Webcast #37: The 4 Most Annoying One-Liners from Money Managers

We all gather information from different sources. To a historian, archives are invaluable. For a lawyer, case precedent is essential. With a reporter, eyewitness testimony is likely helpful.

In our case, we’ve always preferred to gather information and generate ideas by listening to other people. Not just one or two individuals here and there, but hundreds of varying opinions every week.

The best way to test an idea is to hear someone else poke holes through it. From our experience, if a rebuttal is difficult to formulate, we haven’t thoroughly thought through the idea. Worse, the idea itself isn’t very strong to begin with.

After listening to many, many other money managers for decades, similar one-liners recur in the media that give rise to our skepticism.

“We’re cautiously optimistic”

Aside from the obvious contradiction that accompanies being “cautious” yet simultaneously “optimistic,” these words can sometimes mean that the investment team isn’t on the same page. Because investing involves assigning probabilities to future events, it is impossible for two people to think alike all the time and in every instance. A strongly opinionated pessimist in conversation with a strongly opinionated optimist can find common ground at being “cautiously optimistic.” It can also mean that the person speaking doesn’t have a strong (or any) opinion about the future. If the market appreciates in the near term, that person can remind you that they were optimistic. If the opposite were to take place, don’t forget they were cautious not long ago.

“You’re getting paid to wait”

This is something a money manager might say when they bought the client a dividend-paying stock at a price much higher than its current price today. Never buy a stock strictly for a dividend. You can lose an entire stream of income payments in a single trading session. Instead, own companies that accompany strong merits where the existence of a dividend is an added bonus. Companies cut their dividends all the time. For example, two household names – Walt Disney and General Motors — both cut their dividends during the pandemic. While dividends are often slashed because their cash flow is stretched too thin, sometimes a future management team decides to take the company in an alternative direction that involves vast sums of capital to reinvent itself. The cost of doing so may very well involve eliminating the dividend.

“Invest in high quality management”

This highly subjective phrase can be used by anyone in any instance. It’s very much in the eye of the beholder to define what “quality” truly entails. Quality to one investor may include a team of visionaries with a plan to produce disruptive technology that will change the future of all mankind, even though their company has yet to generate a penny in revenue so far. Quality to another may mean a management team that has a history of delivering stable and consistent cash flows in all phases of the economy, particularly during recessions and troughs.

“We’re value investors”

Our firm researched nearly every Canadian portfolio management company’s website not long ago. Interestingly, the investment style said to be most practiced was “value investing”. By definition, a value stock trades at a multiple below that of the overall market. If the abundance of investors adhered to value investing, the more expensive technology-heavy S&P 500 would have had different leadership in recent years. This isn’t to say that someone attesting to value investing is insincere. It simply means you should have a closer look at the stocks within that money manager’s portfolio to confirm that the label matches the actual style being employed.