Guest Interview: Bill Brewster
(Edition Number: One)
So today we are taking the usual guest newsletters, and adding a slice of lime. I have found that it can be quite a big task to ask a guest to compose an article on their own accord. Moreover, I have always found interviews to be a superior method of understanding the inner-workings of someone’s mind.
In light of that, we are pivoting the guest newsletter format, into one that now involves an interview-style piece. In time, I can see us shifting this to an audio project, but for now we can stick with the black and white letters.
Today’s maiden guest is one I was especially excited about, Bill Brewster of Sullimar Capital Group, who I am sure a lot of you will be familiar with via his presence on Fintwit.
After conducting a BA in finance accounting from Alabama’s Auburn University, Bill moved on to complete a Doctor of Jurisprudence in Chicago. After a spate of law and banking roles, Bill landed at Sullimar Capital, the vehicle whereby he conducts the baton and manages his own capital.
Background is one thing, but investing about one’s abilities to generate ideas and insights. You can find an ocean of these insights within the Value After Hours podcast, whereby Bill is a resident guest alongside Jake Taylor and, host, Tobias Carlisle. The AP is one of my personal favorites in my podcast basket, largely due to the conversational and non-hysterical tone. Very grounded, but you can discover that for yourself, and I recommend you do.
You can also catch Bill on his new show, The Business Brew, whereby he is the host. At the time of writing, there are two maiden episodes, and they are excellent.
During episode one, in a similar conversational and relaxed pace, Bill opens dialogue with former Locust Wood Capital Advisors partner, Michael Mitchell. Episode two includes a conversation with hedge fund manager, Dan McMurtie, PM at Tyro Partners. It’s a great listen, and there are more stellar guests to come. I am not one for promoting something I don’t like, as I don’t see the point. I’ve been a long time listener to the AP, and a new listener to the Business Brew.
Lastly, you can find Bill on Twitter by his handle ‘@BillbrewsterSCG’ and if you wish to read some lengthier pieces, you can find a plethora of articles at the Sullimar Capital Group.
Introductions over, let us now locate the gravy on this Thanksgiving offering and continue to the interview.
The following passage will contain twelve questions, composed by myself, with corresponding answers from Bill. Following that, we have included a few questions from the Twitter community.
Hello Bill, I’d first like to thank you for accepting the invitation to partake in this new interview-style newsletter piece that I am testing out. Your time is vastly appreciated, and I think that readers will be happy we have a guest of such calibre here at the IT.
First, I think it would be a great ice breaker, for some of the readers who may not be familiar with your work, if you could introduce yourself, and take us through the sequence of events that led to you where you are today, and perhaps some flavour on the kind of work that you do.
I’m just a guy that’s trying to do what everyone else is; find attractive investments and make them. I’ve been fortunate to be friends with Tobias Carlisle. He gave me a shot to be on one of his podcasts. That went well and turned into our regular podcast, Value After Hours.
I got interested in investing in the 1999 bubble. I went to school with some kids who’s dads were making a ton of money. It got us into following their stocks (we would look at the Form 4s to see who’s dad was selling). Then I watched the mania implode. That’s when I fell in love with markets.
It took a while to pursue the passion. I wish I worked for the right kind of investment firm out of college. It could have accelerated a lot of learning. But, life doesn’t always work the way you think it will.
Anyway, after some twists and turns I went to a Berkshire Hathaway meeting. I spent the money to go to Columbia Business School’s dinner the evening before the meeting. After the meeting I saw Mario Gabelli in the lobby. I asked him if I could buy him a beer and he spent a couple hours chatting with me. That conversation changed my life for the better.
Now, here I am.
Investing one’s own money is mostly a personal endeavour, which comes with a wide array of incentives, goals, risk tolerances, and so forth. I am of the understanding that you also handle OPM through your work at Sullimar Capital Group.
So, firstly if you could take us through what your goals are with your own personal investments, what ‘style’ you adopt, or prefer to adopt, and provide a summary of what you are aiming to achieve, as well as how you coordinate your activity to achieve said goals.
Then perhaps if you could discuss the nature of investing one’s own capital, versus the nature of investing the capital of clients? This can, of course, be a holistic answer, without necessarily discussing actual investments themselves. Essentially a discussion of the differences in approach between managing personal capital and OPM.
I can’t speak to the responsibility of running OPM. I only run my own capital. You can think of Sullimar Capital Group as a “doing business as.” It’s simply the entity I run my capital in.
I may run OPM one day. But, to be honest, I’d much rather do what I am doing for as long as I can. I know myself. And I don’t think I could take outside capital without having my family suffer. As of today, that’s not a trade I am willing to make.
As far as my style goes, I don’t know how to even put myself in a box. I’ve owned all kinds of stuff. The common denominator is I look at fundamentals more than stock price. I honestly could care less if a stock goes up or down. I care about how the business is performing. It’s my job to pay a reasonable price. After that, the business determines my outcome; not the stock market.
That said, you have to have the staying power to realise the business’ outcome. Said differently, if I get my cues from external sources, or I don’t know what I own, then there is a greater probability emotion will enter my investment process. That’s potentially very destructive.
How has your investing approach changed over time, if at all?
I used to screen for ideas a lot more. Today I have a pretty good network of investors I respect. Thankfully, I’ve been able to reciprocate ideas to them.
Recently I had a position “work.” It’s been nice because I told the people in my network to look at the idea before it worked. Thus, I think I bought myself some goodwill within my network. That said, it’s time to go find another one.
My goal is to find 3-4 things to do per year.
A large number of investors start with “value”. For me, the first book I read in relation to investing was Graham’s ‘The Intelligent Investor’. As a 17 year old, it was a superb introduction to the appropriate mindset one should adopt when investing. I will admit the first time I read the book, it was mainly the mindset takeaways that stuck with me, on account of the fact most of the technical aspects went over my head.
Which investors, past or present, or even mentors outside of the investing space have had the most significant impact on your own approach?
Buffett and Munger are where it all starts for me. That said, I am not dogmatic in how I view the world. There are many approaches to investing. If I were young I’d read Robert Cialdini, I’d study different investors (Bill Miller III, Stanley Druckenmiller, John Hempton, Marc Cohodes, Jim Rodgers, etc).
Then, I’d test my thoughts with a group of like minded people. I found my community on FinTwit. I’ve always approached what I did there with honesty. It’s paid me back in spades. Now it’s my job to continue to deserve whatever space I occupy within that community.
I am a huge advocate for considering your library as an asset. Some of my favourite books, which I often go back to, are: The Intelligent Investor, The Innovator’s Dilemma, Stress Test, The Dark Side of Valuation and Common Stocks & Uncommon Profits.
If you had to choose three books, of any genre, that you found either; changed your outlook, or were just fun reads, which would you chose and why?
The only strong recommendations I have are Influence: The Psychology of Persuasion, Poor Charlie’s Almanack, and Shantaram. The first two help people understand investing. The last helps people understand life.
Concentration in high conviction positions is one of the most efficient ways to earn outsides returns. However, it can also be an excellent way to blow up your account. What is your take on position sizing, or allocation in general?
My gut says people, on average, haven’t earned the right to be concentrated. On the other hand, the active game isn’t worth playing if you are going to have 30 portfolio positions, in my opinion. There’s definitely a balance, but I think people should err on the side of being diversified and/or indexed until they see a truly fat pitch. If they do see that fat pitch then they should swing. But fat pitches don’t come around very often.
This one is somewhat personal to the investor, but some state that a portfolio that will help you sleep better at night is a positive thing. However, not everyone would agree. I, for one, appreciate the notion of a better night’s sleep with some more ‘secure’ positions. At the same time, I never like to consider the notion that there are such things as ‘safe’ investments when concerning equities.
What is your take on that?
I sleep fine because I know what I own. I do churn the smaller positions in my portfolio. That’s a habit I should break. But generally speaking, if the market shut down for the next 5 years I believe I would be happy with my portfolio at the end of that time period. That’s why I can sleep at night.
A lot of investors I have spoken to, both green and experienced, have often asked me about the CFA and whether the designation is ‘worth it’, whatever that means. For me, my rationale for enrolling was from a place of education only. I enrolled back when I was a Masters student, and despite being largely self-taught for years prior, I wanted to sharpen my understanding on the more technical aspects of investment analysis. The rationale was never related to any potential jobs further down the line, more so from a place of self-improvement. I believe that the CFA is a long slog, that eats up a considerable portion of your life, but is entirely worth it if you are passionate about learning the content.
My question to you, and one that my readers often ask me, is what are the benefits of the CFA, and under what circumstances do you feel it is most useful to enrol?
This answer is bound to be unfulfilling, but it’s the truth. The CFA exam series was great for me. Would I do it again? I don’t know. I don’t use much of it anymore. But, it’s a great program.
No one cares whether I have a CFA designation. They care about my ideas. So that’s what I focus on. But it is hard to separate where my ideas and my background start and end.
Back to markets now. This is largely a speculative exercise, but it can be fun to speculate. When we consider some of the trends taking place, perhaps in the early innings of their trajectory, many will cite e-commerce, and I would have to agree. For me, I would think that areas such as Payments, Cyber Security, Traditional Banking and Healthcare appear to be ripe for disruption.
What are some of the areas that you feel will be most disrupted, or perhaps shown the most promising disruptors over the next decade, and why?
I don’t have any thoughts worth sharing on where the disruption will occur. I will say I think banks are far more resilient businesses than people appreciate. But, there is a lot of smart money attacking them. Time will tell who wins.
ESG is a topic that divides many. For me, I like the idea behind it, but do not provide it much weight in my investment decisions, to some extent. Many will cite that Mark Zuckerberg is the boogey-man, and that Facebook is the devil spawn. For me, I can’t help but see the conglomerate for what I view it to be, a collection of platforms with a gigantic user base, a vast ocean of consumer data, and a firm which is moving into some promising spaces like E-commerce and Payments with their recent innovations in WhatsApp. Then let us not forget Oculus and the potential there.
Anyway, what are your insights into ESG, and how large a factor do they play in your investing approach?
ESG is a fine concept. I care about it very much in private investments. For instance, I am investing in a real estate property that serves Section 8 tenants. I am going to be extremely disappointed if I visit that property and it looks like we aren’t over delivering for our tenants. I agreed to forego some return in order to provide superior service to a group of people that way too many people forget about and/or underserve.
On the other hand, I am quite sceptical of ESG in public markets. My scepticism has more to do with Wall Street than ESG conceptually. To me, ESG is a necessary but insufficient condition to survive as a business these days. Or, if it isn’t today, it will be very, very soon. But I view Wall Street pumping the ESG narrative as a means to raise funds for a particular investment vehicle. Some investors take it seriously. In my view the burden of proof is on them to show that they do.
I personally think that investing is as much about mindset as it is about skill. Moreover, you can never dismiss the variable of luck.
In some instances, an unskilled investor will be rewarded by luck, or circumstance. A bull market can create validation of one’s ideas and lead to assumed intelligence or skill.
In some instances, a skilled investor can discover a value-creating opportunity and have to exercise considerable patience before the thesis is materialised and the market reflects what the investor had hoped.
My question to you, is how do you view the relationship between these variables in investing, and to what extent would you say each is important?
Thomas Jefferson is often cited as saying “I’m a great believer in luck, and I find the harder I work the more I have of it.” In my view, that’s the best answer. I try to put myself in spots to get lucky. Importantly, I try to avoid situations where I could be very “unlucky.” In short, I try to set my life up in a manner that exposes me to a positive luck skew.
I’ll be quite happy with my legacy if people claim I was lucky over my career. Luck can bail you out once. It can’t do it consistently. That said, every great legacy has its fair share of luck embedded in it.
Lastly, my favourite quote, comes from Graham. The one concerning the short term voting machine and the long term weighing machine. I find it helps me reconcile the irrational price action in the near-term. I do not know who first coined it, but another of my favourite quotes is “If you don’t laugh, you’ll cry”. I find this quote helps me appreciate the randomness of life and the lack of control we have over external factors.
What is your favourite quote, and why?
Play wealth games, not status games. Everything good in my life came from trying to add value. I surround myself with givers and I try to give back. If someone takes, I don’t care who they are, I am done with them. It has led to a good life. Hopefully it continues.
Questions from Twitter:
In this segment, we collected questions from the Twittersphere, and present them to Bill.
@Andrewholder22: asks for an update on the Wells Fargo thesis.
People should read the government documents from March 2020. See what you think about it. Who cares what I think? In my view there is a reasonable argument that the odds offered to accept a fair amount of organisational risk appear attractive. That said, I do not own it now. I may soon. Then again, I haven’t bought back in for a reason. I’m working through why. Part of the reason is I found another idea and plowed capital into that one.
@Leaderqueen: “$QRTEA, are you still interested and why?”
QRTEA is one of my favorite businesses in the world. I’ll always be interested. Whether the odds offered are attractive is for someone else to decide. Thankfully, I don’t really have to make that assessment. That said, I am optimistic about what is going on at that company.
@Leaderqueen: “How do you think about tech businesses in the context of a value frame?”
Unfortunately I am not the person to answer this question. I’d recommend following @minioncapital and trying to learn from that account. My only strong piece of advice is there is a lot of money being made there. So be careful. Fast money doesn’t usually continue in the stock market.
Thank you for your interest in me.
To round off this piece, I would like to thank Bill for taking the time to contribute towards the newsletter this morning.
Stay tuned, as we have some excellent calibre guests lined up for you in the coming weeks.
You can find previous editions of the guest interview series below:
• Edition One: Bill Brewster
• Edition Two: Kris FromValue
• Edition Three: ValueStockGeek
• Edition Four: AdventuresInFI
• Edition Five: Brian Feroldi
• Edition Six: Brad Freeman
• Edition Seven: Mostly Borrowed Ideas
• Edition Eight: Richard Chu
• Edition Nine: Kermit Capitál
• Edition Ten: Liviam Capital