For the past 18 years, our team has been making the ~20-hour flight to Omaha Nebraska for the Berkshire Hathaway AGM. My colleague, Sam Paradice attended his first meeting in 2004 and has not missed a meeting for 18 years (excluding the past two due to COVID-19). This year was my sixth. Following our trips … we typically get two questions … Why do you keep going back? What were the main takeaways?
To address the first question, I typically respond with the following analogy … if you were an aspiring basketball player and you got the opportunity to spend six hours each year with Michael Jordan while he talked all things basketball … would you? Most get the point … a few don’t.
To answer the second – investing is a people business.
The final meeting of our trip was with one of the greatest investors of all time – Chuck (Charles) Akre from Akre Management. Following a meeting in Indianapolis, we drove 10 hours east to Chuck’s office in Middleburg Virginia. In this little town of 573 people, with just one traffic light, Chuck and his team manage $17 billion and have outperformed the S&P500 by 5% pa since 1989. To put this in perspective … just 5% of active manages outperformed the index over the past 15 years.
Chuck has built his track record by investing in compounding machines and holding on for the long haul. He bought his first Berkshire share in the early eighties at around $500 a share (last trade $462,715). In addition to Berkshire, he has had two other ‘100 baggers’ being American Tower and Markel Corporation. Chuck offered many invaluable insights during our two-hour conversation … however the lesson that really cut through was in response to our question about his greatest mistakes … to which Chuck responded … “the misappraisal of the people, not the business”.
Chucks comments were timely; prior to our meeting, I had just finished reading the book Richer, Wiser, Happier, by William Green. Green interviews a number of high-quality investors including Nick Sleep and Qais Zakaria from Nomad investors. Sleep and Zakaria built one of the strongest track records in the industry, generating 18%pa net of fees from 2001 to 2013 - investing in businesses that ‘shared the economic benefits’ of their scale through lower prices to their customers. ‘The most powerful MOAT of all is shared economics’ according to Sleep.
Using this mental model Sleep and Zakaria bet big on Costco, Carpetright, AirAsia, Amazon, ASOS, and Berkshire Hathaway. The striking commonality amongst this assortment of businesses offering carpets, aeroplane tickets, and consumer staples … was their leadership by a visionary founder … “they have to be almost high on being iconoclastic (criticizing or attacking cherished beliefs or institutions)”, stated Sleep.
Back to our meeting with Chuck … in response to my question, “would it make sense to own a portfolio of exclusively founder lead businesses” … Chuck responded … “absolutely”.
Further evidence of my conclusion ‘investing is a people business’ … came in the book, Intelligent Fanatics by Sean Iddings and Ian Cassel. As the title suggests, Iddings and Cassel identify nine lesser-known founders that produced remarkable results. The founder who really caught my attention was Roger Milliken of Milliken & Company.
Interestingly, Milliken bet in completely the opposite direction to Buffett. As Buffett exited the textile business Milliken set about investing heavily in research and development to become the only remaining textile business in the US.
When Roger stepped down as CEO, Milliken & Company had 60 manufacturing facilities scattered across the world, employed more than 12 thousand workers, produced $3.3 billion in revenues, and ranked 38th on Fortune’s 100 Best Companies to work for list.
If you didn’t read the Milliken’s & Company’s business description, you’d think it was Google. Researchers were allowed to spend 15% of their time investigating whatever they chose. Further, Milliken devised systems whereby employees could push a suggestion past their direct report in the event they were getting pushed back on an idea – he took decentralisation seriously! Once a researcher had proved him or herself to be an innovator (through new patents and products), their name was published in the Milliken Innovators Hall of Fame, next to their patent, and was then allowed to spend up to half their time on projects they choose. Milliken & Company’s R&D efforts eventually lead to multiple patents in advanced materials and specialty chemicals.
Outside of the research department, all employees were allocated 57 hours of continued education each year (far higher than industry averages) and Milliken set up the ‘Quality University’. The ‘Quality University’ opened its doors to outsiders, including competitors to observe Milliken & Company’s operating principles. In explaining why he would let competitors in, Milliken stated “The public relations are good, and they will never do anything with what they learn. They’re not disciplined enough.”
Milliken would also invite outside experts in to speak with his associates - allowing them to benchmark the quality of their operations. Further, managers were required to explain their instructions to associates using the ‘5 Ws’ – who, what, where, when, and why.
Milliken & Company went from manufacturing textiles as its primary purpose to manufacturing quality people. These quality individuals would lead Milliken to become the forerunner in engineering and designing new advanced fibers. Milliken’s vision of “Quality Leadership Through Research” was always executed in a ‘win-win’ manner – with the business being named Ethisphere Institute’s World’s Most Ethical Company from 2009 to 2017.
Jim Collins refers to founders such as Roger Milliken as ‘clock builders’ versus ‘time tellers’. Clock builders can tell you the time forever – good ideas extend beyond the founder. At age 88, Roger Milliken was said to have a hundred-year plan for the business!
I find it fascinating what a founder with an overt focus on people and culture can achieve … Milliken bet in the opposite direction to the world's greatest investor in an industry that was in structural decline … yet he produced incredible results.
If you find any Roger Milliken’s / clock builders out there … be sure to let us know!
Thanks for reading.
Lachie