In 'Margin of Safety', Seth Klarman discusses his views on value investing, drawing from the concepts of Benjamin Graham and David Dodd. The book critiques speculative investing and institutional investing practices, advocating for a disciplined and risk-averse approach. Klarman emphasizes the importance of understanding the intrinsic value of investments, avoiding false precision in valuations, and maintaining a margin of safety to mitigate potential losses. The book is divided into sections that cover the philosophy of value investing, the critique of institutional investing, and practical strategies for determining value and managing portfolios.
In 'Common Stocks and Uncommon Profits', Philip A. Fisher outlines his investment philosophy, which focuses on identifying and investing in high-quality growth companies. The book is renowned for Fisher's '15 points to look for in a common stock', which include evaluating a company's products, management, sales organization, research capabilities, and long-term growth prospects. Fisher advocates for a qualitative approach to investing, emphasizing the importance of understanding the business and its management rather than relying solely on quantitative metrics. The book also discusses when to buy and sell stocks, the role of dividends, and the pitfalls of short-term thinking in investing.
In 'The Culture Cycle', James Heskett presents a framework for understanding and managing corporate culture, demonstrating how it can significantly impact organizational performance. The book highlights the 'culture cycle' as a tool for shaping effective cultures, linking culture to strategy, and quantifying its economic value through metrics like retention and referrals.
Written by Benjamin Graham, 'The Intelligent Investor' is a seminal work on value investing that has inspired millions since its original publication in 1949. The book emphasizes the importance of distinguishing between investing and speculation, calculating the intrinsic value of companies, and maintaining a margin of safety. The revised edition includes updated commentary by Jason Zweig, who provides modern examples and insights to help readers apply Graham's principles in today's market. Warren Buffett, a disciple of Graham, has praised the book as 'the best book about investing ever written'.
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
Capital Allocators – Inside the Institutional Investment Industry 
