The Globe and Mail, Report on Business
Published May 27, 2011

By Tom Bradley

“What I find of particular interest is the speed at which changes in communication technology are happening. It’s causing a great intergenerational knowledge gap, which is rather worrisome because many decision makers are still part of my old-fart generation.”

This comment by my friend John Rogers, a lawyer and technology entrepreneur, got me to thinking about my industry. Is there a similar gap in asset management? And if so, who does it favour?

Given that I’ve been burdened with grey hair at a ridiculously young age (I think of it as premature wisdom), I’m desperately hoping there is a gap that favours the seasoned over the newly brilliant. It seems to me that the buy side is one industry where tenure should be an asset.

To test my thesis, I sought out seasoned portfolios managers who’ve successfully guided their funds and firms through many market and performance cycles. I asked this esteemed and highly biased group one question: What advantage do you have over the young bucks?

I started with Bob Hager, co-founder of Phillips Hager & North. Unfortunately, Bob is extremely humble and spent more time rhyming off reasons why the youth have the upper hand. Their technical skills are more current and they’re quicker to embrace “the new stuff,” which means they gain the early spoils.

I tried to cut Bob off because that wasn’t what I wanted to hear. I know all about the disadvantages. A veteran’s energy level isn’t as consistently high. They have more distractions including management duties and other activities that success brings (speeches, media appearances, art collections, season tickets, southern homes). And they have a tendency to lose the edge that made them successful – i.e. stock pickers become big picture thinkers – and focus too much on protecting their legacy.

Despite a rocky start, I continued my survey and quickly found consensus – experience really shows through at market extremes. Tony Arrell (chairman and CEO of Burgundy Asset Management) felt strongly that a veteran has the most value at the “critical moments.” There is no substitute for having gone through the intensity, confusion and hysteria of a market event. Bob Krembil (co-founder of Trimark) added, “You can’t learn it from books. You have to experience it.”

Catastrophe and Euphoria

In extreme circumstances, veterans can provide a steady hand. They’re less likely to conclude that it’s different this time. Larry Lunn (Connor Clark & Lunn), whose firm managed through the 1987 crash as well as anyone, told me, “I’ve been through the end of the world a number of times.”

Having talked a lot about bear market moments, I asked Bob K. about the other extreme. Interestingly, he felt that experience, and the strength to apply it, was even more important in euphoric times. It’s then that a patch of poor performance puts the most pressure on a manager to change strategies. Clients are quicker to leave at peaks because, in Bob’s view, “greed is more powerful than fear.”

Some of the grizzled felt that experience was essential in sorting through the flood of information that hits them each day. Differentiating between what’s urgent and what’s important is an acquired skill.

Related to that, a few talked about how experience gave them the ability to pull back and get away from the day-to-day noise. Tony Hamblin (retired from Hamblin Watsa) likened it to being an army general whose job is to command from a distance. This perspective is necessary to help pick up on inflection points in the market and understand the nature and durability of trends – how they take off and how they inevitably unwind.

Perhaps what the years bring more than anything else is the ability to make simple, “tried and true” fundamentals a usable part of the investment process. I’m talking about the real basics. Patience is key. Leverage is a double-edged sword. Don’t invest in anything you don’t understand. And don’t let a good story, positive investor sentiment or lack of alternatives be substitutes for value.

Dennis Starritt (a principal at Bluewater Investment Management) summed up my research as only a portfolio manager could. “Experience is hard to value. It’s like an intangible on the balance sheet.” Certainly it’s no substitute for brains and discipline, but for my money (and my clients), I’ll take the old farts every time.