year, we’d look in the port-folio and say gosh, how arewe going to do 15% or 20%this year with this group of dull investments, but some-how it happened. We had23 great years of investmentperformance, but the last 3were not so hot.The firm broke up at theend of last year, and Istarted Brave Warrior withthe same precepts, andhired some super brightyoung guys. One of themdropped out of college at 19to start a pharmaceuticalcompany, which he is nowin the process of selling.Got the directors, raisedthe capital, got the rights tothe drugs that he wanted tomarket. I thought that withthat kind of motivation and
“That meant noturnarounds, nocrummy businesses, nohighly competitivebusinesses, and no techbusinesses,which we didn’tunderstand. Itwas boring stuff.”
Page 3Issue IX
ingenuity, he’s a very crea-tive person who knows howto think about a business. Ithink I’ve built a team of that kind of people.There are five of us: mypartner and I, and threeyounger people. We haveone person who does spe-cial projects research. Wegive him a question that wewant answered, which mayinvolve conducting inter-views or getting documentsother people haven’t both-ered to get. It’s a wholedifferent vantage point onthese investments thatwe’re looking at. Then wehave one fellow who has amore conventional invest-ment background. He’sdone distressed and privateequity, but he loves publiclytraded securities. Verybright and has a similar in-vestment approach to whatI do. So, we have a greatteam.
You have a uniqueapproach to client manage-ment, which allows you tolet your assets compoundorganically rather than fo-cusing on marketing. Howdo you cultivate your rela-tionships with investors?
In the past it was bydelivering outstanding re-sults. When we foundedChieftain, I felt that since mypartner and I were going tobe doing everything, all theresearch and picking stocks,we wanted to spend 100%of our time on that. So wemade up some rules. Num-
(Continued on page 4)
After five years there, I leftto join a small private in-vestment group as a re-search analyst for a verysuccessful investor. I spentfive years crunching hisnumbers and analyzing hisinvestments. One thingthat’s changed a lot is thatwe were much more quali-tative, we didn’t have PCsto do these fabulous, com-plex multi-variable models,but I don’t think we lostanything by not having thatavailable. It forced you tothink more clearly about thequality of the business andwhat would give it legs as aninvestment, as opposed totweaking models and chang-ing assumptions, and worry-ing about the latest datapoint and what that did toyour IRR.After being in the business10 years, I started ChieftainCapital Management in1984, and took with me asmy junior partner JohnShapiro, who was workingwith me at Central Na-tional. We started with $40million, 2/3rds of which wasfamily money. By 2006 wecompounded that to 100xits original value before fees just by concentrated invest-ment in pretty pedestrian,easy to understand busi-nesses that seemed under-valued. That meant noturnarounds, no crummybusinesses, no highly com-petitive businesses, and notech businesses, which wedidn’t understand. It wasboring stuff. Almost every
(Continued from page 1)