Attracting Quality Shareholders Lawrence Cunningham
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Attracting
Quality
Shareholders
Lawrence
Cunningham
Menus
Attract
Five Star: Gourmets
Fast Food: Eaters on the Run
Smorgasbords: Tasters
“Companies obtain the shareholder constituency they
seek and deserve. If they focus on short-term results or
short-term stock market consequences, they will attract
shareholders who focus on the same factors. And if they
are cynical in their treatment of investors, eventually that
cynicism is likely to be returned by the investment
community.”
--Warren Buffett 1979
“Through our policies and communications—our
‘advertisements’—we try to attract investors who
understand our operations, attitudes and expectations.
We want those who think of themselves as business
owners and invest in companies with the intention of
staying a long time.
We want those who keep their eyes focused on
business results, not market prices.”
--Warren Buffett (1983)
Indexers Transients Activists Quality
Shareholder
Universe
15%
5%
40%
40%
Shareholder
70
Demographics
Index Transient Quality
45 45
40 40
35 35
25
20
15
5 5
Low Median High Berkshire
“Together with our dividend policy (no
dividends),* investor relations department
(none) and lack of emphasis on short term
(quarterly) earnings, we have instituted
policies that cater to the long-term investor,
i.e. investors who buy and hold our shares for
the long-term.”
--Prem Watsa 1995
* Dividend policy later changed.
Seeking The Right Owners: long-term, cool amid
market disruptions, no false objectives
Offering the Markel Menu: insurance underwriting
discipline, capital allocation prudence, merchant
investment model.
Time: “We think in two distinct yet completely
connected time horizons: forever and right now.”
--Tom Gayner (2016)
“Proxy advisory firms believe executives
should have the bulk of their compensation
determined by stock price over very short
periods (three years, typically).
While we recognize that the proxy
advisory industry serves an institutional
investor community judged on short-term
performance, the system is not structured
to judge businesses where long-term
risk/reward dynamics are paramount.”
--Weston Hicks (2018)
“Almost half of our shares trade each year, which
suggests that many of our shareholders are not
long-term oriented.
Another class of shareholders are indexers. They
buy our stock because we are part of whatever
index they are emulating. Their actions are
formulaic.
Another class of long-term Constellation
shareholders invest time and effort to get to know
our company. We are fortunate to have [many of
these].”
Mark Leonard (2017)“[W]e include no narrative with our quarterly reports.
Our owners and managers both have very long time-
horizons in regard to this business, and it is difficult to
say anything new or meaningful each quarter about
events of long-term significance.”
--Warren Buffett (1978)“What starts as an ‘innocent’ fudge in order to not
disappoint “the Street” can become the first step
toward full-fledged fraud.
Playing with the numbers “just this once” may well be
the CEO’s intent; it’s seldom the end result.
If it’s okay for the boss to cheat a little, it’s easy for
subordinates to rationalize similar behavior.”
--Warren Buffett (2018)“The focus on quarterly growth accentuated by
quarterly conference calls has made the stock
market hypersensitive to short term results.”
--Prem Watsa 2018AGMs
Pro Virtual
Virtual
● little happens anyway
AGMs?
● enables indexers to attend more
● quality as good as conference callsPro Virtual
Virtual
● little happens anyway
AGMs?
● enables indexers to attend more
● quality as good as conference calls
Con Virtual
● look around!
● problem with indexing
note meetings
● so vaping is as healthy
as smokingVaried
Voting
Rights
Tenured Voting
Current:
Aflac
Carlisle
Dual Class J.M. Smucker Quality Voting
Berkshire Quaker Chemical Length & Depth
Fairfax Synovus Financial
Google Past:
Facebook CenturyTel
Church & Dwight
Cincinnati Milacron
Roper Shaw Group
French (CAC-40 Opt-Out)
Air Liquid
LVMHCORPORATE Benefits
• Curb Activism
• Check Proxy MARKET
Adviser Power
• Rational Pricing
• Offset Short
Term Pressure • Compensation
• Acquisitions
• Ownership PERSONAL
• Brain Trust
• Sandy Gottesman
• Steve Scotchmer
• Sir John TempletonMeals
Menus &
Investors
Five Star: Gourmets
QUALITY
Fast Food: Eaters on the Run
TRANSIENTS
Smorgasbords: Tasters
INDEXERSTHANKS!
SUPPLEMENTAL SLIDES
Selected Quality Shareholders
AKO Capital Budros Ruhin & Roe Findlay Park Jolley Asset Mgmt. Speece Thorson
Akre Capital Burgundy Capital First Manhattan Kahn Brothers Sprucegrove
Allen Holding Inc. Check Capital First Pacific Klingenstein Fields Stearns Financial
Aristotle Capital Clarkston Flood Gable Lafayette Investments Timucuan Asset Mgmt.
Arlington Value Consulta Ltd. Flossbach Von Storch Lee, Danner & Bass Tweedy Browne
Cortland Advisers Fort Washington London Co. of Virginia Wallace Capital
Atlanta Investment
D.F. Dent Franklin Mutual Lourd Capital Water Street Capital
Baillie Gifford & Co.
Gardner Russo
Baldwin Investment Dane Falb Stone M. A. Greenwood Wedgewood Partners
Giverny Capital
Barrow Hanley Davis Selected Advisers Mackenzie Financial Weitz Inv. Mgmt.
Greenbrier
Beck, Mack & Oliver Douglass Winthrop Mar Vista Whalerock Point
Greylin Inv.
Bislett Mgmt. E. S. Barr Markel Corporation Wintergreen Advisers
Hartford Funds
Boulder Inv. Advisers Eagle Capital Mraz, Amerine Robert Robotti
Hartline Investment Southeastern
Bridges Inv. Mgmt. EdgePoint Capital Neuberger Berman
Everett Harris & Co. Henry H. Armstrong T. Rowe Price
Broad Run Punch Card Capital
Fairholme Capital Hikari Tsushin Inc. Ruane Cunniff Timucuan
Brown Brothers W. H. Reaves
Fenimore Hotchkiss & Wiley Sleep, Zakaria
Harriman Westport
Jackson National Asset Smead CapitalSelected Attractors of Quality Abbott Labs Constellation Software Morningstar Accenture Credit Acceptance Nestlé Activision Blizzard Danaher O’Reilly Automotive Alleghany Corp. Fairfax Financial Post Holdings Alphabet (Google) Graham Holdings Progressive Corporation Amazon IAC SEACOR Amazon Illinois Tool Works Sherwin Williams AutoNation Jefferies (Leucadia) Texas Instruments Berkshire Hathaway Johnson & Johnson Transdigm Brookfield Liberty Media Unilever Carmax Loews Corporation Verisign Cimpress Markel Corporation
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