Matthew McLennan - The Power of Selectivity and Patience
Value Investing with Legends
Is There a Sweet Spot for Investment Ideas?
Most of what we own is what i'd refer to scarce intangible assets. These are businesses that have some kind of scale economies. They tend to be dominant market share positions, from bicycle breaks and gears to tooth pas. And the key is to buy them when they're not seen as such - you buy them at times of exogenous uncertainty. But we are willing to biasits o more competitive businesses but where realistic an we would typically demand a wider margin of safety.
Today’s conversation is with Matthew McLennan, head of the Global Value team and a portfolio manager of the Global Value, International Value, US Value and Gold strategies at First Eagle Investment Management, where host Tano Santos also works as a Senior Advisor. Matt is interested in the field of education, and he is a trustee of the Trinity School in New York City. He serves as co-chair of the Board of Dean’s Advisors of the Harvard School of Public Health and as a board member of the University of Queensland in the United States of America. He is also a trustee of the Board of Directors for the Library of America.
After sparking his interest in investing in boarding school, Matt went on to study at the University of Queensland where he was given a unique opportunity to take part in the management of a $10 billion pool of capital at the Queensland Investment Corporation. This was to be the first of many successful career moves as that experience positioned him perfectly to join the Goldman Sachs team in Sydney. After rising through the ranks at Goldman Sachs, Matt joined First Eagle in the heart of the global financial crisis and where he once again proved the importance of fundamentals, selectivity, and patience.
On this episode, Matt and I talk about what sparked his interest in investing, why learning how to think is more valuable than specific finance theory, his investment approach, the role of temperament in investing, his career at Goldman Sachs, how joining First Eagle during the global financial crisis ended up being a blessing in disguise, why you shouldn’t try to predict market activity, and so much more!
Key Topics:
- Why theFirst Eagle Investment Management Foundation Scholarship was created (3:09)
- How the First Eagle fellowship will benefit the recipient and the firm (4:07)
- Matt’s early life growing up in a small town in Australia (6:04)
- Looking at his parent’s land as a metaphor for the power of selectivity and patience (7:08)
- How a boarding school investment club sparked Matt’s interest in investing (7:40)
- Matt’s opportunity to work in asset management for a large capital pool (9:23)
- Why learning how to think was more valuable to Matt than specific finance theory (10:33)
- How the state of the markets in the 80s provided an interesting environmental backdrop for Matt during his studies (11:34)
- How working with the Queensland Investment Corporation helped to shape Matt’s investment philosophy later in life (12:51)
- Matt’s investment approach and the role of temperament (14:18)
- Leaving the backyard to join Goldman Sachs (16:12)
- The role of mentors at Goldman Sachs in developing Matt as a value investor (17:14)
- Why you need to consider the two important assets missing from the balance sheet (17:54)
- How the market’s perspective on value investing changed during Matt’s career at Goldman Sachs (20:00)
- Why the late 90s was a difficult time to be a value investor (21:33)
- The reason that joining First Eagle was appealing for Matt (23:43)
- How joining First Eagle during the global financial crisis ended up being a blessing in disguise (26:54)
- Why instead of trying to predict market activity you should take advantage of markets after the fact (29:20)
- Matt’s perspective on measuring growth (32:06)
- How Matt identifies potential investment ideas (34:54)
- Why Matt invests in businesses with scarce intangible assets (35:51)
- The challenge you face when buying companies in competitive industries (36:46)
- The role of specialized knowledge in investment analysis (38:53)
- Why First Eagle reinforces a culture where continuous learning is valued (40:47)
- How First Eagle decided on hedging with a real asset (43:02)
- The usefulness of gold as a hedge in comparison to other commodities (45:12)
- Matt’s views on the current unusual state of the markets (48:51)
- The right portfolio response to the current state of the markets (53:47)
- Why Matt attributes a lot of the success of passive investing to the poor approach taken by some active managers (58:04)
And much more!
Mentioned in this Episode:
- First Eagle Investment Management
- First Eagle Investment Management Foundation Scholarship
- Tanya Kostrinsky, the inaugural recipient of the First Eagle Investment Management Foundation scholarship
- Bruce C. N. Greenwald’s Book | Value Investing: From Graham to Buffett and Beyond
- The Columbia Student Investment Management Association (CSIMA) Conference
- Goldman Sachs
- Jean-Marie Eveillard, Senior Advisor to the First Eagle Investment Management Global Value team
- Value Investing with Legends | Taking a Top-Down Approach to Value Investing with Jean-Marie Eveillard
- Value Investing with Legends | Looking For More For Less with Leon Cooperman
- Bill White, former Chairman of the Economic and Development Review Committee at the OECD
Thanks for Listening!
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