Standing On the Shoulders of Investing Giants

Authored by Jonathan Needell, President and Chief Investment Officer

August 19, 2021 (reposted from LinkedIn article published on October 31, 2017)

Recently I was interviewed for a board position of an investment firm and was asked about my risk profile. After answering the question by saying what I was not (i.e. not a developer) I went on to stand on the shoulders of a couple investing giants. I thought my answer would make a good first published article on LinkedIn.

Early in my education I read Intelligent Investor by Ben Graham who defined investment and speculation as “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” We use this definition every day at work and in training materials for incoming financial analysts. However, in answering the question I realized Graham’s statement is incomplete in the context of control investments. It is static as Graham wrote and talked about investing in securities that were issued by companies that were run by others. That led to connecting another experience to the definition for my answer.

Early in my career, I was fortunate to have exposure to Richard Rainwater. He told a story of how he got into the investment business. He left Goldman Sachs where he was in institutional sales and joined his MBA classmate Sid Bass and the Bass family in Fort Worth to help invest their fortune. One of the first deals he worked on lost several million dollars and, at the time, that was not an insignificant percentage of the family’s wealth. Sid and the Bass family showed loyalty and Richard felt horrible. He vowed to work to never let such a thing happen again. He spent the next decade or more building the family’s wealth by 40 times. He created a reputation for bold concentrated investments. His investments were tied to broad macro themes that he identified and as these investments were successful he brought a legendary status as investors to the Bass family members and himself.

In recalling these two points of view and some personal history, I went on to answer the question in the interview with a slightly modified version from both Ben Graham’s definition of an investor and speculator while adding Richard Rainwater’s experience as an investor. I answered: the risk profile definition to which you subscribe depends on how you react to your first loss. Everyone has a first loss. It is kind of like crashing on a bike, it is not a matter of if, but when.

If, after your first loss, you decide it happens to everyone and you will try again, but you will win some and lose some – then you are a speculator. If you vow right there and then to limit how, when, how often, and the depth of losses anytime a problem or risk is presented – then you are an investor.

This means actively managing, minimizing, or mitigating risk, and working hard to do so while also taking every opportunity to maximize returns. Sometimes opportunity presents itself as a risk. Hopefully preemptive measures avoid risk, but all too often reactionary work is needed after a risk is presented. Therefore, one should:

1. Through thorough analysis, enter investments that promise safety of principal and an adequate return (Ben Graham), and

2. Through active management of your investment tirelessly try to limit, mitigate, and manage risk while taking every opportunity to maximize return.

Then you are an investor.

For questions, contact investor relations at investorreporting@kimc.com or 949-800-8500.

*There are no guarantees that any specific investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss.