#12 – The Value Architect
SUMMARY
Chris Pavese, President and CIO of Broyhill Asset Management, is a seriously thoughtful investor. We talk about how investing straddles left and right brain thinking, about whether the advantage of being located outside the bustling environment of a New York or London will continue to confer the same benefit in the days of Zoom, and about the benefits and joy of reading widely. Chris explains his investment philosophy, why he has fewer than 20 stocks in the portfolio, why the only research he buys is from a short seller, even though he doesn’t short, and we discuss the north-south divide in Europe and the US.
INTRODUCTION
Chris Pavese is the President and CIO of Broyhill Asset Management. In this podcast we explore what makes it distinctive, talk about Chris’ views on fashionable tech stocks (spoiler – they may have fallen a long way but Google and Facebook could easily see advertising revenues fall, as advertising is a cyclical business), and what lessons he learned from selling Microsoft and Apple too soon.
GETTING INTO INVESTING
Chris started to train as an architect but investing turned out to be a more attractive and quicker option as he explains in the podcast. And he joined Broyhill at quite an early age, but he certainly seems to be enjoying it.
FINDING VALUE
Chris runs a highly concentrated portfolio – less than 10 stocks is too concentrated; while more than 20 is too diversified. This is unusual for a professional investor but he feels that knowing what he owns is critical and he has the advantage of having family office quasi permanent capital. Because of the long term nature of his strategy, he will run heavy cash positions, as high as 40%, at times, if he cannot find enough stocks to meet his value criteria.
BROYHILL APPROACH
Chris discusses the idea that unanimity in the team is not necessarily the best route to performance. In one team he knows with four portfolio managers, they all discussed every idea, with one person leading. The decision was not however a team decision and they found that the most successful ideas were those where there was the most dissent. It was the controversy that created the opportunity. Accordingly, he is the ultimate decision maker at Broyhill.
ABOUT Chris
Chris Pavese is the President and CIO of Broyhill Asset Management, a boutique investment firm established as a family office in 1980. Chris trained as an architect and then switched to finance and had two jobs before Broyhill. He first was an associate, then joined JP Morgan Asset Management where he spent five years as a PM, before being recruited by the Broyhill family to manage their family office at quite a young age.
The firm was established as a family office and is guided by a value orientation. Chris believes the detachment of being located in the Blue Ridge Mountains confers an advantage.
Source: Broyhill Asset Management
BOOK RECOMMENDATIONS
Although he never used to be much of a reader, and really only started when he was in the middle of his career, Chris set up the Broyhill Book Club and is making up for lost time. He gave an extensive list of recommendations.
For an example of creative thinking coupled with scientific process, he enjoyed Leonardo da Vinci by Walter Isaacson.
He recommends anything by Richard Feynman for his knowledge and humour. Surely you’re Joking Mr Feynman is one of Steve’s favourites. He puts E.O. Wilson in the same category.
He likes Daniel Kahneman’s Thinking Fast and Slow, Superforecasting by Stephen Tetlock and Thinking in Bets by Annie Duke, again all favourites of Steve’s.
Seeking Wisdom by Peter Bevelin and his A Few Lessons from Sherlock Holmes as well as the Sherlock Holmes books are all recommended.
On financial history, Chris recommends Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay and Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger.
In that genre he also likes Edward Chancellor’s Devil Take the Hindmost.
By the same author, he thinks Capital Account and Capital Returns are great analogues for the related periods of the 1990s and early 2000s. These are two of Steve’s favourites also.
HOW STEVE KNOWS THE GUESTS
Steve first became aware of Broyhill thorugh the book club and then through various research notes. Chris is the first American investor on the show, and Steve had been looking to broaden the list beyond UK shores. He reached out to Chris and they managed to get a date together. It’s one of the most fun elements of doing the podcast – you can contact someone you don’t know and spend an hour learnings from them and then share that with the audience.