East Coast Asset Management letter investors for the fourth quarter 2014 titled, “All Is Well Since All Grows Better.”
From: Christopher M. Begg, CFA – CEO and Chief Investment Officer
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Re: Fourth Quarter 2014 Update – “All Is Well Since All Grows Better”
In our fourth quarter letter you will find our portfolio update and general market observations.
Each quarter we highlight one component of our investment process. This quarter, in the section titled All Is Well Since All Grows Better, I will highlight twenty-four lessons I have learned from Andrew Carnegie. As is our standard practice, client reporting, including performance and positioning, has been sent under separate cover.
East Coast Asset Management: Market Summary
In 2014, U.S. equity markets were one of the few bright spots across global asset classes. The S&P 500 returned 13.7%, yet global indices fell well behind, with the MSCI All Country World Index registering a meager 4.8% return, the MSCI EAFE Index (a proxy for developed international markets) returning -4.2%, and the MSCI Emerging Market Index returning -1.9%. Within U.S. Equity Markets, attractive returns on a sector basis also fell into a narrow range, with several Large Cap technology and healthcare stocks contributing to a large share of the attribution of the S&P 500’s return. Oil prices falling from a 2014 high of $107, to a January 2015 low of $44, have weighed heavily on energy stocks and businesses where the perception of sustained lower oil prices could materially affect end market demand and therefore, earnings.
We feel we made measured progress last year on our goal of preserving and growing capital. In our opinion, the key to unlocking superior long-term compounded returns is to find a way to amplify returns without increasing risk. Any asset class or strategy can have its moment in the sun, yet as time passes we learn what risks were employed to achieve those periods of outperformance. We have always valued an approach that favors endurance. Toward this end we believe that a winning strategy is owning quality businesses that grow their intrinsic values over a long period of time, fueled by superior returns on assets employed, a protective moat against competitors and an enduring culture. Furthermore, we feel that owning businesses that will improve their advantages and market position when the inevitable tide ebbs gives us the margin of safety we require.
East Coast Asset Management: “All is Well Since All Grows Better” – Twenty-Four Lessons I Learned From Andrew Carnegie
Andrew Carnegie was born in 1835 to a poor weaver. At the time of his death in 1919 he had built America’s steel industry and amassed the largest store of wealth the world had known to that point. Prior to his death, Carnegie gave the majority of his wealth back to mankind by establishing various institutions and building 2,509 libraries. I feel Carnegie was not just heroic for his business acumen but also a worthy hero for how he understood and embraced humanity. An exceptional leader with a head as well as a heart and whose legacy will endure.
One of the first books I read when I began my professional life was Think and Grow Rich by Napoleon Hill. The title caught my attention, thinking that it might provide secrets to professional achievement. The book was based on interviews of Andrew Carnegie conducted by Napoleon Hill. At the time it was very much lost on me who Andrew Carnegie was and the experiences that led to his success. Like many other young, ambitious graduates, I was in a hurry, so a furnished list of proven techniques was very appealing. The saying that “education is wasted on the young” rings quite true with my own experience. Too much of my early education, just like the way I approached Hill’s Think and Grow Rich, was spent finding the fastest way to the finish line. While I often found answers, they lacked a true understanding of the principles, the process and the illustrations of the practical experience that led to them.
Since my initial reading of Napoleon Hill’s book I have revisited the life of Andrew Carnegie. By reading biographies, his autobiography, personal correspondence, studying his heroes and his heroes’ heroes, I truly began to appreciate the greatness of the business and philanthropic titan that was Carnegie. I have not encountered a greater collection of wisdom in any individual and I have since endeavored to commit his experiences to memory. For this year-end letter I wanted to share a number of those lessons that have been imprinted on my mind for the purpose of applying their utility when life rhymes. The quotes are all Andrew Carnegie’s voice unless otherwise noted.
1. There is For Honest Poverty – A Man’s a Man for a’ That:
The hours hung heavily upon me and in the work itself I took no pleasure; but the cloud had a silver lining, as it gave me the feeling that I was doing something for my world-our family. I have made millions since, but none of those millions gave me such happiness as my first week’s earnings. I was now a helper of the family, a breadwinner, and no longer a total charge upon my parents… It is not the rich man’s son that the young struggler for advancement has to fear in the race of life, nor his nephew, nor his cousin. Let him look out for the “dark horse” in the boy who begins by sweeping out the office.
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