By Ben Rundle | Portfolio Manager at NAOS Asset Management
"I just sit in my office and read all day." Warren Buffett
Whilst we might not have the time to sit and read all day, we do believe that the stories and lessons from successful people across a range of fields has the ability to broaden our experience and the way we think as investment managers.
The following is a list, including a short review, of our favourite 10 books from 2019 which cover various business related topics.
I first read this book seven years ago and decided to read it again over the holiday break. I was amazed at how much more I took away from the book this time having developed further as an investor since my first read.
This is one of the best books I have read on investing as it walks through a fifteen point checklist on what to look for when analysing a company. Each checklist point requires in depth analysis and the list is not something that can be quickly checked off by investors. The reason I took more out of this the second time around is that a lot of the points require a level of qualitative analysis that is not taught in business schools, but rather gained from experience.
Re-reading some of the best investment books I have read is one of my goals for 2020, while the book hasn’t changed, I have changed as an investor and this directs new levels of emphasis on certain points.
This book is required reading for anyone wanting to learn how to pick high quality stocks.
Alfred Taubman is known in the US for designing the modern indoor shopping mall as we know them today.
Taubman talks about the ideal mall concept he created in the 1970’s, he describes a very similar mall to what you would see today at your local Westfield shopping centre. He highlights the need for car parking both on the roof and in the basement, open atriums between levels so that shoppers can see the shops on other levels, huge skylights above and welcoming shop fronts.
After a hugely successful development career, Taubman then turned his sights on other businesses, buying Sotheby’s auction house in 1983, acting as a white knight when the company was threatened by an unwanted hostile takeover. He took the company public in 1988 making another fortune in the process. In 2003, the listed Taubman Centers survived a hostile takeover bid from Simon Property and Westfield. Alfred Taubman died in 2015 but his investment techniques are still as relevant today as they were in his prime.
An easy and insightful holiday read.
Graeme Lofts tells the stories of Australia’s oldest and best known family businesses.
To be considered for the book, the business had to have been around for over 100 years under family control. The companies discussed are Sadleirs Group, Cooper’s Brewery, Furphy, Dymocks, Brown Brothers Wine, A.H. Beard Bedding Co, Bulla Cream and Haigh’s chocolates.
There were a number of common threads between each business despite being part of different industries, the key theme being that they all make decisions for the long term. We see so many ASX listed businesses making decisions to satisfy half yearly earnings expectations that will hurt the business over the long term.
Each of these successful companies have proven their ability to survive depressions and multiple wars and I believe a lot of it has to do with making decisions with a long-term view. The other key commonality is their focus on the customer with each business believing if that if they do the right thing by the customer, then the customer will support their business. I was so enthralled by the book I got through it in one Sunday afternoon.
A great history lesson of Australian business and a great lesson on how to run a company to survive long term.
In Search of Excellence was first published in 1982, so I am late to discover it, however this is an excellent book and in my view is just as relevant today as it was at publication. The authors performed extensive research in the late 1970’s to come up with what they thought were the key attributes of a successful business. They examined 43 successful American companies including IBM, Procter & Gamble, Boeing, Delta Airlines and McDonald’s and defined 8 attributes of excellence that applied to the best companies. These attributes include;
- A Bias for Action
- Closeness to the Customer
- The best companies are obsessed with their customers
- Autonomy and Entrepreneurship
- Encouraging risk taking and innovation
- Productivity Through People
- Culture and work environment are excellent
- Hands on, Value-Driven
- Discuss company values openly and make sure everyone knows them
- Stick to the Knitting
- Focus on what the core competencies are
- Simple Form, Lean Staff
- Fewer management layers, open access to people
- Simultaneous Loose-Tight Properties
- Find a mix of freedom and direction. Be open-minded
Despite these principles being around for so long and proving successful over so many years, we regularly meet with companies who rarely follow any of them. It is no secret that companies who follow similar methods of running their business, often do better than their competition.
Given the recent highly successful launch of Disney+ we thought it fitting to read about the current CEO Robert Iger (Bob) who recently wrote an autobiography titled The Ride of a Lifetime.
Bob has been instrumental to the resurgence of Disney. What was previously considered a mature, low growth company with no direction, Bob made three transformative acquisitions after recognising the threat technology could have on the business.
Disney bought animation studio Pixar in a deal with Steve Jobs, they also bought Marvel and recreated some of the world’s most famous comic books in film and finally the Company bought Lucasfilm to re-launch the Star Wars Trilogy.
All three deals have been instrumental to today's success of the company and most recently he struck a deal with Rupert Murdoch to buy 21st Century Fox after recognising that the companies could compete more effectively together rather than alone.
Bob Iger is an incredible CEO who understands capital allocation better than most, it is a fantastic read.
T Boone Pickens sadly passed away recently, so we thought it timely to revisit his autobiography.
Known as the “Oracle of Oil” because of his ability to consistently predict the direction of fuel prices, he built Mesa Petroleum, one of the largest independent oil companies in the United States, from a $2,500 investment.
When Boone was 68 he was forced out of Mesa following a period of falling company profits. What followed was a downward spiral of divorce, depression and loss of his reputation before mounting a spectacular comeback when he founded Hedge Fund, BP Capital. At BP, Boone turned $3 million into an $8 billion fortune in just a few years. His fundamental understanding of supply and demand helped him to gain one of the most successful investing track records globally.
The book is filled with fantastic lessons on investing learned through years of experience from one of the best.
“Back in Omaha I’m known as the Jim Pattison of the United States” Warren Buffett
Jim Pattison is a Canadian Born entrepreneur who solely owns and operates Canada’s second largest Company, The Jim Pattison Group and is the 4th richest person in Canada. The company comprises around 25 separate business lines with interests in media, automotive dealerships, grocery store chains, magazine distribution, food service specialty packaging, advertising, real estate development, fishing, forest products, financial services, and entertainment. His philosophies around running a business are consistent with many of the world’s most successful managers including a laser focus on return on invested capital, a lean cost structure, learning from mistakes, a decentralised operating model and making every employee feel like they are an owner in the business. At 90 years old, he is still running the business full time and drives 1,000’s of miles around the country dropping in on his various management teams. The book is an open and honest account of his rise from a car salesman to highly successful businessman and is one of the best autobiographies I have read.
100 baggers is a book dedicated to stocks that increase in value by a factor of 100 which is enough to turn a $10,000 investment into $1 million. The author studies ‘100-baggers’ of the past which covered stocks from 1962 through to 2014 and came up with 365 names with the results published in his book. The author acknowledges that whilst there is no specific formula for finding these companies, there are certain attributes that help which include;
- A very long runway for growth
- The stock has to start cheap as it needs significant earnings multiple expansion
- The stock needs a strong moat or competitive advantage
- The company needs to start small
- An owner-operator running the company helps its chances significantly
- The holder of the stock needs a very long time horizon
- There has to be a lot of luck involved
Of all the key attributes required, the one that stood out for me was the timeline which is coupled with the psychology of the investor. The holder of a ‘100 Bagger’ stock needs to be a true believer as it never happens in a straight line. There are numerous stocks who suffered greater than 50% declines in their share price on their march upwards. Being able to hold conviction and stay invested through these periods is the key to success.
As a psychology major and son of amateur economist, Leon Levy’s approach to investing was unique; centered around the understanding that investor mood and behaviour is just as important to markets as is information.
This understanding led him through a successful investing career, making his early fortune through Oppenheimer & Co, and going on to found Oppenheimer Funds in 1959 – now a global asset manager worth more than US$200bn.
This autobiography takes the reader on a journey through the life of this pioneering investor, through his clever analysis of notable market history and recounting his investing successes and failures over his career.
At the same time, the book offers many pearls of wisdom, revealing the psychological undercurrents of markets and the inherent biases that investors can be prone to. An interesting and educational read regardless of your investing experience.
“Investors are very good at recognizing the moods of the past—for example, the Roaring Twenties, the Great Depression, the Swinging Sixties—but we tend to be oblivious to the mood of the present.”
Jim Penman is the founder of the hugely successful Jim’s mowing franchise business which went from a revenue of $24 to the world’s largest franchise chain and a turnover of over $400m.
The title of his book ‘selling by not selling’ is a concept that Jim learned in his early days of running a business and is a key tenet to which Jim ascribes the success of the business. ‘Selling by not selling’ is Jim’s way of saying that if you help your customer by recommending a product or service that is best for them, not just the product or service that you have for sale.
By doing this the customer will trust you and eventually be your customer for life. The story reminds me of customer service examples I have seen by some of the best companies in the world.
Home Depot for example has their returns policy stuck to a car tyre in one of their stores. When asked why that was the case, the store operator said it was because a customer came into the store wanting to return a car tyre.
Even though Home Depot didn’t sell car tyres, they gave the customer a refund anyway. Why? The answer was because the lifetime value of a customer is worth more than one tyre!