Gary Mishuris – Qualitative Judgment Is More Valuable Than Your Financial Model

Jun 17, 2021

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BIO: Gary Mishuris is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy.

STORY: Gary was developing a financial model that he used to recommend stocks for his company. He got so engrossed in the model that he forgot about other important aspects of investing, like the effects of a merger that had just happened in the company. He made mistakes, and the stock he recommended fell by 80%, losing money for his company.

LEARNING: Think about the qualitative aspects. Don’t depend on management for decision-making and make things as simple as possible, but not simpler.

“Have a checklist of behavioral biases and steps that you will need to take to try to minimize them.”

Gary Mishuris

Guest profile

Gary Mishuris is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy. Prior to founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset Management since 2011, where he was the Lead Portfolio Manager of the US Focused Value strategy.

Gary received an S.B. in Computer Science and an S.B. in Economics from the Massachusetts Institute of Technology (MIT) and teaches the value investment seminar at a local university.

Worst investment ever

In 2005, Gary was a senior analyst at a company before starting his firm. He was building the world’s biggest model ever. It had dozens and dozens of lines and a complex discounted cash flow analysis.

The charismatic CEO

Gary met with the CEO and listened to his story in the management pitch, and it sounded terrific. The pitch was about having a merger to cut costs. The CEO promised that the merger would come with good tidings for everyone.

While the CEO’s pitch sounded great, Gary had a few doubts about how two different businesses would work with two different cultures. He, however, figured they’d take the best from both companies.

Putting his model to the test

Gary started modeling and jumped right into quantifying things. One day, Gary was updating his model when he realized he’d made a mistake. He had linked to the wrong cell, and that boosted the value appropriately by 20%. He sent an email to everyone letting them know that he had made a mistake.

Digging deeper into his model

Gary continued to rely on his model. He, however, made a series of analytical mistakes, just getting lost in the model and forgetting the basics of investment. The merger caused so many issues that Gary overlooked, which could have potentially affected his model. The stock he had recommended went down 80%, and the company lost a decent amount of money.

Lessons learned

Think about the qualitative aspects

Think about the qualitative aspects long and hard before you put the numbers down. And if the quality doesn’t pass your filters, the numbers won’t matter; you should pass.

Don’t depend on management for decision-making

Talk to management, but make sure it’s a small input into your decision-making process. It’s very easy to get persuaded by a charismatic management team. Make sure that, at the very least, you counterbalance their point of view with an opposing point of view and kind of debiasing yourself.

Make things as simple as possible, but not simpler

Relatively simple models of summarizing economic reality focus on understanding things deeply. Then make sure you control your behavioral biases, and try to offset them when not impossible.

Andrew’s takeaways

The qualitative aspect is essential in value investing

A lot of people think that value investing is all about numbers. But what is critical is the qualitative aspect. Numbers are just a tool that helps us to understand something.

Complexity does not add value

The deeper you go into a financial model, the less benefit you get once you get past a certain point.

Actionable advice

Try to be systematic and rigorous. Have a checklist of behavioral biases and steps that you will need to take to try to minimize them.

No. 1 goal for the next 12 months

Gary’s number one goal for the next 12 months is to keep adding to his knowledge and moving his process slowly and steadily in a positive direction. Hopefully, those small changes build and snowball into meaningful improvement in the decades to come.