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Clark Winter
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In a world of financial advice noise, Clark Winter stands virtually alone as a source of acumen. For more than 35 years, Clark Winter has held his clients’ interests as paramount. It’s one reasons why Ian Bremmer, Chairman and CEO of the Eurasia Group, calls Clark “one of Wall Street's most... More
My company:
SK Capital Partners
My blog:
My book:
The Either/Or Investor: How to Succeed in Global Investing, Once Decision at a Time
  • Drivers, Passengers, Road Kill 0 comments
    May 26, 2009 9:43 AM

    The ability to distinguish things that matter from things that don’t is key to both prosperity and survival.

    For the better part of 40 years what mattered most to investors worldwide was the ability to decipher the numbers emanating from the US economy, from US corporations and from US banks and the Federal Reserve. US Capital flows and fiscal flows were the Drivers with the most meaningful influence on the global economy. Those who observed and understood were able to go along for the ride, and become successful passengers. Those who misread the Drivers’ directions were often Road Kill.

    This past year we’ve all witnessed an unprecedented transition wherein investors worldwide have felt like Road Kill, or at best Passengers, and increasingly we are aware that no one seems to be driving our train. It seems to all on board that no one is in charge any more. The locomotive appears empty, the direction at best uncertain and more likely increasingly perilous. Rational decisions have been punished. But so have irrational decisions. It seems that any decision to do almost anything in the markets has been rewarded with Road Kill status. In order to make smart decisions (investment or otherwise) people act best when they understand the drivers – when to take control of events - and when to be willing passengers - to ride the flow of events unfolding around them. Even paralysis can be fatal. In my recent book “The Either / or Investor” I highlighted attributes of successful decision making and how successful people in all walks of life are adept decision makers. They know how to distinguish what matters from what does not. They can distinguish common sense from nonsense. Too much information from too little, and the forces of entitlement from the forces of opportunity. Those who invested with Bernie Madoff were passengers on a train whose driver never clearly identified his road map, much less his direction. Hiding behind mysterious black boxes and obtuse quantitative models appeared functional, but only because interest rates had been declining for so long that almost anything with leverage worked, for a while. From Real Estate to levered long bonds, from the Carry Trade to California muni’s, it all seemed to work. As oxygen became thinner at high altitude investors began to believe in and breathe ozone, just before blacking out.

    The magnitude of the current crisis is unparalleled in the lives of most Americans living and working today. But those who have lived the past decades in more turbulent parts of the world are more familiar with crises and the subsequent opportunities that unfold. I lived in Europe and Latin America for ten years and as a young banker opening JP Morgan’s offices in Madrid and Mexico City, I experienced firsthand the traumatic events leading up to the nationalization of the banks in France and Mexico. While unprecedented for Americans, the events we are living through currently are not unprecedented elsewhere on the planet. I observed first hand that the majority of Mexicans fled in the midst of the storm and one man made a decision to acquire real businesses at a fraction of their value and manage them through the storm. Carlos Slim saw opportunity in Mexico in the early 80’s, the same way that certain buyout pioneers did in the USA. A similar opportunity is available now. In both instances those who did their homework were able to identify real business, with real products and real customers – real businesses orphaned in the hands of dysfunctional conglomerates or over-stretched multinationals. If you can bring to bear first-rate transformational management, a clear sense of how to improve productivity and increase revenue at the same time, you have a formula for success. Combine this with the ability to acquire enterprises at historically low valuations and you have a genuine and compelling investment opportunity.

    The current economic environment is very similar to the early 1980s. It is both chaotic and confusing at the same time. That’s one of the reasons I’ve decided to join SK Capital Partners as Chief Investment Officer. First, the combination of fluctuating prices of oil and other natural resources combined with a dramatic decrease in consumer demand have caused a dramatic drop in asset valuations. Rather than wait for the return of market buoyancy, experience shows it’s more intelligent to identify isolated opportunities where we can bring experienced teams to bear on specific companies and add value through blocking and tackling. In the past decade many companies have sacrificed the basics while getting intoxicated by financial engineering. In my judgment we are at a moment in an investment cycle where experience and astute operational efficiency will be rewarded independent of Beta’s behavior. More specifically I wanted a company that could be a Driver. I want to be part of an investment process working with people with absolute rigor and integrity. Almost by definition that means a firm with a limited number of partners, all of whom share a common approach to investing and a limited focus. Not generalist but specialist, with decades of successful operating experience.

    Second, the age of financial engineering is over. Leverage is out, and de-leveraging is the rule of the day and will be for a while. What does that mean? Simply, if you want to make money, you have to make it the traditional way - hard work, home work and genuine and continued productivity gains. You can’t get by on glamour and formulas anymore. When you look at a potential investment, you have to strip it down to its most intimate state, and make sure that it is as blemish free as possible. You have to perform a level of diligence that many investment professionals never learned, and that more have forgotten.

    Third, I wanted to work with a firm that wants to make things better, not simply one that wants to make money. There is nothing inherently wrong with wanting outsized profits, but alpha really ought to come from operating improvements and not just from leveraging interest rate spreads. The people I work with are not just investors; they take an active role in the companies they acquire, and employ sound business methodologies to improve their portfolio companies. This involves upgrading their management skills, their technology, their relations with their customers and a host of other methods. The result is better companies that generate higher returns for their investors, more employment, more sales and often, the better environmental conditions that come from better manufacturing practices. The folks at SK Capital Partners have solid backgrounds as engineers and managers at major corporations.

    Their investments are tangible – companies carefully selected from the thousands that are suddenly on the market and available for acquisition. These are companies where the firm has examined every detail of operations and the minutia of the balance sheet; before they commit their own money and that of investors, they want to know that they have done everything possible to minimize risk in a down economic environment and, more important, that they will be able to drive opportunity as the economy begins to improve. They have not eliminated risk – no one can do that, and even investing in Treasuries now carries its share of potential hazards – but they have worked hard to lessen the chances that they or their investors are going to end up as road kill.

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