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Bet the Jockey, not the Horse



January 12, 2014 – Comments (2)

I wrote this book summary on the boards in the end of July 2010. I enjoyed re-reading it. 


A summary of his (Georges Dotroit) story is included in Forbe's Greatest Investment stories which is in the High School segment of the TMF reading list. Our conversation was on smaller stocks not having significant moats, and I remembered the phrase:

"Bet the Jockey, not the Horse" 

I felt the story was especially relevant in looking at smaller cap stocks and rule breaking picks who are disrupting the industry.

Some quotable quotes and notes:
-- When someone comes in with an idea that's never been tried, the only way you can judge it is by the kind of man you are dealing with
-- Money is less important than the social and economic impact of nursing a new technology to maturity. Support talented people long term, build a company and "the rewards will come" -- (Dotroit insisted)
-- Sometimes criticized for staying too long with losers, Dotroit would retort: "If a child is sick with a 102-degree fever, do you sell him?"
-- United States steel does not doesn't understand the business they are in, they are in the materials business, not the steel business. They are completely ignorant of aluminium and plastics. 
-- On careers: There are three ways a man can go: to success, mediocrity or oblivion. Of these, mediocrity is the most dangerous because it is enjoyable.
-- On creativity: A creative man merely has ideas; a resourceful man makes them practical. I look for the resourceful man. the man I want knows what to do with liabilities. 
-- Of trouble in small companies: "I like to see trouble come early in our little companies. Unless there is trouble, I worry. I want to know early how a man will behave under adversity"
-- On hazards of small companies: A little success makes some people conceited. You can't run a small company on a 40-hour week. 

One of George Dotroit's achievements was turning a $70k investment in DEC into $400m. As the Swabians would say -- not too bad, no?

There are further 9 more stories from Hetty Green to cautionary tales. It's an easy-going kind of read because you can read the chapters separately from one to the other. 

All in all, I gained new insight re-reading this chapter. I had been actively attempting to evaluate the squishy business concepts and management of companies before looking at their numbers and stock price ... and this re-read chapter helped to bring a fresh reinforcement on my current approach. The resourceful jockey search is one which resonates with me -- the search really is for the management team which can manage with the inevitable constraints of its business. 

I still believe in looking at the financials of the companies. But I also believe that numbers, while important, are ultimately backward looking and investing requires a fair bit of foresight on what's ahead. With great jockeys (management), this provides a different kind of Margin of Safety to your investment.

2 Comments – Post Your Own

#1) On January 13, 2014 at 10:02 AM, HarryKyin (< 20) wrote:

hello, This is great thinking about investment. really we should invest in a stable company, The one which repitation is very well. We should not look for the one which looks like it is benificial in a very less time. Bacause such kind of companies are not really stable. And the risk factor for your investment is very high
So the term that bet the jockey, not the horse is very much resonable!


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#2) On January 13, 2014 at 7:53 PM, Stockllama10 (90.44) wrote:

Putting in my two cents, which will probably be worth a great deal more than two cents with compound interest...


"Bet the jockey, not the horse" is sound reasoning, but the fact is that a superior jockey will not beat a nobody if he is riding an alpaca with three broken legs and the nobody is riding an actual, functioning horse. Same thing: an awesome CEO will not beat a nobody CEO if the awesome CEO is running eMeringue and the nobody CEO is running Apple.

Also, managers die. So do CEOs. If your only asset is the best CEO over and he gets hit by a bus next week, you just lost your biggest asset. So high-jockey, low-horse companies aren't really that stable long-term. 

The most stable companies are those that don't even need great CEOs. But in the realm of really unstable companies, betting on jockeys can bring in big gains.


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