One of Claudia Huntington’s most successful investment decisions hinged on a single question. She was meeting with Lotus Development Corp., a pioneer of spreadsheet software, while the company was struggling through a challenging product cycle. The beleaguered CEO was facing heavy criticism and less than thrilled about meeting with her.
“My initial meeting was hard to get, but I was finally granted 15 minutes,” Huntington recalls. “When I entered the room I could see he was tense, bracing for the inevitable questions about the coming quarter.”
But that wasn’t her question. “I told him, ‘Let’s not talk about the next few quarters. Can you talk about your vision for where you plan to take this company over the next five years?’” The executive’s body language immediately relaxed, and the conversation ended up running two hours. “He opened up about the risks and opportunities the company faced, his long-term strategy and how he planned to execute on that strategy,” says Huntington, who liked what she heard and decided to invest.
That proved to be a good decision because the company turned around and the stock outpaced Wall Street expectations.
Of course not all her investments have worked out as well as Lotus, but Huntington believes her focus on long-term results, a trait she shares with her Capital Group colleagues, offers a clear advantage when evaluating companies and their leaders. “Quarterly results are important too, but taking a longer view can lead to rich dialogue with company leaders,” she says. “Our best investment decisions are made when we are on the same wavelength as the CEO. We gain a deeper understanding of their talents and the likelihood that they can successfully navigate risks and execute their strategy.”
Huntington, who began her investing career in 1973 — a period of rapidly rising inflation and volatile markets — has decided to retire in 2020. The portfolio manager recently sat down to share insights and lessons learned over nearly half a century as a professional investor.
What are the most important lessons you’ve learned?
I’ve learned that this business is more art than science. Early in my career I thought it was primarily about math and perfecting my model. Sure, you need math, but the more you invest, the more you realize it’s about making judgments — about people and about the future. There are no facts about the future, so you have to try to look around corners.
Perhaps the most important lesson I’ve learned is that a company’s management is essential to its ultimate success or failure. If you have a great company run by a poor CEO, the odds of that company turning into a good investment are low. On the other hand, if you have a mediocre company in a mediocre industry with a superb CEO, then it is much more likely that company will turn out to be a good investment. So, being able to calibrate CEOs and management teams is an important skill to develop.