Every year, I attend the CFA Society’s Annual Investment Dinner held here in Toronto. This year’s event featured a fireside chat with Gerald Schwartz (no relation), the founder and CEO of Onex. Gerald Schwartz is a Canadian investing legend, and I was very eager to hear what he had to say. I had never seen him speak in person, and I couldn’t wait to hear about how he built Onex from the ground up.
I wanted to hear case studies about the many home-run investments that Onex has made over the years: How Onex found these investments, how it evaluates opportunities, and when does it look to cash out? Onex recently acquired a competitor to my firm, Gluskin Sheff, as well as making a bid for Westjet. I wanted to gain some insights as to why these investments were so attractive to Onex.
I got nothing.
Mr. Schwartz didn’t reveal any secrets or juicy tidbits or any details about how Onex invests. It was simply a discussion about patience, investing in what you know and culture. Initially, I was deflated. When I got home that night, I told my wife that the dinner was a complete waste of time. Even my colleagues who attended the event with me were in agreement.
However, the next morning, upon further contemplation, I realized that the conversation with Gerald Schwartz was one of the best I’d ever heard. Here’s why:
In the 1970’s, Gerald Schwartz, a lawyer and a Harvard MBA, went to work on Wall Street for the investment bank Bear Stearns. At Bear Stearns, he worked alongside Jerome Kohlberg and learned about leveraged buyouts. At the time, a leveraged buyout, now called private equity, was a concept in its infancy. Both Schwartz and Kohlberg eventually left Bear Stearns to start their own private equity firms, Kohlberg at KKR and Schwartz at Onex. Needless to say, both went on to have unbelievable success.
Over the last 35 years, Onex has turned an investment of $450 million into over $9 billion of shareholder value and Schwartz became a billionaire in the process. Schwartz credited part of Onex’s success with riding the right tailwind. When Schwartz first learned about private equity in the 1970’s, only $300 million in today’s dollars was being invested in private equity. Today, there is well over $2 trillion invested around the globe in private equity firms. Our company has also benefitted from riding the right tailwinds. When I started working with David Baskin in the summer of 2000, we were managing approximately $25 million. Today, we are approaching assets under management of $1.3 billion. Part of Baskin Wealth Management’s success has come from stubbornly staying invested in North American stock markets for close to 20 years. Not only do you have to ride the right tailwinds, but you also have to stay invested to participate.
Aside from being in the right place at the right time, Schwartz also claimed that Onex’s success was due to sticking to its circle of competence—invest in companies and sectors in which you have the greatest understanding and experience. Schwartz said that Onex didn’t invest in technology, for example, because it didn’t understand the industry dynamics. At Baskin Wealth Management, we firmly believe in sticking within our circle of competence. Our circle of competence is investing in high quality companies that have a track record of delivering profitable growth.
The last piece of the puzzle to Onex’s success is culture. Schwartz pointed out that many of its employees have been with the company for over a decade and all are driven to do what’s best for its shareholders, investors and fellow employees. The businesses that it buys must be run by competent people who are ethical and have similar social values to those of Onex. We use a similar approach. Before we buy a stock, we imagine that our name is on the door of the company we are buying. Are we comfortable with the company’s product or service? Do we believe the managers and employees are ethical and care about corporate governance?
I didn’t realize it at first, but Gerald Schwartz did actually reveal his investing secrets for those who were paying attention. His wisdom is simple, yet timeless. Successful investing is about longevity, sticking to what you know and caring about your investments. I will do my best to follow his advice and so should you.