One of Claudia Huntington’s most successful investment decisions hinged on a single question: “Can you tell me about your vision?”
She was meeting with the CEO of Lotus Development Corp., a pioneer of spreadsheet software that was struggling through a challenging product cycle.
“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 she was seeking more fundamental answers. “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.
The company would turn the stock around and outpace Wall Street expectations.
Not all her investments have worked out as well, of course, but Huntington believes her focus on long-term results 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.
Huntington, who began her investing career in 1973 — a period of rapidly rising inflation and volatile markets — has decided to retire this year. The portfolio manager shared insights and lessons learned over nearly half a century as a professional investor.
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.
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. It’s important to develop the ability to calibrate CEOs and management teams.
A recent example is Satya Nadella, Microsoft’s chief executive. He was not an obvious choice to run the company when he succeeded Steve Ballmer in 2014, but he has excelled for a number of reasons. One thing Satya does at the end of every meeting, regardless of whom he is meeting with, is ask, “What do you think?” The fact that he wants to encourage participation, to hear other voices, is such a demonstrable cultural advantage.
I started my investing career near the beginning of one of the worst bear markets since World War II. My first job was at another asset manager that had three rounds of layoffs in my first six months. Capital ended up acquiring the firm’s assets, which is how I came here. This early experience taught me that this is a very volatile business. I also quickly recognized a stark difference between the way Capital and my former employer managed uncertainty. Capital has learned to manage through volatile periods and views down markets as opportunities.
Our culture is also designed to encourage what I call the lonely idea. By definition, good investments are not something everyone knows about. It takes a great deal of courage to identify an opportunity early on that has the potential to be a great investment.
The beauty of The Capital System is that I could act on my conviction to invest. Our system allows that bright spark of the lonely idea to shine through rather than being dimmed by consensus.
When I started, there were no cellphones, no internet, not even desktop computers. I am certain there will be comparably huge leaps in the coming years.
With respect to energy, I expect there will be some fabulous storage technology and better battery technology. That’s going to have a tremendous impact on the kind of transportation people use. I think one of the most exciting areas is medicine, where I believe there will be great leaps not only in drug discovery but also in virtual medicine. People will be monitored, diagnosed and treated remotely.
I would describe myself as someone who has always been interested in learning about the way things work. That’s what drew me to study economics in college and then to a career in investing.
What’s more, Capital has a culture that encourages lifelong learning, which really has been a perfect fit for me. In fact, as we speak I am working on a project with several Capital analysts to quantify the role that management plays in a company’s stock returns. I can’t wait to see the results of this study, and I’ll be working on it until my last day in the office!