Tomorrows Best Investment Advice is 400 Yrs Old: Expert Taps Shakespeare to Counsel Clients

garyKnow Thy self: Not Hard, If You Follow the Bard

As I have come to learn, there truly is very little new under the sun. The timeless wisdom of the world’s geniuses are as applicable today as when they were first conveyed, as Schopenhauer so brilliantly explained. With this in mind, what new could I bring to the table when it came to some of the most important lessons I have learned about myself, others, and human nature in general? Really there was nothing, especially when one has a body of work like William Shakespeare’s to pull from. The Oracle of Delphi said “know thyself,” which is one of the most important requirements for successful investing. As I have said in my book and in blogs and to clients, I view one of my main jobs as protecting people from themselves. Shakespeare has been invaluable in this, because we have to make sure that we at CWS Capital Partners LLC don’t get tripped up by our blind spots, incentives, and constraints into making suboptimal decisions for the people who entrusted us with their hard-earned money. We need to make sure we protect them from themselves and not from us!

In 2012, I marked the twenty-fifth anniversary of my career at CWS. Having just returned from a great trip to England, where my final days in Stratford-upon-Avon (the birthplace of William Shakespeare) elevated my interest in the Bard, I realized that to create works still relevant and widely-consulted nearly four hundred years after one’s death is truly remarkable. As Shakespeare’s Cleopatra said, “Give me my robe, put on my crown; I have / Immortal longings in me.”

My daughter took the trip to Stratford with me and was reminded of it when she said that she was reading Macbeth in class at school. She picked up on one quotation in particular, and wanted to know if we (her parents) knew it. It was this one: “[Drink] provokes the desire, but it takes away the performance.”

I must confess that I was a little taken aback and that I hadn’t heard it before. But I was proud that she had such good retention of what she was learning. That quotation is as true today as it ever was, of course, which just goes to show that human nature doesn’t change (or physiology for that matter). And in case you’re wondering, the aforementioned quotation had no influence on me deciding to title this byline, “Not Hard, If You Follow the Bard.”

My twenty-fifth year at CWS seemed to be a good time to reflect on the past quarter century. I must say we had quite a journey over the twenty-five years, encompassing all aspects of comedy, tragedy, and history.

On paper, our job as investors looks pretty simple: avoid investments that can result in the permanent loss of capital (as per Buffett’s definition of risk), identify those that offer the appropriate return for the risk borne, evaluate them, get them capitalized, execute on the business plan, and deliver competitive cash flow and appreciation for the risk incurred—which ultimately includes making good sale decisions. Yet this is obviously easier said than done, since not many firms have been able to survive and prosper for more than forty-five years as CWS has. So, while far from perfect, we must be doing enough things right to have navigated the turbulent seas that have been described throughout my new book, The Philosophical Investor: Transforming Wisdom into Wealth. And just to make sure you didn’t forget some of the notable storms, here are some of them again, in no particular order:

  • the 1987 stock market crash
  • the savings and loan crisis
  • formation of the Resolution Trust Corporation (RTC)
  • two Iraq wars
  • Afghanistan
  • 9/11
  • the dot-com collapse
  • the NASDAQ falling by 80 percent
  • the housing boom and crash
  • the bankruptcy of Lehman Brothers
  • government conservatorship of Fannie Mae and Freddie Mac
  • the European crisis
  • the implosion of Long-Term Capital Management
  • the Asian crisis of 1997–1998

So . . . how are we still standing?

Continuing the Shakespearean theme, I note that Shakespeare’s plays have five acts, so I’ll replicate that structure in this article—with Shakespearean quotes peppered throughout, where relevant.

Act I: Know and Be Thyself

To be successful requires avoiding self-sabotage. We must recognize blind spots that can get in the way of evaluating situations honestly and realistically, and we must notice character defects that can trip up even the best-intentioned people.

With mine own weakness being best acquainted.

Act II: Prepare Thyself

Adversities in life are inevitable, so it is vitally important that we be as prepared as possible to deal with them in as healthy a manner as possible. In addition, there are some people who experience great fortune yet are as ill-prepared to handle it as those who run away during times of challenge.

This ambitious foul infirmity,

In having much, torments us with defect

Of that we have; so then we do neglect

The thing we have.

Act III: The Power of Adversity

No investor can avoid adversity. It is impossible for everything to go as planned.

Oft expectation fails, and most oft there

Where most it promises.

It is critical that we have the strength, courage, tenacity, and perseverance to battle through the tough times, to learn from them, and to come out on the other side wiser and stronger.

Let me embrace thee, sour Adversity,

For wise men say it is the wisest course.

Act IV: Recognition, Courage, and Action

It is vital to get the big trends right, because that allows us to have a framework to view developments as they unfold. I have learned to pay particularly close attention to investment bubbles: how they form, how to spot them, and the consequences when they burst. By doing so, we better position ourselves to avoid losing money and to take advantage of the opportunities that arise in the aftermath of a financial dislocation.

Show me one scar charactered on thy skin: Men’s flesh preserved so whole do seldom win.

Nothing will come of nothing.

Act V: Love the Learning and Playing the Game

I love puzzles: finding the pieces that go together and seeing the picture unfold over time. Life isn’t as well organized as a puzzle or game, however. We have to discover what those pieces are and how they fit together in a chain of cause and effect. I have found that approaching the world of investing like this makes it much more interesting, and it improves the probability of success, because I want to know why something worked or why it didn’t. I then use this information to form hypotheses.

Learning is but an adjunct to ourself

And where we are learning likewise is:

Then when ourselves we see in ladies’ eyes,

Do we not likewise see our learning there?

What many men desire! that “many” may be meant

By the fool multitude, that choose by show,

Not learning more than the fond eye doth teach,

Which pries not to the interior, but, like the martlet,

Builds in the weather on the outward wall,

Even in the force and road of casualty.

If you are constantly focused on the destination, then it is difficult to build up sustainable levels of satisfaction and joy from the hard work of the journey. Mastery requires digging more deeply and deriving great satisfaction out of incremental improvement, learning what the right things to do are and doing them right, and recognizing that you’re traveling down the right path. Later, you can look back and see how far you’ve come while still having many miles of beautiful terrain ahead.

I look forward to someone reading this in 2412 (or perhaps 2052 would be satisfying as well) and finding value in it.

gary-carmellGary Carmell is the President of CWS Capital Partners, a real estate investment management firm based in California and Texas, and founded in 1969. He specializes in the acquisition, development, and management of apartment communities throughout the United States, where his company owns and operates more than twenty thousand units with a value of over $3 billion.  

A Chartered Financial Analyst, Mr. Carmell received his B.A. from the University of California Los Angeles in political science and an M.B.A. from the University of Southern California. He is the father to two adult children, and he lives in Southern California with his wife.  

His new book, The Philosophical Investor is available for purchase on Amazon and other fine booksellers. Carmell can be reached through his website www.garycarmell.com, and through LinkedIn and Twitter.

 

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