Why we need to understand people, not just numbers

SG Hiscock & Company
Andrew Gillies
Andrew Gillies
SG Hiscock Analyst
"Show me your library and I'll tell you when you died”, my close friend and mentor reminds me.

Tongue in cheek, I remind him I’m not in the pecuniary position to have a library; and even if I did, I’d probably be too busy working to read…

I reckon I’d have more books on my kindle anyway.

But, despite my sardonicism, the meaning is not lost on me:

When you stop learning, you’re dead.

A somewhat macabre inversion of Descartes “I think, therefore I am”. 

Every day we have an opportunity to learn. It’s why I love investment. It’s a constantly evolving opportunity set.

And it’s not just about numbers.

It’s the confluence of the quantitative and qualitative inputs that helps us understand what really makes a business tick. A business, at the end of the day, is run by people. Even if these people enable technology or create technology, it is built by humans, and based on human behaviour. 

Any business is both internally and externally affected by decisions people make at every level of the organisation.

For us, and for your portfolio, making a judgement on what constitutes good management decisions is just as important as building and maintaining a financial model. 

Keep in mind the underlying assumption of all economic and financial models is that people will behave rationally.

But what does rational mean?

We are, as humans, exposed to numerous cognitive biases that can affect our decision-making process. They affect, in economic terms, how ‘rational’ we really are.

Understanding this, we assess ourselves. If we make judgements on others’ ability to allocate capital, it would be hypocritical to not assess ourselves in the same vein.

Again, it’s not just about numbers. In fact, as investment managers, we view our returns as the sum total of the decisions we make, and when we’ve made them. As such, being aware of the over 180 cognitive biases we are exposed to is not just relevant, but important.

Success in this business is, in Warren Buffett’s words, a ‘temperamental quality, not an intellectual quality’.

And so, our qualitative research doesn’t just extend to management of businesses, but our management decisions for your investments.

The below infographic outlines some of the key things we think about when making investment decisions:

Courtesy of: Visual Capitalist

A great info graphic, thanks for sharing.

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OUR PROCESS

We believe in buying great companies at good prices. We are firm believers in co-investment, demonstrated by our significant investment in our own funds. Our confidence in our investment approach means we always seed new funds with our own money. We have made the decision to cap our Funds Under Management at modest levels, to ensure that the funds retain greater flexibility to generate strong investment returns across varying market conditions. In order to identify the best opportunities for our clients, we undertake a broad fundamental research program which incorporates an extensive company visitation schedule. With an experienced team of investment professionals, our approach to analysing companies is designed to ensure no stone remains unturned.

We engage with a hand-picked team of external research providers to complement our insights in the macroeconomic landscape (both locally and abroad) and general investment trends. We also have an exclusive joint advisory arrangement with one of the world’s largest commercial real estate investors; LaSalle Investment Management Securities, LLC is a subsidiary of global property giant, Jones Lang LaSalle. This provides our property team access to LaSalle’s research capabilities.

OUR ENVIRONMENTAL, SOCIAL AND GOVERNANCE POLICY

SG Hiscock & Company has a formal board-endorsed environmental, social and governance (ESG) policy. This incorporates the key principles of the Australian Council of Superannuation Investors, as well as the framework provided under the United Nations’ Principles for Responsible Investment. SG Hiscock & Company is a responsible investor and we take an active approach to integrating ESG considerations into our investment decision-making process. We believe that the effective governance and management of business risks has a direct impact on a company’s intrinsic value over the long term and helps to reduce investment risk. In order to identify the best opportunities for our clients, we undertake a broad fundamental research program which incorporates an extensive company visitation schedule. With an experienced team of investment professionals, our approach to analysing companies is designed to ensure no stone remains unturned.

We engage with a hand-picked team of external research providers to complement our insights in the macroeconomic landscape (both locally and abroad) and general investment trends. We also have an exclusive joint advisory arrangement with one of the world’s largest commercial real estate investors; LaSalle Investment Management Securities, LLC is a subsidiary of global property giant, Jones Lang LaSalle. This provides our property team access to LaSalle’s research capabilities.