Always Be Respectful

Ian Cassel Blog, Educational 2 Comments

Our experiences on the extremes of investing are often very memorable. You invested in a company and almost the very next day the rest of the world seemed to wake up to the story too and the stock goes on an epic run. Or you invested in a company and it’s almost like the investing gods were waiting for you to invest before trouncing the stock.  These instances on the fringes, on the extremes, are the ones burned into our psyche, but there are many more experiences that fall somewhere in the middle.

Several years ago I found a great company. I found the symbol while scanning public message boards, dove into the financials and liked what I saw.  Soon after I flew down to visit the management team and really got a comfort level for the company. Over the course of several months I built up a sizable position, just under 5% of the company.

During this time I spent hours with the CEO getting to know him. He had started the business by quitting his corporate job and cashing in his and his wife’s retirement accounts. He was “All In”.

Later that year he invited me to join him at the company’s Christmas Party. I obliged and felt this would be a good time to meet other employees within the company.

There were a couple hundred people at the Christmas party, which included spouses and kids.  I could tell very quickly the employees loved working there, and they loved working for the CEO.

When the CEO got up to speak, he started off by singling out 7-10 people from low-level line workers to his CFO, personally commending them on the job they did. As he went from praising one individual to the next I’d watch the faces of their families as you could see the sense of pride boil over inside of them.  The CEO showed sincere appreciation to his workers, and he inspired passionately. They would have taken a bullet for him. The culture at the company was amazing and it came from the top down.

The company was expanding aggressively at the worst possible time, late 2007-early 2008.

  • As a side note, hindsight is 20/20 and we all like to think we are smarter then what we really are. I know I was naïve to the possibilities of a 2008 market crash, so I can’t blame a CEO for being the same way.

The economy went into recession. The tide went out on the business and the company’s over expansion almost bankrupted them.  The CEO had to lay off 70% of his workforce, and the stock went down 80%. The stock was what I call a round trip for me. I bought, it went up, and then came down and I sold. I think I broke even.

What I remember though is the last conversation I had with the CEO. He was coming up to Philadelphia for a business meeting, so I met him for breakfast. It was in early 2009 as the walls were crashing in around him. Knowing how much he respected his employees and vice versa, and knowing that he was “All In” I can’t imagine the stress he was under.

If you ever want to see how stress ages a person, look at a picture any President of the United States when he is sworn into office, and then look at a picture of him the day he leaves office. You can literally see a person age 25 years in a few short years.  This CEO was no different; he looked 10 years older than he did a year earlier.

He asked me what I thought he should do and I was frank with him and told him I thought he was doing everything he should be doing, but that it probably wasn’t going to be good enough.

After dinner while taking the train back to Lancaster, I couldn’t stop thinking about the situation. I was lucky. I could just sell the stock and move on, but for him the company was his whole life, his family’s net worth, and his legacy. 

The company is still around today, worth a little more then it was back at the 2008-2009 lows mostly because the emerging trend the company was in several years ago came and went.  I haven’t talked to the CEO since.

Over the last ten years I’ve had a handful of great winners, a handful of disastrous losers, and the rest somewhere in the middle. Not every company I will invest in will be great, but it’s often times not the management’s fault. Market forces and just plain luck play a greater role then we like to admit.

A big part of my investment philosophy is getting to know management. Always be respectful of management because if they think you are a prick, they will never talk to you. As an investor it’s easy to give management teams a cold shoulder and almost think they are beneath us as investors when in fact in most instances they have much more on the line then we do. We are lucky; we can just sell and move on. 

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Comments 2

  1. Thank you for that Ian. Yes, as investors, it is easy to second guess management. We want them to do everything perfectly like we might want the coach of our favorite NFL team do, but they operate in a “resistant medium” in the sense of Clausewitz’s classic on military strategy “Activity in war is movement in resistant medium.” Activity in business too is movement in a resistant medium. Even the best sometimes make mistakes, and sometimes fail. Failure sometimes crushes the psyche, the inner momentum, of senior executives. Steve Jobs, perhaps the most successful businessman of our time, frequently failed but he maintained his inner momentum. Arrogant, self-absorbed, capable of deceiving others and himself, he persisted and triumphed. And changed our lives. Meeting him in his early career would not have helped me predict his potential.

    I’ve learned the hard way that I can’t tell the difference between a great executive and a great talker. Some great executives are lousy talkers. Judgment: when to be cautious, when to be aggressive, has to be part of greatness. Expansion at the top of the business cycle with borrowed money is both common and frequently disastrous. Conclusions based on charisma may even mislead the investor. The human psyche is a complicated arena — we tend to think that whatever has recently happened will continue for the foreseeable future. But not only is business activity movement in a resistant medium, it is movement in a changing medium. Change is history, history is change.

    The early editions of Ben Graham’s Security Analysis contained the inscription (in Latin) from Horace’s Ars Poetica:

    “Many shall be restored that now are fallen and many
    Shall fall that now are in honor.”

    To which I would add, “but don’t bet on it.”

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