Have you ever had insights from one experience that apply to a completely different part of your life? Would you imagine that an investment guy could find wisdom in the experience of a professional baseball executive?
I had the good fortune of hearing the Houston Astros General Manager (GM), Jeff Luhnow, speak to an intimate group of entrepreneurs right before a recent Astros game. His talk was one of those happy "aha!" moments for me.
As you may know, I have been part of a global group called Entrepreneur’s Organization for the past few years. My participation in this group has given me many opportunities for personal growth including a lot of time spent with many other small business owners as we learn from each other about the various aspects of running a successful firm. Now back to the Astros…
Jeff spoke for about an hour, relaying a remarkable story of his path to becoming the Astros' GM. He grew up in Mexico City, speaks fluent Spanish, served as a senior executive for Petstore.com, and worked at the reputable consulting firm of McKinsey & Company. Jeff became the Astros' General Manager in December, 2011.
For those unfamiliar with the some of the nuances of professional sports, the GM has the most important job on the team. This person handles business matters such as hiring coaches, drafting new players, developing talent, trading players, negotiating contracts, etc.
One of the many things that Jeff spoke about was the importance of having a process and sticking with it. It was this subject that hit home with me the most. As investment advisors, we, too, follow a process in analyzing the global markets and fund managers.
Jeff pointed out that in his profession he has access to more data than ever before. He told us that for every pitch in every game, the Astros collect 1,200 bits of information that he and his team of analysts synthesize and use to make decisions.
In major league baseball, as in investing, sometimes the data points one way, but things don't go as planned. It's precisely at these times when a disciplined process is most important. It's tempting then to sway from what you believe in and try something new and different. But often, that's just the time when sticking to your process is what you most need.
Jeff mentioned several examples of when fans and the local media pressured him to give up on a particular player. But Jeff believes in his process. He believed that short term swings would not last. His process has turned the Astros from the worst team in baseball to making the playoffs last year. (And we Astros fans remain hopeful again this year!)
While Investec's research process has not resulted in the kind of performance in the last few years that we have experienced over the previous 20+ years, we still believe strongly in our process. Just as Jeff could be easily swayed by short term player underperformance, so too could we as investors. But our discipline and ability not to let emotions fog our decision making allow our process to lead us forward.
To illustrate: a few clients questioned our decision to increase our allocation to emerging markets. The last few years have not rewarded those that have invested in these countries. But thus far in 2016, the emerging markets have been our best performing investment, and have rewarded us well. We could have unwound our allocation and chased better performing investments. But we didn't. We stuck to our process and will continue to do so.
Following a process, as the Astros and Investec clients have both learned, doesn't mean there aren't ups and downs along the way. And the chosen process may produce more singles and doubles than home runs. But in a world increasingly given over to short-term focus and limited attention spans, it's refreshing to affirm that principles, process, and a longer-term perspective can produce a winning combination.