THE ARLINGTON MAN

HT to David Merkel on the 400% Man article.

I enjoyed the story a lot. Perfect article – you get a very good feeling after reading it. You almost feel that you can do this too and it is about you (especially, if you make money when the market goes nowhere, like last year). But that is the problem. You almost hear 100% of what you want to hear. The guy in a romantic armchair, creature of habit, long & hold, no spreadsheets, concentrated portfolio, 4x in 12 years (admittedly, 12% IRR, yes – indexes went nowhere), and of course a major struggle in the middle of success (Overstock.com). Almost - too good to be true.

Despite this skepticism by inversion, I am inclined to believe the story. I agree with David that it is much better to fund a stable of new hungry managers with existing limited track record than to “conserve” money in a conventional way. I would add an element of more aggressive hedging than investment grade bonds, though. If you know what a good investment is, you should distinguish an outlier prone for downside, as well. Up and down complement each other like light and dark.

Now try to imagine what an investing FoF or family office “pro” would think about an edge of such a guy like Allan Mecham. What could be his edge?

> Longer time horizon?

> Temper? Patience? Discipline? Brain?

> Smaller scale = bigger universe = more inefficiency? (it does not seem so from his holdings)

> No technical restrictions (e.g. minimum number of holdings)?

I am not talking about technical - numbers skills, ability to distinguish bad business from good, etc. Those are must haves but they are ubiquitous. Good communication skills are prevalent among better marketers and talkers than closed thinkers. The listed “edges” can be unique (especially in combination) in a sense of absolute returns potential but close to impossible to quantify and measure. Yet, track record could be attributed to luck. You can mitigate that with a clear process, which can be fully controlled if you can control a real talent - you definitely can, if there is a mutual interest.

You cannot open one's mind, though.

Sharing this frustration of risk misperception by people with money, I tagged the blog “investing without edge”. Should there be any frustration? Not really. Hard work, humbleness, sound judgment, patience, and a bit of luck should translate into absolute returns and bring in understanding customers.