It’s often said that investing is more art than science. In our opinion, that view depends upon the practitioner. What we do know is that some successful investors have learned some fundamental investment principals from art. David Nadel, Portfolio Manager of our International Small-Mid Companies Fund, did just that. In this piece, David explains what he learned early on, and how.
I was born into a musical family. My father was a songwriter and performer for 25 years, starting in the 1950s. Elvis Presley recorded a dozen of his songs, and my dad toured with Chuck Berry and others, all while having a parallel career for 35 years as a successful dentist.
My mom was an opera language coach, instructing many of the leading opera singers of the past two generations, including Placido Domingo and Renee Fleming, in her twin native languages of Czech and German.
As a 6-year-old, I started playing piano, and then added voice and clarinet. From the ages of 10 to 14, I sang as a member of the Children’s Chorus in 14 operas at the Metropolitan Opera at New York City’s Lincoln Center. While employed by The Met, I joined the Screen Actors Guild performers’ union and sang on 20 “jingles” (TV commercials) over four years, as well as on the movie soundtrack to the Oscar-winning film The Verdict.
As I transitioned from live performing to studio recordings, I learned pretty quickly that great performances can pay years of dividends. My dad received royalty payments long after his songs had left the Top 40, and the years of residual payments I received from singing enabled me to self-fund much of my education after high school. By that time, I was no longer singing professionally. The career of a child singer is short, especially for boys, rarely lasting beyond the age at which their voices begin to change.
I got hooked on investing before and during Harvard Business School, first by working a couple of years in the industry, then learning from legendary HBS professors like Michael Porter and Andre Perold. And much of what I learned from music is valuable in investing.
For instance, one of the first principles my team and I use to evaluate companies for investment is to determine if their business model produces harmony with their various stakeholders. Harmony is of course intuitive in music – you know it when you hear it! I would suggest that harmony is equally intuitive and important in investing.
It’s also rare. Our investment philosophy emanates from a multi-stakeholder approach, and we find it is uncommon to find companies that exhibit harmonic relations with divergent stakeholders, including their customers, suppliers, employees, and shareholders. In our opinion, the rare companies that do achieve this delicate balance are the exceptional, world-class businesses. They are not unlike musical masterpieces and can be as enduring.
By contrast, dissonance, which is the tension-filled or clashing sounds in music, is more like speculation. When a troubled company has a business model that takes advantage of its customers, or a management team that clashes with employees, suppliers, or shareholders, in our opinion, the only case one can make for buying shares is the hope of change. And hope is not an investment strategy!
Important information
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The investment techniques and risk analysis used by the portfolio managers may not produce the desired results.
Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.
Stock and other equity securities values fluctuate in response to activities specific to the company as well as general market, economic and political conditions.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
The risks of investing in securities of foreign issuers, including emerging markets, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
Many countries in the European Union are susceptible to high economic risks associated with high levels of debt, notably due to investments in sovereign debts of European countries such as Greece, Italy and Spain.
Investments concentrated in a comparatively narrow segment of the economy may be more volatile than non-concentrated investments.
Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
The fund is subject to certain other risks. Please see the current prospectus for more information regarding the risks associated with an investment in the fund.
The opinions referenced above are those of the authors as of July 10th, 2023. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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