 1992. It was, at the time, the largest acquisition of a fund management business ever. With a stroke of a pen, Merrill became the world’s fourth-largest active money manager.

Mercury itself was a big success. The stock, from the time it went public in 1987 to the buyout in 1992, was a 30-bagger. It generated a return of better than 20% annually and probably would’ve become a 100-bagger if left alone.

Darling comes to know a number of wealthy people, some who are also shrewd investors. He studies them, trying to discover their methods. He writes:

“These often amounted, I found, to no more than backing quite heavily a very small number of companies where they knew and believed in the top management, and holding their investment indefinitely, regardless of short-term fluctuations.”

Shrewd investing can really be as simple as that.

Summing up Darling’s philosophy:

· Set aside as much as you can for long-term investing in stocks

· Buy shares in a small number of companies in which you have great conviction

· Do not look at prices every day or every week – “you will only give in to fear and greed”

· As in collecting, buy the best – avoid the junk

· Only buy companies you can understand

· Hold indefinitely

And finally: “Do not worry about timing, currency, country, markets or even price – you will always have to pay up for quality. Thereafter, benign neglect is the best policy.”

I think of what John Rockefeller once said somewhere. He said that all the money he earned was not worth the many sleepless nights he endured. There’s something in that. Investing well is not worth sleepless nights and you may have to do what suits your personality.

But back to Darling… He also writes about his early days working for Siegmund Warburg, a fascinating figure of whom Darling paints a warm portrait. Darling tells a number of funny stories along the way.

One Warburg story: Warburg wanted to convince a certain executive, John Heimann, to join him. They have a meeting. During the meeting, his secretary pops in to tell him the chairman of the Bank of England is on the line. The conversation goes as follows:

Warburg: Tell him I will telephone him shortly.

Secretary: Oh, but he says it’s important, Sir Siegmund.

Warburg: Well, he may think it’s important, but for me nothing is more important than my discussion with Mr. Heimann.

Of course, Warburg and his secretary planned this little ruse in advance to impress Heimann.

Or this conversation, between Warburg and a client named Mrs. Abrahams:

Abrahams: “Sir Siegmund, you told me to invest in your new offshore fund ten years ago and I paid a price of $5 a share. Now the price is still only $5 – it’s very disappointing.

Warburg: “But my dear lady, if I’d known you were a short-term investor, I would never have put you into it.”

Mercury was once a subsidiary of Warburg’s. But it wound up being a much bigger success than its parent. Darling has a thoughtful chapter on the decline of Warburg, which a Swiss bank bought out for cheap.

One reason for its decline is worth sharing here: the insiders at Warburg didn’t own much stock. “While its executives were granted share options,” Darling notes, “their combined ownership of the firm was only about 1%. They seldom behaved like owners…”

This is a theme throughout the book: people work more effectively if they have “a meaningful stake” in what they do.

“They may not work much harder,” Darling writes, “but they really care about profits and the value of the business. They even start remembering to turn out the lights when they leave the office and they save the paper clips.”

In summary, there is a lot of good stuff in the book. If you like reading these kinds of investing memoirs, I’d recommend this one. (Hat tip to the great investor Chuck Akre, who told me about it.)

Thank you reading. More to come soon!


Published January 15, 2020

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