The Fund Manager Who Got Into Wealth Management By Accident
'Tony' Deden got into the investment business by accident.
Managing the monetary affairs of a family after the breadwinner dies.
Over time, one family became two, three, and more.
Knowing that his clients no longer had an income, capital preservation was key.
My key insights:
1. Respect the capital
The capital entrusted to him was a lifetime's worth of savings.
It's tough enough to protect the capital from externalities such as inflation, taxation or unforeseen events.
A fund manager can't compound the error by internal factors such as imprudence.
2. A good investment must have three components
Scarcity, permanence and independence.
These three components make investments endure the test of time.
Scarcity
Over time, anything that is scarce accumulates value.
Savings, tangible and intangible resources, or human qualities that help in building great businesses.
It could also be a company's culture and ability to adapt & endure.
Hard to replicate by competitors.
Permanence
Invest in companies whose practices and behavior are designed to endure rather than just grow.
A company can grow but become fragile at the same time, and eventually die.
Independence
Dependence injects fragility.
Depending on a supplier, a single customer, government subsidies etc can reduce a company's ability to endure in the long run.
It is more likely for an independent company to adapt and endure in tough times
3. Risk
A real risk is permanently losing one's capital without ever being able to recover it.
Volatility is not risk.
Think hard about what could go wrong.
It is better to err on the side of inaction than to act hastily and without thought.
4. The illusion of prosperity
During periods of prosperity (bull markets), examine the causes to figure out if it’s real or simply an illusion of prosperity.
E.g. Is the rise in consumer spending due to increased real income or funded by credit?
5. Look beyond just growth
Deliberate upon the idea of endurance and durability of a company.
Study those companies that stood the test of time.
6. Idea of exclusion
Figure out which businesses you'll never invest in.
There're only a handful of companies worth your time.
7. Difference between owners and investors
No owner of a business wakes up every day and asks himself what he's worth.
Owners are focused on ensuring:
• the business survives
• have a great product
• a satisfied workforce
• stable suppliers
• delighted customers
8. Balance sheet
Companies should never exchange growth for a fragile balance sheet.
Especially not for stock buybacks to artificially boost EPS when management's compensation is tied to EPS.
A company's ability to endure is tied to the strength of its balance sheet.
9. Looking at stock prices
The more you look at stock prices, particularly during drawdowns, the more you start to question why you own them.
Regularly checking the portfolio can damage long-term compounding.
10. Circle of competence
Don't own something you don't understand.
Even if it's going up, it makes no difference.
11. Businesses to avoid
Commodity-based businesses have a low barrier to entry.
Similarly, companies that provide transport e.g. flights, trains or trucks have no operating leverage.
They are subject to inputs and costs that are beyond their control.
12. There's no value to reading the news
The news is fake and it always has been.
Many news reports are poorly disguised promotions or written by people with no clue.
People are usually addicted to news because they base their investment decisions on other people's decisions.
If you wish to learn more, check out this great interview with Anthony 'Tony' Deden with Grant Williams!
This is the end of my key takeaways from Tony Deden!
I hope you enjoyed it.
If you like this, please share it to help others find it.
Thanks for reading! If you haven’t already, do consider joining us as a premium member and gain access to stock analysis on high-quality growth companies.
Companies covered: Twilio, Facebook, Sea Limited, Alibaba, Crowdstrike, and more!