David Salem

Supported by Greenhaven Road Capital, finding value off the beaten path.

Once again Patrick O’Shaughnessy has a ranging and enjoyable interview on his podcast. This episode was with David Salem, Managing Partner and Chief Investment Officer of Windhorse Capital Management.

The episode covered many different ideas but in this post, we’ll look at Ethical and Intellectual Integrity. Salem says that he “could stop right there” with the list of desirable attributes of a manager.

The ethical integrity spectrum begins with criminal activities but extends to how you treat other people, whether you keep them waiting for dinner and how you act if you do, and if you act with a client’s best interests at heart with the courage to say, “we were wrong.” Do you follow the Golden Rule? Treat others as you’d like to be treated. Or, do you follow the MBTI Rule? Treat others as they’d like to be treated. Sometimes this means saying ‘No.’ Michael Lewis explained the same attitude in a different situation this way:

“The RBC trading floor had what the staff liked to refer to as a “no-asshole rule”; if someone came in the door looking for a job and sounding like a typical Wall Street asshole, they wouldn’t hire him, no matter how much money he said he could make the firm.”

Salem also looks for intellectual integrity. Markers of this include; curiosity, grit, hope, hunger, and endless questioning.

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Why are these two attributes of managers so important? Salem said:

“The pendulum is swinging more and more in the direction of focusing on the person and the culture and not the processes or actual approach…you cannot know ex ante the date on which the process they employ today will become obsolete. So you ought to assure yourself that the human beings you’re dealing with treat money management as a profession and not a business.”

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On Twitter Patrick teases “the Mt. Everest question”

Which is this; if you could accomplish one feat but no one would know, what would it be? Salem asks this question to people and it reveals the two things he’s looking for. Do you have the intellectual integrity to strive for something great and do you have the ethical integrity (humility) to be comfortable with not bragging about it?

The question may be structured nicely to get at these two ideas but the answers won’t necessarily be. Figuring this out requires committed listening, a point that comes up again and again.

It’s not easy, but reading people and getting to know them in an hour is a valuable skill, especially for Salem who is tasked with choosing investment managers that invest capital he deploys. He wants to sniff out ego early. How has he cultivated this skill? “As with much of what we do evaluating managers, you build up a reservoir of experience and pattern recognition for when you sit down with someone and try to determine if they are excessively insecure.”

Egotistical, ungraceful, and insecurity are all “unfavorable” ethical traits. I was glad that he used different words and different examples (Lance Armstrong, Donald Trump, Bernie Madoff) to create a mold for our pattern recognition.

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Another way to get at someone’s intellectual integrity, said Salem, is to ask, “do I see evidence that they’ve consciously pursued excellence in everything they’ve done?”

• Are you improving in such a way that you’re changing your mind about things? Charlie Munger said at the 2017 Daily Journal meeting, “I’m very busy destroying bad ideas because I keep having them. It’s hard for me to just single out one from such a multitude. I actually like it when I destroy a bad idea because it’s my duty to destroy it.”
• Are you curious like Brian Grazer or Eric Maddox?
• Are you writing? “I think that clear writing and clear thinking are synonymous,” Salem said. William Thorndike said much the same thing in his time with Patrick, “It’s interesting to write when you are trying to figure something out. It’s fun to try to solve an interesting problem and write about it.”
• Are you reading? Salem has some suggestions. Poor Charlie’s Almanack is “just fantastic.” Beyond books the Berkshire letters, David Swensen’s letters, and Peter Bernstein’s letters (unpublished, for the moment) are all great too.

Thanks for reading,
Mike

If you liked this post, you might like my podcast “Mike’s Notes.” https://itunes.apple.com/us/podcast/mikes-notes/id1055386383