The afternoon's last panel featured three former Managers of the Year (Chris Davis of Selected American Shares SLASX, Will Danoff of Contrafund (FCNTX) and Dennis Lynch of Morgan Stanley Institutional Growth MSEQX) talking about stock selection. Most such discussions quickly degenerate into dueling pablum: "I'm looking for growth stocks at value prices" or "we're looking for growth with a catalyst." Ick.
This was less systematic but much more interesting. They got onto the question of whether they bought Facebook, Google, both or neither, and why. Among the highlights:
Davis: "I was a little spooked with a Facebook executive, early on, announced that 'our goal is to fully monetize the trust that you have in your friends.' That struck me as creepy and I hope they never said that in public again."
Lynch and Danoff: young firms need to be judged differently than established ones. In particular, the quality of capital allocation decisions is far less important in young firms; they're going to make mistakes and the more important question is why and how they responded.
Davis: "whenever we invest, we write something that might be considered a 'pre-mortem.' We start with the assumption that whatever we decided was horribly wrong and write up, in advance, what mistakes we made and what conditions ended up costing us. This discipline is critical for avoiding the pitfalls of later convenient recollections about why we did what we did." Vigorous nodding from Lynch and Danoff.
Lynch: "it's incredibly hard to get our head around the idea that a firm with just 10 employees might be massive. With the scalability of operations through the internet, firms can get one small thing very right and suddenly they're global. It's incredibly hard to traditional stock disciplines to accommodate that fact."
Danoff: "we're all been taught that the four most dangerous words in investing is 'it's different this time.' The problem is, in many ways, it is different - fundamentally and profoundly. We need, as investors, to learn to understand those differences."
Lynch and Danoff: the question of whether to invest in Google or Facebook was strongly driven by the subsidiary question, is the monetization pursued by the firms value-added to the users' experience or a degradation of it. That is, when the sites started embedding context-sensitive advertising, was the effect to make viewers value the site more or less? In general, all saw Google as offering a more logical - hence more accepted - inclusion of advertising on their site.
Bottom line: there are a bunch of factors at play in an emerging economy that are poorly accounted for by traditional disciplines. It seems to take some combination of the mastery of the traditional discipline plus the ability to transcend it to thrive. Few achieve that, perhaps for generational reasons - younger managers are impatient with one set of rules and older managers find the other set somewhat alien.
For what it's worth,
David
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As a warning, my daughter and classmates attended a D.A.R.E. (Drug Abuse Resistance Education) program put on by the local police department. She and her classmates came home with free pencils that said "Don't Do Drugs". Subsequently as she sharpened the pencil the phrase changed to "Do Drugs"...careful what you take home with you.
Man, how wide-eyed. I guess he never saw the movie.
Sure would be cool to hear what Peter thinks lately.
My guess? Go long.