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  • Chris Mayer

What's it all about?




Before I start posting regularly, let’s get the preliminaries out of the way and answer a couple of questions you might have: What can I expect to find on this blog? And what’s the story behind Woodlock House Family Capital?

Here’s what you can expect to find on this blog:

* Stock ideas and thoughts on investing.

* Travel notes from conferences, meetings, etc.

* Book reviews on investing or related topics.

* Essays about whatever interesting/helpful ideas/people I come across.

In short, I’ll be writing about the same kinds of things I’ve been writing about for years in my newsletters and books. The key difference is now it’s free.

I’ll also use the same investing style I’ve long summed up with the acronym CODE:

C is for “cheap.” The basic idea is to buy a business at a sizable discount to the sum of all the future cash flows it will ever give us shareholders. There is a lot in that what this means, but we’ll leave it for future posts. Suffice to say, I like to buy things on sale.

O is for “owner operators.” If I’ve learned anything in my long business career, it is that incentives matter. There is no substitute for ownership. I like stocks where the people in control have “skin in the game.”

D is for “disclosures.” As an outside passive minority investor, I rely on a company’s public filings. So, I want to invest in businesses I can understand with adequate public disclosures.

E is for “excellent financial condition.” In my experience, my worst losses have always come from companies with weak, over-leveraged balance sheets. Thanks to those scars, I try to own businesses with little or no debt, and/or with strong cash flows.

Of course, there is more to hang on this basic framework. We’ll explore them on the blog. For now, let’s talk about another idea I like: Sosnoff’s law…

Sosnoff’s Law

I’ve read all the classics – Graham, Buffett, Munger, Lynch, Greenblatt, Klarman, Whitman, et al. I have bookshelves full of their work. I’ve learned more from them than I can tell.But I’ve always had a soft spot for those who travel a little off the busy highways.

Martin Sosnoff is one of those you find along the byways. He grew up in the tenements in the Bronx and served in the Korean War. He started in the money management game in the 1960s and retired in 2016. I love his books, in particular, Humble on Wall Street (1975) and Silent Investor, Silent Loser (1986).

Do I agree with everything in his books? No. But I like the attitude. Cynical, skeptical and wise. Old school. Investing with coffee stains, pipe smoke and pencil on paper. It was Sosnoff who made me really appreciate the value of skin in the game.

He wrote:

“My experience as a money manager suggests that the entrepreneurial instinct equates with sizable equity ownership... If management and the board have no meaningful stake in the company – at least 10 to 20% of the stock – throw away the proxy and look elsewhere.”

Why? It seems obvious:

“Would you rather own a company whose management owns the business and minds the store twenty-four hours a day, or would you invest in a New York City bank or a Fortune 100 company with a board of directors of two dozen insiders and passive outsiders, none of whom will ever own more than a token percentage of the equity? If you own $100 million worth of something you will work your heart out to make it good… If you have caretaker management, you get caretaker results.”

As the saying goes, “No one washes a rental.”

Sosnoff writes his books as a practitioner who has experienced more than a few muggings on the stock exchanges: “I have never found a management with a majority stake in the equity of its company that willingly diluted itself.”

The other big idea I absorbed from meditating on his books was the idea of money management as a minimalist art. In today’s world, we are inundated with too much information and too much noise. And there is an over reliance on numbers and models and forecasts. Sosnoff’s position is a well-needed vaccine.

He scoffs at “the easy analytical decisions that extrapolate numbers. They never make you money. It is only hard decisions for which there is no ready arithmetic that make the big money.”

Some of the most essential elements of investing are things you can’t put numbers on. The best ideas are usually the simplest. The harder you have to work to justify an investment, the less likely such ideas seem to pay off. Which leads to Sosnoff’s Law:

The price of a stock varies inversely with the thickness of its research file. The fattest files are found in the stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for stocks that appreciate the most.”

Simple is better than complex. Easy is better than hard. A thesis you can capture on a napkin is better than one that needs a spreadsheet. If owning the stock makes you feel smart, it probably won’t work.

I got to spend some time with Sosnoff in the summer of 2015 at his office on Park Avenue in Manhattan. At the time, he had a new book out called Master Class for Investors: Stand Alone to Win Big. He had not lost anything on his fastball:

“Well into my SS years, I long for simplicity in my investment schemata. Thin files make me richer, when I go against the grain. Thick files adumbrate long-winded rationalizations for holding on to disappointing investments.”

As I get older, I find myself more and more in agreement with the spirit of Sosnoff’s minimalist approach. I just want to own good assets, managed well, that I can acquire at a cheap price and own for a very long time.

What’s the Story Behind Woodlock House Family Capital?

Bill Bonner and I founded Woodlock House Family Capital in late 2018, though the idea had been bubbling in our minds for more than three years. (The fund’s start date is January 2, 2019 – the first business day of the New Year).

The firm gets its name from a property the Bonner family owns in Portlaw, Ireland, called Woodlock House. The main house dates to 1864. It served as a family home, then a convent, then a nursing home. Today it houses several publishing businesses owned by the Bonner family.

Our logo is a rendition of the skylight in the grand foyer.

I visited in the summer of 2018. Since Bill and I "sealed the deal" in Ireland, we thought the house would be a good name for the firm. The house itself exudes a certain classic staying power, rich in history yet also adapting to the changing times.

We added “family” because the capital initially invested to start the firm and invest in the fund was family money. There is a lot of “skin in the game.” The purpose of the firm, really, is to solve a problem: How to invest our family wealth without turning it over to “Wall Street” and to people who do not have “skin in the game”?

The word “family” also reflects a basic orientation. Successful families tend to think long-term. They think of the next generation. They tend to be patient. They tend to use less debt. You can see all this in the behavior of publicly traded firms controlled by families. (These firms also tend to outperform their peers.)

We believe long-term performance grows out of these timeless principles. We trust in experience over theory. We value the tested over the unproven. And we think old-fashioned effort and careful study, along with a healthy appreciation of uncertainty, still bring their just rewards.

Now, with the preliminaries out of the way, we’ll get this thing on the road in the next post…

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Published: December 20, 2018

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Write me: info [at] woodlockhousefamilycapital.com

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