Supported by Greenhaven Road Capital, finding value off the beaten path.
James Aitken spoke with Ted Seides on the Capital Allocators podcast. What I liked most about this episode was Aitken’s approach to interestingness.
We’ve written about that’s interesting moments before. Eric Maddox had his in Iraq. Brian Koppelman had his and it inspired Billions – created using career capital. Haralabob Voulgaris had his when he saw Phil Jackson say something about corner threes.
One of Aitken’s moments was when his group noticed Greeks smuggle the black economy into their GDP calculation. Aitken said it was “unusual” and, “we kind of smelled a rat.”
Aitken points out that boldness doesn’t always follow interestingness. Curiosity does. He tells Seides that his goal investing is to be less wrong.
This was an early lesson for Aitken. At thirty-one he was paired up with a pair of well-read traders. They would talk “…with all these references to psychology and history and economics, and not just Road to Serfdom stuff, or Keynes, but all these other references and historical perspectives that I knew nothing about.”
Aitken started reading more. By 2003 he was with AIG and while he didn’t understand what people were saying when they talked about this subprime insurance thing, “I kept a notebook to write things down that I heard.”
It’s something Aitken still does. He advises clients who see something weird:
“You write that down in a book and say, ‘Something is changing here, I don’t know what, but equity index and implied volatility is no longer acting the same way it did previously.”
Writing down weird things delineates Aitken’s circle of competence. The best investor’s Aitken works with know theirs too.
“The people who ended up doing the best didn’t try to be sovereign debt heroes, they didn’t try to short all the banks, they didn’t try to be geniuses. They said, ‘We know what’s happening. It’s beyond our circle of competence. We understand the spillovers. But we aren’t going to change our mandate to participate.’ Then along comes an opportunity.”
Those great investors also have great stakeholders. Aitken’s says that great money managers have a long-term orientation and they have the right clients.
“You need the right clients. You cant have clients that ring you up every Friday saying ‘What have you done this week?’ That is just no way to manage money.”
Stakeholders exist beyond the investing realm too. Spouses are stakeholders and Aitken was fortunate to have a good one. When he started his own business “My wonderful wife was so encouraging…That’s what you need, you need that domestic support.” Healthy stakeholders trust you.
The best businesses attract the right stakeholders. Roger Lowenstein wrote about Warren Buffett’s early letters:
“By such words and deeds, Buffett was shaping Berkshire into a very personal vehicle. In effect, he was re-creating it as a public form of the Buffett Partnership. Some of his two thousand or so shareholders were in fact his ex-partners, though most were not. But one purpose of his letters was to attract and knit together a shareholder group who would behave like his partners—in other words, who would stick with him.”
Stakeholders can also be the people who work with you. It’s people who want to be right more than look good. This kind of culture, said Patty McCord, is not about “espresso or lush benefits or sushi lunches, grand parties or nice offices.” It’s about doing difficult puzzles.
These spirited places will argue well. Dying organizations will not. Aitken said, “You and I have encountered places where the founder dominates the conversation, that’s fine, that works well. But all the best fund managers I know instill a culture of collaboration. From the intern to the founder to the CIO, everyone encouraged to speak up if they spot something.”
Charles Koch calls it a “challenge culture.” Sam Hinkie said it’s a “willingness to tolerate counterarguments.” Chris Cole said he has to do this, it’s an existential questions when you’re a long volatility manager.
How do you get people to act this way? Incentives.
Aitken said, “AIG Financial Products was not the culture where you questioned things too intensively. That was most sternly discouraged.” He also mentioned the famous Sinclair quote.
Thanks for reading.