Boyles Asset Management On Moat Investing, Continuous Learning, And Daily Rituals… by Lukas Neely, EndlessRise Investor
Joseph Koster and Matthew Miller founded Boyles Asset Management in May 2013 based on the inspiration and principles of the Buffett Partnerships during the 1950s and 1960s. Which means they believe in pay for performance; and structured the fund in such a way that ensures incentive fees are entirely dependent on strong performance for their investors.
Their value investing philosophy is complemented by their patience, long-term mindset and investment process. And although they have a broad mandate for investment, they pay particular attention to the small and micro-cap space (U.S. and select International territories)
Currently, they are finding value in businesses in the small/micro cap marketplace. They are finding value in such industries as insurance, equipment manufacturing, and automobiles.
How did you get started in value investing?
Boyles Asset Management – Joe Koster: Matt and I first really learned about value investing at Coastal Carolina University from a professor we both had, Dr. Gerald Boyles. As you might be able to tell from the name of our firm, he had a huge impact on the course of our lives and careers. He taught both an investments class and a stock market challenge class where he introduced value investing and Warren Buffett to students, and even used the book The Essential Buffett as the textbook for one of the classes.
While in college, Dr. Boyles also was also the reason that Matt got in touch with Mike Pruitt. Mike was looking for his next project and ended up hiring Matt and me right out of school to serve as analysts for the new company he was forming called Chanticleer Holdings. We were lucky once when we crossed paths with Dr. Boyles, and got lucky again working for Mike, who made sure to give us all the resources he could for us to continue our education.
After a year-and-a-half on the job, we launched a tiny fund with money from friends and family to start managing public investments more formally. And then in 2013, with the help of a sophisticated firm in Charlotte that we had gotten to know well, we formed Boyles Asset Management in order to focus our full attention on the fund management business.
Has your view of investing evolved over the years?
Boyles Asset Management – Joe Koster: As far as how my view of investing has evolved, I’m reminded of an answer Peter Bernstein gave to Jason Zweig in a 2004 interview: “I make no excuses or apologies for changing my mind. The world around me changes, for one thing, but also I am continuously learning. I have never finished my education and probably never will.” My view of the world continues to evolve and I’m constantly changing how I look at things, and I think that will always be so.
But when I first started, I probably focused too much on only looking for low P/E stocks or stocks with good returns on capital. Now, I’m probably a little more skeptical overall, and realize that low P/E stocks might be that way for a reason, and returns on capital often mean revert. And stocks with higher P/Es and lower returns on capital on the surface can sometimes be the best investments if they are that way because management teams are making the right investment to increase long-term value at the expense of short-term earnings.
In light of all of that, I’ve realized the importance of really focusing on one’s downside protection, either in the form of a moat, balance sheet values, or some unique insight into the sustainability of earnings, because things aren’t always what they seem, and the future is sure to surprise me at some point, no matter how deeply I think I’ve read and researched something.
What does your typical day look like from beginning to end?
Boyles Asset Management – Joe Koster: On this topic, I’ve recently begun to read the book Daily Rituals: How Artists Work, and have really seen how people who have accomplished great things don’t really have a whole lot in common in their daily routines, at least not anything that can be seen as a universal type of rule. Their schedules and daily habits are personalized to their individual preferences and circumstances.
As for me, I’m usually more of a morning person, and the routine isn’t the same every day. But on a typical day, I get up, grab a cup of coffee and start the day going through my memory palace for about 15-30 minutes (which I described in a blog posted titled “Memortation, or One Way to Put What You Learn to Practical Use”). I then read through a few things—books and/or some reminders and quotes I’ve compiled—that I consider the fundamentals of my investing philosophy.
This usually takes anywhere from 15 minutes to an hour. I do this to make sure I stay on a disciplined path, as it’s all too easy for psychology and a good narrative to lead me, and probably most investors, astray at times. I then go through all my daily news and site feeds. As I’m going through them, I’ll email the things I find especially interesting to myself and link to them on my blog when I’m finished going through that process.
I then go through my daily, automated stock screens that get sent to me (more on that below) to try and see if any ideas pop up that look especially interesting. The goal here is really not just to try and find new ideas, but to compare what shows up with the stock ideas I’m currently working on to see if there’s something worth working on instead. In effect, it’s part of the constant process of trying to increase the opportunity cost of how I spend my time.
The time for news-related things and screens can be a bit unpredictable depending on how many interesting articles and companies show up in those processes, but after I’m finished with those, I turn my attention to whatever portfolio idea task is at hand, whether it’s researching what I think are the most attractive new ideas or keeping up with current portfolio holdings.
I usually leave the office in time to have dinner with my wife about every night, and then usually have an hour or two before bed for something additional, which usually involves catching up on the Charlie Rose show, “60 Minutes”, or something else I’ve recorded, and then either reading, watching a video or lecture, or catching up on some podcasts.
You mentioned that your heroes include Charlie Munger, Warren Buffett, and Benjamin Franklin. What did you learn from them?
Boyles Asset Management – Joe Koster: Besides the quality they all share of a lifelong commitment to continuous learning and improvement, they were—and continue to be in the cases of Buffett and Munger—all committed to giving back to society and leaving the world in a better place than when they entered it. They were all also quite skilled at figuring out what to avoid in life, or to put it as Munger often says it, “All I want to know is where I’m going to die so that I’ll never go there.”
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