For these reasons, there is a limit to the number of effective investment decisions one person can make without diluting the quality of those decisions.
Great investing also demands bold decisions, which are best made by individuals, not groups working by consensus. For a team approach to be well structured, therefore, it needs to allow individuals to think and act independently, but also for them to ideally enjoy an element of constructive challenge through a peer review process.
That argues strongly against building a large monolithic team. First, smaller research teams with distinct areas of focus can provide an energising, innovative and dynamic environment. Veteran stockpickers are more accessible in smaller teams, so junior analysts help and gain valuable exposure to them.
Second, by embedding the different teams in locations around the world, a broader range of perspectives can be gleaned, which helps counter tendencies towards “groupthink”.
It is a good idea to use an approach of blending the stock picks of a small number of individuals into a single portfolio. This might be much harder to explain to outsiders and to the market, but it provides much greater resiliency than a process that is dependent on a single star.
To continue the sporting analogy, all players get match experience and are subject to constant evaluation to earn their spot. They make each other better through a process of continuous practice, learning and evaluation. This keeps the starting team sharp, while the inherent organic development and renewal process builds sustainability.
True, multi-decade sustainability requires a means to refresh the starting line-up over time. It is why it is important to spend a great deal of effort identifying and nurturing the stockpickers of tomorrow within all of each research teams so they are ready to step up and run with the baton when the time comes. This work, in particular, only pays off over the very long-term, but it is an important, ongoing, part of the service we can provide to clients.
Dan Brocklebank is head of UK at Orbis Investments
