Bill Miller spoke with Barry Ritholtz about active management and the importance of stakeholders.
When Miller departed from Legg Mason and then bought out the residual partners, he didn’t take any of the institutional clients.
“We brought the mutual funds along but I did not bring the institutional business along. We have some separate accounts but we don’t really take institutional money, not that we won’t take it, but we aren’t actively trying to grow it. We are only interested in having clients that understand you’re going to get volatility. We try to monetize the volatility. “
Part-of-the-reason institutions are more difficult to work with is the people. Not only investment committees, but investment committee boards. Not who Miller talks to, but who they talk to.
Around the same time as the Miller interview with Ritholtz, Hannah Fry spoke with Shane Parrish about the algorithms in our lives. Counting leads to coding and our interaction with algorithms, automations, and augmentations is accelerating. One approach (often wrong) is to educate people. Tell someone the number of calories in a Starbucks drink and they don’t opt for the smaller size.
Fry highlights this. It’s not realistic to expect that an outsider has the time, talent, and tenacity to interrogate a source code. They are numbing numbers. If something is too hard to understand, often instantaneously, then it may as well not exist.
The most ubiquitous parts of life are complex. This was a good book about the iPhone but I don’t remember much other than it truly is a global supply system that makes the device in my pocket work. Mix in some YouTube videos about cellular networks (it’s ‘cell’ as in which hexagon from our tessellation map is this person in?) and relearning what the UV spectrum is and I kinda-sorta-get it. There are videos too about repairing a screen. A layperson can do that, but jailbreaking or writing apps? How much does, or should, one person know?
Back to Mr. Miller. He’s not explaining the physical world (Mediocristan), a mostly stable place where the UV spectrum has held relatively constant for hundreds of years. He’s operating in the social world (Extremistan), a mostly unstable place, and it is hard to communicate there.
When asked what he wished he knew when he started, Miller said:
“The thing that I am constantly realizing is that the world, the economy, and the markets are so much more complicated than you have any idea. Having dogmatic views and pontificating about the world as this way or that is a complete waste of time because nobody has any idea about what’s going to happen in the future.”
Listen to Ted Seides’s podcast and you’ll hear that investment committees get this. Institutions employ smart, thoughtful, well-rounded people. However, it’s the next level when the alignment of communication, incentives, and priorities breaks down. It’s how the game of telephone works. Someone can read and watch and kinda-get-it. That same person cannot pass it along.
The alignment of stakeholders is why investment letters (and to another degree, podcasts) are so important. It’s a filter. If someone can read a letter, consider the ideas, and still wants to invest then that person gets it. It’s reading the source code. It’s succeeding at the game of telephone. It’s communicating well.
Your work with stakeholders depends on communication and your communication depends on how clearly you see the world. In the latest pay-what-you-want piece we look at advice from Tyler Cowen and my grandmother. The gist? If you see the world as you wish and not as it is, you’re in for a rude awakening. Get it here.