Robert Vinall: RV Capital 10 Year Anniversary Letter

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We’ve just finished reading RV Capital’s 10 Year Anniversary Letter. In it Robert Vinall discusses his ‘aha’ moment as it relates to value investing, and the key determinant of an investment outcome, which he discovered while analyzing his previous investments.

Here are some excerpts from that letter:

The Aha Moment

Recently, I was asked by a fellow value investor when I had my “Aha Moment”. I thought it was a great question and a good place to start a memo at the 10th anniversary of the Business Owner Fund.

In my case, the logic of value investing – a share is a part ownership in a business, the metaphor of Mr. Market, and the concept of Margin of Safety – hit me like a bolt of lightning as opposed to slowly dawning on me. The question implies it is the same for all value investors. I suspect that is true.

Lightning struck in my case one morning in the early 2000s in a nondescript office in one of the skyscraper’s punctuating Frankfurt’s skyline. At the time, I was a telecom’s analyst at DZ Bank. In the debris of the Dot Com crash, I had started tentatively investing in companies listed on the Neuer Markt (Germany’s now-defunct Nasdaq clone) in collaboration with my two roommates, Vidar Kalvoy and Wolfgang Specht. The former Neuer Markt darlings had fallen so much in value that many were trading at discounts to the net cash they carried on their balance sheets.

On this morning, Vidar came bouncing into our office excitedly carrying Benjamin Graham’s “The Intelligent Investor”. He opened the book at Chapter 5 of the first (and best) edition, in which Graham describes the speculative boom in new issues that preceded the Great Crash of 1929, then read out the following sentence:

“Some of these issues may prove excellent buys – a few years later, when nobody wants them and they can be had at a small fraction of their true worth.”

This sentence blew me away. I was amazed that a book written over 50 years earlier, prior even to the mass adoption of the telephone, could so precisely describe what I was seeing in the Internet economy of the new millennium. I was hooked on value investing and have been ever since. It is not an exaggeration to say this sentence changed my life.

The Key Determinant Of An Investment Outcome

After Business Owner started, I had a strong appreciation for the managers I invested in, but they were not central to my investment hypotheses. My goal was primarily to avoid the bad guys. Having satisfied myself this was the case, price and business quality drove the investment decision.

I only changed my mind on this several years later when I, again, noticed a funny thing when I looked back on past investments.

Fortunately, most of my investments had worked out reasonably well – by focusing on business quality I avoided the complete investment disasters that occasionally marred my earlier investing career – but a handful of my investments had worked out spectacularly well.

When I dived deeper into why, I saw that it was generally due to factors that I had not specifically forecast at the initiation of the investment, such as an opportunistic acquisition, a product launch, or a new market. It became clear to me that no matter how deeply I studied a company, ultimately, I only saw the tip of the iceberg. The prime determinant of an investment outcome was below the waterline, out of sight.

As someone who prided himself on being a thorough and diligent analyst, it was a painful and humbling realization that my company analyses may, in fact, not be all that good.

But it freed me to recognize a far more important truth: If the key determinant of an investment outcome is what I do not see, the most important thing is to invest in managers I trust.

I have found time and again that the surprises with managers I trust are generally positive, whereas those with managers I do not are nearly always negative.

Today, I only feel motivated to do the hard miles and build an understanding of an investment case if I get a visceral sense that the company’s manager is someone I could deeply admire. Invariably, this is someone for whom the company constitutes his or her life’s work or has the potential to be.

I described why I think people are the key factor in my 2015 letter and held a talk on the same topic at Bob Miles’ Value Investing Conference in Omaha in 2017.

You can read the entire letter here – RV Capital 10 Year Anniversary Letter.

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