One of the, if not the greatest, joys of my life is spending time with my grandchildren, today numbering four. Sadly, my twin grandsons live in Vancouver, so we don’t see them as often. But thanks to FaceTime we speak to them regularly. My other two are here with us and I am only too delighted to pick up my granddaughter at school, feed her lunch, and bring her home for her afternoon nap (if only I could join her).
It made me think of my father when I was growing up in Canada. He was with us for breakfast, often for lunch, and as we walked back from school, was there to greet us more often than not. I wondered what he did, thinking that he had a great job that gave him lots of free time to spend with the six of us. As it turns out, he was a stock-broker, which is how I started out in the business before becoming an analyst and eventually a portfolio manager.
What has this got to do with investing, you may ask? Just as I wondered what my father did, my grandchildren will one day ask “Opa, what do you do?” This is my response to my granddaughter in the back seat of the car.
I will explain that we are a fifth generation family business that was started by my great grandfather, Sir Herbert Holt, who immigrated to Canada from Ireland in 1875 and ended up being one of Canada’s most successful entrepreneurs. My job, after assuming the mantle from my parents, was the stewardship of our family assets, and that we expanded from there into helping other families manage their assets in a similar fashion to what we have been doing for generations. My role, I will explain, is to help all of our clients increase their assets, protect their existing wealth and prepare the next generation for the
responsibilities they will assume in the future.
Successful investing, I will venture, takes time, discipline and patience. Over the long term, investment returns from equities are earned primarily as a result of growth in the underlying business value. This is so because sooner or later, the market mirrors the business. As evidence, I will point out that the longterm returns of the equity market have approximated the growth in the book value of all businesses.
This in turn leads to my conviction that the way to generate superior investment returns is to invest in a portfolio of high-quality businesses. The true nature of a high quality business, I will point out, is rather simple – it has sustainable, competitive advantages. A business that enjoys these advantages is able to keep competition at bay. As a result, over the long term, such businesses are able to grow their economic earnings. Mirroring this, the business value grows as well.
I will finish by explaining that by acting rationally, consistently, while harnessing the power of compound interest over a very long period of time has been the underpinning of our investment success.
By now, my granddaughter, secure in her car seat has fallen asleep, pondering what I have told her. I bet she can’t wait for tomorrow’s lesson.