Every service-oriented enterprise eventually comes to a crossroads: develop as a business or remain a craft.

 

Businesses adapt to market demands and scale operations in pursuit of profitable growth. Broadening the clientele requires an efficient workforce trained in standardized procedures. Often, the owners are not the founders but investors who expect to generate returns through dividends and increasing company value.

 

Conversely, a craft is inseparable from the craftsman. Improving his skill is the north star. The emphasis on the quality of service limits his capacity to serve a large client base, but craftsmen maintain personal responsibility for the integrity of their service. A craftsman has no shareholders whose incentives might stand between him and excellence.

 

Investing as a business

 

When investing is pursued as a business, profits are achieved by hiring salespeople to gather assets and employ marketing strategies to justify fees.

 

The supply of investment opportunities is not limited by quality but by the size of the client’s wallet. Selling what sells leads to a ‘Noah’s Ark’ of specialized funds - investing in frontier markets, Chinese companies, or artificial intelligence. As far back as the British textile industry in the 18th century, specialization has led to desirable results. Clients assume specialization applies to investing. Fund promoters nod in agreement.

 

A manager of a specialized fund can doubt many things but never the topic of the fund itself. If a client wants investments in China, the staff must find them, regardless of whether the investment stands on its own merits.

 

Consequently, the responsibility for inevitable failure falls on the client who picked the fund. Unsurprisingly, the salespeople remain in good spirits, ready to suggest another fund - perhaps the one that has recently performed better.

​

Investing as a craft

 

I view investing differently: as a craft whose sole objective is achieving the highest long-term return on invested capital.

 

I do not specialize in industry or geography; I specialize in investing itself. The skills necessary for success include understanding the balance between risk and reward, valuing the hard-to-measure, and maintaining a deep awareness of one’s strengths and weaknesses.

 

An investor’s temperament is critical for long-term success; the ability to predict short-term fluctuations in a particular industry is not. During a decade of investing, my most significant losses and missed opportunities never came from a lack of data. They came from flaws in my thinking.