It’s written in the same Q&A fashion as the Leo Gough book I reviewed six months ago. I am quite keen on this format, and in this case it is enhanced by the fact that the author, Andrew Leeming, is a practising analyst and has as much to add to the conversations as the people he is speaking to.
Titled The Super Analysts, it contains a series of interviews with senior analysts and senior fund managers, with the governing theme being the role of the sell-side analyst – although it looks quite heavily at the fund management industry too.
Interestingly enough, especially given how out of favour he is, the most widely quoted man in the various conversations is Keynes. His sentiment that if circumstances change, he changes his mind is repeated on around five occasions by different interviewees.
An early piece of advice comes from Stuart Baker of Macquarie Bank who remembers starting his first job as an analyst and being told about the mining companies he would visit. He was told: “when you go out and talk to these companies, treat them all as liars and crooks until proven otherwise.”
He also cautions on the value of the MBA: “The MBA thing teaches you to be a guru, or at least to think that you’re a guru, and you come pre-armed with this inbuilt arrogance and a recipe book that you believe will solve all the world’s problems.”
The key thing is to be humble. On that point, everyone interviewed concurs.
That can also apply to the fund managers. Notes Michael Mauboussin of CSFB: “The reality is that 75% of fund managers underperform the market year in, year out – after transaction costs and fees. The irony is that 75% of people can buy an index fund and outperform the highly paid professionals. Now, do you know any industry where 75% of people who walk in off the street can do better than the professional?”
Then again, there’s the opposite view from David Fisher, who runs the Capital Group, an active-management firm that has shown good results over the years. He opposes the idea of tracking an index. “I was raised with the idea to be the best you can be, so the idea of mediocrity as an objective just stuns me. But out there, there’s this fear of failure, where some investors will say, ‘Well as long as I don’t deviate from the index too much then I won’t be badly wrong and therefore I won’t get fired’. And that type of thinking drives me nuts, because frankly, the people who are going to spend their lives worrying about getting fired aren’t the people who are likely to be good investors.”
MurdochMurchison of Templeton is equally vehement in his view of index tracking: “I can’t understand why you should be so hypnotized by an index.”
At this point in the conversation, Leeming says, “Another issue is that indices always include companies that you would never want to own.”
To this Murchison replies: “Exactly. Or, put another way, are you prepared to invest money in stocks which you have a pretty good idea are going to lose your clients’ money.”
In fact, the interviews with Fisher and Murchison are among the best. The interview with sell-side analyst Joe Petch also stood out. The former Peregrine man – who was forced out of Indonesia for his views – has some very pragmatic things to say. For example, “I think we need to address the issue of cost of capital in Asia, because in emerging markets the whole issue of cost of capital is a more difficult concept. But you don’t see cost of capital being researched and analyzed, or people thinking about it. They just use the techniques that have been developed in the West.”
He also says: “You’ve got some techniques that are being brought over, like EVA, but no one in Asia is really applying them properly because there are very few people who are actually forecasting over an entire price or investment cycle. They are still stuck with their arbitrary three- to five-year forecasts and are then saying, ‘In that period it is showing positive EVA. That sort of supports a PER of X and that makes the stock a strong buy.’ Now, that sort of interrelationship doesn’t make sense.”
Overall, such perceptive thinking characterizes most of the interviews. It makes the book well worth dipping into.
Reviewed by Steven Irvine
Rating 4.5
