By Rupert Hargreaves. Originally published at ValueWalk.
RV Capital Management, the Swiss-based value orientated investment manager, returned 11.6% for investors over the six months to 30 June bringing the return since inception (30 September 2008) to 384.8%. Over the same period the fund manager’s benchmark index, the Dax has returned 111.4%, giving outperformance of 273.5% for the fund. Within RV’s half-year letter to investors, a copy of which has been reviewed by ValueWalk, the portfolio manager Robert Vinall embarks on an interesting discussion about how a company’s purpose and management factors into his investment decisions. Of particular interest is the discussion of purpose.
Vinall writes that he “would prefer a company to have a higher sense of purpose than not.” He goes on to explain that while it is important for companies to have a sense of purpose, “I would not, for example, invest in a company that was doing things, but lacked any prospect or interest in making money.” This desire steered the manager away from Amazon “for a while” although in hindsight “my time horizon was not as long as it should have been.”
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Robert Vinall On Management
It is often said that companies that have a desire to make the world a better place put people before profit, which hardly makes for a great investment. Vinall disagrees with this view for several different reasons which he lays out the letter. He believes that a company with purpose will prove to be a superior investment as purpose and profit are “intimately connected.” For example, employees who feel purpose in their work are more motivated and hence more productive and creative.
The customer is more likely to receive a product tailored to their requirements, and therefore is likely to be a supporter of the company singing its praises. And society will benefit as a company with purpose will provide employment benefits as well as tax revenues, which are far more likely to convince policymakers to offer an accommodating regulatory backdrop. With all these factors working together, Vinall opines that “these are the inputs that go towards creating financial success. Financial success itself is just the output.”
The letter goes on to discuss the process of finding good managers. Finding a good business manager with an acute knowledge of capital allocation is difficult, and something many businesses lack. Vinall writes that he seeks to answer the following question before he buys any company: “does the management possess talent and integrity?”
The process of finding an answer to this question has changed over the years, and today RV is looking not for companies where management has total control but where “decision-making is pushed down to the lowest possible level, ideally to the person dealing with the customer.” This model creates, “an experience for the customer which is more tailored to her requirements and is more fulfilling for the employee. It is a superior organizational model that creates a win/win.” With this layout, employees act in a way which they feel is consistent with the company’s values and priorities.
This in itself leads to another question that needs to be answered, specifically, “does management sector right example?” The answer to this question will not be black or white, instead as Robert Vinall writes, “I’ll know the right example when I see it.” When dealing with company managements experience is invaluable, but most people should be able to realize when management is setting the right, or wrong example. If it’s a case where senior management is putting profit over people, you can be sure they are not setting the right example to employees.
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