Capital Allocators – Inside the Institutional Investment Industry

[REPLAY] Paul Black - Gratitude, Fun, and Growth Stocks (Capital Allocators, EP.51)

Nov 2, 2020

Paul Black, Co-CEO and portfolio manager at WCM Investment Management, shares insights from his impressive career in global equities. He discusses the journey that has transformed WCM from a $200 million firm to a $26 billion powerhouse. Black emphasizes the importance of a strong corporate culture and the need for persistence in both investing and life. He also highlights growth stock strategies, including assessing competitive advantages and navigating market challenges, while reflecting on the lessons learned throughout his career.

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ANECDOTE

Early Investing

Paul Black's interest in investing began with a small inheritance.
He bought South African gold stocks and made significant gains, sparking his passion for finance.

ANECDOTE

Trial by Fire

Paul Black's first job was at Bank of America in private equity.
At 25, he managed $200 million with limited experience, learning through trial and error.

ANECDOTE

Growth Trap

Paul Black shifted client portfolios from IBM to Digital Equipment due to the latter's rapid growth.
This move proved unsuccessful, highlighting the risks of prioritizing growth over other factors.

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Paul Black is Co-CEO and portfolio manager at WCM Investment Management, a $26 billion manager of global equities that he joined when it was a $200 million boutique in 1989. With so much of the institutional world, including my own training, focused on value investing, I was pleasantly surprised to learn about a large, high performing growth stock manager located in a non-descript building in Laguna Beach, California.

Our conversation starts with Paul’s trial-by-fire entry into the business and turns to growth stock investing, including defining a great growth company, searching for widening moats, assessing a culture tied to competitive advantage, creating a positive culture, learning from mistakes, identifying tailwinds, and protecting the downside.

Paul embodies the principals he preaches and offers some tasty food for thought.

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Show Notes

2:54 – How Paul got started in the business

4:52 – Lessons learned in the early years of his career

5:56 – Common Stocks and Uncommon Profits and Other Writings

6:01 – Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

6:05 – The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel

7:49 – What works about growth stock investing

9:01 – What constitutes a great growth company

13:47 – Defining and measuring a company’s competitive advantage

17:50 – How does he assess a company’s culture

19:41 – The Culture Cycle: How to Shape the Unseen Force that Transforms Performance

20:26 – Questions that help assess company culture

21:57 – Any data to back up claims that companies with good cultures perform better over time

22:46 – Culture aligning with competitive advantage

24:30 – Looking at WCM’s moat and culture

31:23 – The landscape for active management

33:53 – Weathering tough periods for the firm

37:02 – How do they think about culture in other countries

39:01 – Why does growth stock investing work when the data shows otherwise

40:47 – What is he excited about in growth stocks

43:45 – Tailwinds at the sector level

45:10 – Downside protection in the portfolio

46:38 – Patterns of positive and negative allocator behavior

48:35 – How do they manage the change in the portfolio going from 200 million to 26 billion

49:53 – Closing questions