I have always been interested in founder-led companies. Entrepreneurs and family-run companies often have unconventional attitudes to risk and return. They often back themselves to take operational risk. They tend to be more innovative. You could say that they are more prone to being maverick. But also, you could say that they are more cautious and mindful of capital preservation and the value of staying in the game for the benefit of future generations.
Investing to capture the founder-led effect is a way to achieve an asymmetric return, with better downside protection in tough times and higher upside returns in good times. Sounds great in theory, but how do you go about it in practice?
In this episode, I chat with a Chinese Australian who invests globally in founder-led companies.
Lawrence Lam has run the Lumenary Global Founders Fund since 2017. As the name suggests, his process attempts to identify companies that are run for the long term and have the founder effect.
So, what is the founder effect, and how can investors determine whether a management team has this elusive characteristic?
Well, Lawrence has helpfully written a book called "The Founder Effect - The Three Pillars of Success in Founder-Led Companies." It’s a great read if you are trying to understand good long-term management decisions and how to spot them.
This is a fascinating conversation with someone who loves what he does and scours the world’s stock markets to find his secret formula at work.
We learn how he balances the less correlated world for opportunities to buy founder-led companies that offer good value, why China offers a great way to diversify a portfolio, how BYD is poised to become the next Toyota, and how meeting management might useful for understanding if the company is likely to do well next quarter, but not so useful for understanding whether it will compound for you over the next couple of decades.
As Lawrence says, he looks for the long-term track record of key decision-making, simple organisational structure, skin in the game, and close alignment with shareholders.
As always, none of what you are about to hear is financial or any other type of advice. It is hopefully entertaining and informative, but what you hear should not be used as the basis for an investment decision. Please take personal financial advice before investing a penny of your money in these crazy markets. And with that …
Please enjoy my conversation with the maverick Lawrence Lam.
Brought to you by Progressive Equity.
