Top 50 Microcap Investor List: Luke Winchester
For this week’s Top-50 feature we present Luke Winchester, Founder of Merewether Capital and Portfolio Manager of the Merewether Capital Inception Fund based in Newcastle, New South Wales, Australia.
He recently discussed some of his experiences on our Co/nversations podcast which can be found on either Spotify or Apple Podcasts.
Noise and Preparation
On April 10, 1912, a ship departed from Southampton, UK, on its way to New York City. That ship, the RMS Titanic, was the largest of its kind on the water. The ship’s commander, Captain Edward Smith, was concerned enough about icebergs to station two seaman on the bow as lookouts. But it wasn’t enough. And on April 14th, four days into the voyage, the Titanic hit an iceberg at 11:40pm and sunk the next day.
Was there more that could have been done to prevent the disaster? Maybe. Probably. As described in the book The Tao Jones Averages: A Guide to Whole-Brained Investing by Bennett Goodspeed:
A few hours before the accident, the Titanic received a telegram warning of heavy pack ice and frequent icebergs from the Carpathian, a freighter steaming toward the Titanic. Unfortunately, this important report became lost among the many telegrams of the passengers and never reached the captain. Shortly thereafter, the two alert lookouts spotted the iceberg and immediately warned the captain, who promptly took proper evasive action. Though the captain's system was operative, its important lack of lead time resulted in one of the most famous marine disasters of all time. By the time the iceberg could be seen, it was too late to be avoided.
The information that may have caused the Titanic to change course—and maybe prevented its sinking—was there, lost amongst the noise. It’s a story that repeats throughout history, whether it be plane crashes, other disasters such as September 11th, or in the case the business failures that seem obvious in hindsight.
And it’s true with investment disasters as well. All too often, the risk to an investment portfolio is visible before it’s too late to change course, but it either gets overlooked or lost in sea of other information.
As we work through these volatile markets, and as many readers may be seeing more red numbers in their portfolios than they have in a while, we encourage you to focus on what you own, and make sure you’re prepared to stay the course and reach your financial destination—however you may define that destination.
We’ll end this section with some wise advice from Howard Marks’ November 2001 memo “You Can't Predict. You Can Prepare,” which we think is worth thinking about, and which seems like it could just as well have been written today:
One of the critical elements in business or investment success is staying power. I often speak of the six-foot-tall man who drowned crossing the stream that was five feet deep on average. Companies have to be able to get through the tough times, and cash is one of the things that can make the difference. Thus all of the investments we're making today assume we'll be going into the difficult part of the credit cycle, and we're looking for companies that will be able to stay the course.
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