I've wanted to film a conversation with Tony Deden of Edelweiss Holdings since the day
we launched Real Vision, and I was thrilled when he finally acquiesced.
I recently spent two days with Tony in the beautiful Swiss Alps and was treated to a
masterclass of investment philosophy, filled with the kind of wisdom and insight that makes
my journeys around the world to talk to successful investors incredibly rewarding.
Here's a little taste of what you can look forward to.
When was the last time you heard of a large aviation accident?
A long time ago right?
Right.
Well, about 50 years ago they were in the new every day.
Yeah.
The modern aircraft is a marvel, in man's ability to learn from error, every single
screw, every single rivet, every piece of equipment has been designed and has been put
there purposefully, so it doesn't fall out of the sky.
In fact, for the last maybe perhaps 30 years or so, most aviation accidents are largely
human error, rather than mechanical.
Flying an airplane is not terribly difficult to learn, what is difficult to learn is subjugating
your actions to a certain judgment of what is right and why.
It forces you to anticipate events, anticipate weather, anticipate changes in altitude, changes
in attitude.
It forces you to be constantly aware of your position in space, it forces you to be cognizant
of the limitations of the machine you're flying, your personal limitations as a pilot, it forces
you to deal with the uncertain events, equipment failure, for example, instrument failure of
some kind.
There was a publication that analyses every aircraft mishap that happens and what it really
does, in essence, is allows the reader to focus on those ingredients and those components
that contributed to an accident and whether, however, it was caused.
It forces you to go back and think of circumstances in which you found yourself in a similar situation,
it forces you to understand the errors that others have made, given certain things, what
they should have perhaps done, or how they should have thought otherwise.
Deploying your capital is not different from that because you're also alone in the world.
When you're flying an airplane, what other pilots do is completely inconsequential to
you.
The same thing is true in life, your personal life, what others do given certain...
how they make decisions, is not really as important as deciding what is in your best
interest at that one time.
It's not a competition.
The business of investment is not about competition, so when you say, people measure one's success
or failure by a return on investment, not just only in an investment portfolio but also
in a business setting, what they fail to see is those ingredients that have been employed
or the means that have been employed to gain those.
If I've earned X by not having more than 40% equities all my life that has to be measured
against someone who has deployed all of their capital in a different way.
If I have gambled or I have perhaps made one decision out of luck or coincidence that contributed
a great deal to this thing, so it's very important to examine the source, the means that were
employed and disregard the superficial aspects of what is there is not necessarily what it
seems.
If you gave me a $100 for argument's sake and I went to, somehow I came back to you
the next day or the next week and gave you $200.
"Wonderful, this is exceptional."
Now I set up a new firm called Tony Deden Investment Advisors, and my annualized track
record has been XYZ and I publish it and I put in some charts and graphs, there's no
question, you're pleased with the results of my operation but unless you ask 'how' or
'why' you fail to see the means that were employed.
You know, I have taken the chance of losing this capital, it's not mine of course so it
would be great, so our 2 and 20 I can really play with it, if I win I win, if I lose I
still win, I'll find somebody else.
The means are more important than the ends in so many of the important aspects of life.
Yeah, that story resonates with me because I think people today don't necessarily care
so much about the means, it's all about the numbers.
In the industry, it's become all about the track record and the performance, and investors
and customers kind of feed on each other.
If you have a bad year people take assets away, they don't sit down and analyze 'ok
why did you lose money.
You were being prudent with my capital, what you did was mitigate a lot of potential things
that could have gone wrong, but you made 25 basis points less than this guy' - who may
have taken insane risks - 'but I'm going to take more money away from you and give it
to this guy, because his returns were better.'
That obviously, that industry is anathema to what you try and do, it's not about...
Well, look, man has a right to have their own idea about what it is that they wish to
do, more often than not what man wishes to do is different from what he needs.
That's more often than not.
The problem with a financial world is that a typical investment firm accepts money from
anybody, so long as they have money.
The only thing they're interested in is having a copy of their passport, and a utility thing
and their blood sample or whatever it is.
They have an offering memorandum or some kind of instrument where they state their policy,
no-one reads those things anyway and the only reason the man on the street puts money into
this thing is because the track record in the last 2 years has been good.
So it's sort of like a captain of a ship who allows anybody to just come on board, think
about this.
The ship is nice, clean because it received very good reviews in the last month by the
cruising magazine.
So a lot of people come on board and at some point, after it leaves port, somebody's going
to be unhappy, they're going to see another ship going a different direction and some
people are going to say 'no, no, I'm going to go there.'
Either the captain's going to be unhappy or the passengers are going to be unhappy, and
the fact is that is an error and that's based on the fact that everyone was allowed to come
on board because everyone had money in their pockets.
The idea of taking everybody's money because they have money and so this is where things
go wrong because investment professionals earn money as a proportion of the assets they
have, rather than a fixed amount of money like any other professional would have, whether
it was a neurosurgeon or a... for doing their duty.
Doing my duty means that I should earn X whether I was handling $100 or $100 million isn't
it?
That's doing my duty.
Sure.
A surgeon earns the same surgical fee whether or not he operates on a butcher or he operates
on Bill Gates.
He doesn't charge Bill Gates more because he can afford more.
So the focus on the size of the pie on the part of investment companies is an error I
think, and it's ok, it's not a problem, but if there's confusion and disappointment then
people should look in the mirror.
Professionals and customers alike.