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Since retiring from full-time employment I’ve been keeping my hand in by offering my services to businesses that are going through a period of change. Two of the businesses I’m involved with are similar in age, around five years old. They have managed to survive the early start up years and are working on strategies that will allow them to grow without taking unnecessary risks.
When a business is young it needs to devote time and energy in a focused way ensuring that the business is not jeopardised by going off in a direction where the risk of failure is high due to lack of knowledge and experience.
I use the term ‘stick to the knitting’ which was popularised by Tom Peters in his book In Search of Excellence. It means staying with the business you know so you can concentrate on that company and build it up to be the best it can be.
This thinking was reinforced in the latest report to the shareholders of Berkshire Hathaway by Warren Buffett, the company chairman. You probably didn’t hear a lot about it as the stock market has been generating plenty of news on its own lately thanks to their reaction to the coronavirus.
In this year’s letter he talks about company directors and how to hire them. The problem, he explains, is that company directors primarily are motivated by the money they make to sit on boards. In short, just because you have a given job doesn’t mean you’re good at it.
He goes on to say, “I’d like you to know that almost all of the directors I have met over the years have been decent, likeable and intelligent. They dressed well, made good neighbours and were fine citizens. I’ve enjoyed their company. Among the group are some men and women that I would not have met except for our mutual board service and who have become close friends.”
“Nevertheless, many of these good souls are people whom I would never have chosen to handle money or business matters. It simply was not their game. They, in turn, would never have asked me for help in removing a tooth, decorating their home or improving their golf swing. We are all duds at one thing or another. For most of us, the list is long. The important point to recognise is that if you are Bobby Fischer, you must play only chess for money.”
The trouble is that the vast majority of ordinary investors are not the Bobby Fischers of the investment world. Nor are the celebrated pundits you see on CNBC talking about their latest ideas. The TV pundits, with extremely few exceptions, get airtime because their particular strategy is working at that moment. Soon enough, they will be losing money by the boatload and no longer be asked to appear on TV.
Buffett sums up by saying we are all duds at something even the 90 per cent of well-paid ‘pros’ who run expensive investment funds and yet fail to beat the indexes year after year.
Be a Bobby Fischer, hire a Bobby Fischer if you can. It’s a simple idea, and as usual simple, repeatable ideas work best.
Worthwhile sticking to the knitting.
Gordon is the former president and chief executive of BMMI. He can be reached at gordonboyle@hotmail.com