During the 18 years I worked in the private equity industry, my colleagues and I spent most of that time patting ourselves on the back for how clever we were for operating in the inefficient private market compared to those who toiled away in the vain hope of beating the extremely efficient public market. I maintained the view that institutional public market investing was essentially closet index investing for which l had zero personal passion and even less belief in it as a worthwhile undertaking. While I had been aware of Buffett for many years, and had even seen him speak in person as a student at Harvard Business School, it was not until I felt the private equity industry had become overly competitive and institutionalized, and was looking for the next evolution in investing, that I decided to take a closer look at what Buffett had to say.
After almost 20 years of investing, Buffett’s teachings opened my eyes, anew, to the world of opportunity in the public market. He provided a framework for investing that allowed me to realize that while the public market is, indeed, very efficient, one only needs to find a select few inefficiently priced opportunity.
He also emphasized to me that a history of private equity investing provided a very sound backdrop to investing in the public market. In private equity we learnt to focus on identifying valuable investment opportunities through deep fundamental research at the company specific level. We learnt to worry about the downside first and exercise extreme selectivity in allocating investment capital. We learnt to focus on absolute, not relative or benchmark driven returns. We learnt to invest with a long term orientation and think of investing as buying a stake in a productive business rather than simply buying a piece of paper with a price attached. While I had seen each of these concepts as central to private equity investing, a closer review of what Buffett had been espousing for so many years highlighted that they were equally applicable to investing in the public market. Despite having spent many years deeply embedded in the world of private equity investing, this revelation allowed me to view the opportunity provided by the public market in an entirely different light and to appreciate the extraordinary potential of applying private equity style investing to the public market.
See the publication here: Manual of Ideas