Why Brotchie Capital?
We believe the only reason anyone should invest with us….or any investment manager for that matter…would be because the investor has arrived at the answers to some very important questions:
Does the manager have a long history of making sound judgments in investing and in business?
What is the manager’s investment decision making process and is that what led to the judgments of the past? (sound or unsound)
How closely are the investment manager’s interests and incentives aligned with the investor’s?
Are they likely to continue to make sound judgments that will result in favorable returns in the future?
In other words, the investor should want to understand: how we think, what we think about all day and why we think that way. Of course, they should then believe that this line of thinking will result in a successful investment program that they want to be a part of themselves.
What we start thinking about every morning goes something like this:
How do we avoid that real life version of Monopoly’s “Community Chest” card that tells us to return to GO, without collecting $200? If you’ve been fortunate enough to enjoy success as a business person and/or an investor, you probably don’t want to risk starting over. Since that reflects our own background and is how we feel personally, we find it helpful to think of ourselves as managing the family farm.
We want to be good stewards of the assets and grow our net worth. The first step is to never put ourselves in a position where we have ‘the farm’ taken away because of a poor weather or a bad crop year. The crisis years of 2008 and 2009 were just that type of calamity for many investors. Because we have this ‘family farm’ attitude, we not only weathered that period as individual investors but even managed to prosper. However, if we had used borrowed money or had been investing in companies where we did not really understand the business the way we should have, things may not have turned out so well.
The second thing we think about every day is inflation. Our general belief is that there is usually more inflation in the economy than what is officially reported by the government. Part of this belief stems from the fact that government analysts adjust for multiple items they consider to be volatile, such as food and energy prices. Secondly, the government uses something called ‘hedonics’ in their calculations to adjust downward the price of a new product such as a more expensive car for all the new electronics and features that are not really germane to running the car. In fact, there are credible sources who believe that if the 1990 methodologies were still used to calculate the CPI we would be over 5% instead of the roughly 2% that is currently being reported in 2014. Using the 1980 methods, this number purportedly would be even worse. The most important point here is that we’re constantly thinking about protecting the purchasing power of our capital.
Our next step is to start thinking about growing the capital base in real terms. When you start privately held businesses from scratch and run them as we have, the returns can be much better than anything you will get in the public markets. These excess returns are compensation for the creative efforts, very long hours and risks associated with bootstrapping a new business.
As much as we are conservative when we wake up in the morning, we still really like it when we grow and make money. In order to get that growth and still sleep well, we have to believe we fully understand the businesses or the assets that we’re investing in. We also have to think we understand how things will look in three to five years. We literally look at it as if we were buying the whole business and going to run the place ourselves. We don’t think the stock is just a little piece of paper to be traded around in a game where we’re trying to outsmart other people who are also just trading around little pieces of paper.
We believe our long-term orientation is a competitive advantage. Many market participants become fearful and sell in a panic when they should remain calm. Institutional investors may be doing the selling because they don’t want to look bad at the end of the quarter, or when there might be some bad news on a particular company. It may be a simple case of the company’s stock price falling below some nominal value requiring certain institutions to have to automatically sell it. This is where we think we have an edge.
Our Difference
We believe we are different than most professional money managers in four major ways: