My colleague Clayton Zacharias wrote a post a while back about the advantages of a flexible mandate. That got me thinking about another limitation we work hard to avoid: our own biases.
People who know me know that I’m not a big fan of the commodity business. There are a number of reasons for this, but in part, my aversion is simply because they rely on a commodity, an undifferentiated product.
But even with that bias, we’ve stepped up and made a number of oil and gas investments over the last couple of years and we’ve done it at a time when natural gas prices were absolutely plummeting and scaring people out of the space.
One example is Ultra Petroleum Corp.*, which is a pure dry gas producer, meaning there aren’t any associated liquids that are commanding high prices. Even with my personal bias against commodity-related firms, we stepped in and made it a 3%+ weighting in Trimark Global Small Companies Class (2.95% as at June 30, 2013).
Within Trimark Global Small Companies Class, we aren’t restricted by geographic or sectoral constraints. And to ensure maximum flexibility, we also do everything we can to avoid being held back by biases like mine against commodities. A big part of this, is our team approach. We sit around a table and debate the merits of a specific company and we all feel it’s important to share contrary opinions. In fact, Ultra Petroleum Corp. was an investment we made in large part because Norm MacDonald introduced us the merits of this differentiated, advantaged business that was inexpensive thanks to being guilty by association with a tough industry.
As a team, we also stay away from businesses we don’t understand. In my thirteen-plus years with Trimark, I’ve hardly ever held financial institutions in the funds I manage. It didn’t take the 2007-8 crash to give me conviction on this. I’ve always felt that these companies are extremely opaque. Investors get about a nanosecond heads up when something’s going wrong. By and large it’s a sector we haven’t participated in a lot, but, that said, we have found select opportunities in the space over the years.
Overall, we aim for a portfolio based on having an individual thesis for each company and we do everything we can as a team to be aware of, and avoid, our own biases.
Do you have investing biases you work hard to avoid? We’d love to hear your story.
*The above companies were selected for illustrative purposes only and are not intended to convey specific investment advice.