When I was starting out in the business, I was pitching a stock as a buy to an account in Boston. It was a conglomerate trading at 4x earnings. My pitch was that it was really cheap and was going to go up a lot over the next couple of years. When I finished, the chief investment officer said, “That’s a really compelling case, but we can’t own that. You didn’t tell me why it’s going to outperform the market in the next nine months.” I said I didn’t know if it was going to do that or not, but that there was a very high probability that it would do well over the next three to five years. He said, “How long have you been in this business? There’s a lot of performance pressure in this business, and performing three to five years down the road doesn’t cut it. You won’t be in business then. Clients expect you perform right now.” So I said “Let me ask you, how’s your performance?” He said, “It’s terrible, that’s why we’re under a lot of performance pressure.” I said “If you bought stocks like this three years ago, your performance would be good right now and you’d be buying stocks like this to help your performance over the next three years.” That’s our approach. We buy today with an eye on performance several years out. I can think of only twice when what we did in the year that we did it helped that year.
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