Successful Thinking: When a handshake means everything

Investing

Dr Manny Pohl is head of ECP Asset Management, with more than $2.5 billion in assets under management. He joins Forbes Australia for the first 2023 Successful Thinking column.
Manny Pohl headshot
Dr Manny Pohl, head of ECP Asset Management | Image source: Supplied

Dr Manny Pohl, 67, founded Hyperion Asset Management in 1996 and was its CEO, Managing Director and Investment Committee Chairman until 2012 before starting ECP about 10 years ago.

What was the most formative thing in your childhood that made you the person you are today?

Dr Manny Pohl: My first kind of business activity was when I was in primary school. I was brought up in a mining town in South Africa. My dad was the manager of the mine. It was a rural community. You had to go 20 miles (30 kilometres) to the shop to buy provisions. We didn’t get pocket money for doing chores and we bought stuff because we needed it, not just because it looked nice. One time, the circus came to town with a Big Top and all that stuff. I was really intrigued with animals and I got on my bicycle and I went to the circus. The clown came out and he had photographs of himself. When he was dishing them out, I said, ‘I’ll take 10 of those.’

The next day I had them in my bag when I went to school, and I was talking to the kids in the class about the photograph of the clown and they all said, ‘Oh, geez, we wish we had one.’

I said, ‘Well, if you give me a cent, I’ll give you one.’ And I went home with this pile of money for these pictures of the clown. My parents asked me where I got the money, and I told them how I had sold the pictures of the clown. I must have been about 10 or 11 years old.

At the time, I was really good at sport because my mother was an opera singer. I used to come home from primary school and anybody who knows somebody who’s an opera singer will know that they spend four hours a day doing scales. So, I would come home from school and go straight out again. I was spending four hours on the cricket field every day or playing some sport with the other kids, because my mother was an opera singer and it used to drive me nuts.

How do you make decisions?

MP: I use common sense. I’ve got a doctorate that people think of as academic, but I’m not. I’m the furthest thing from an academic. There were guys that were really academically inclined who could quote you chapter and verse of everything. I had a really good memory and I was really good at mathematics. I got through university not being your key academic, but having a bit of common sense, and just executing on things.

I was doing research into the cost effectiveness of providing the resources into low-cost areas like low-cost housing and I was talking to this professor about all the work that I had done. He said, ‘Wow, that’s a unique area of study. Why don’t you submit it as a doctoral degree?’

It was the shortest doctrine ever awarded. I submitted it in the January of the following year, and I think it was the July I graduated. It was within a two-year period, because I’d been doing all this work in a practical sense, and all I had to do was write it up. So I’m somebody who’s really practical, but every now and then, something academic comes out of it and that’s what I’ve got, common sense.

How do you apply that thinking to how you manage your investing with success?

MP: I did an MBA and I joined a company that was a really well-known cement company out of the UK that had a subsidiary in South Africa, and I joined them in what was called the Management Services Division. That division was there to identify takeover targets that they could spend all of this cash flow they were getting. They were very successful, and I was really successful and that led to various things. But what it taught me is that you really need to understand the economics of the business network that defines over the long term, the amount of money you want to make. That’s the underlying philosophy that we have in this business, and I’ve had throughout my whole investing career is that the money you make is directly dependent upon the economics of the business you’re investing in. It’s a bottom-up approach.

You identify these businesses, you figure out whether it’s a great business, and if it’s in a great industry. When you get to the public markets, there’s a couple of lessons you learn along the way. One is called Mr. Market, and that sometimes it has no logic. There are times you have no idea what’s going to be there, what’s going to happen. The ‘unknown unknowns’. It’s this area called ignorance. Our whole investment process is to avoid companies that will be dramatically affected by this ignorance piece. If you’ve got a solid balance sheet, you don’t have to raise capital. You can withstand those things because you can pay your staff when there’s no customers coming in the door. That’s one test. The second test for us is that we want to own companies that are actually making money. We never owned the dot coms when the dot coms were the flavour of the month.

You have got to do the due diligence. Diversification is just an excuse for poor due diligence. You put a million pieces of junk assets together, it’s still a million pieces of junk.

What about investing in cryptocurrencies?

MP: Cryptocurrency now, there’s some pieces to the puzzle that I don’t understand. I mean, I do think blockchain has fabulous ability to track things.

What determines how you do business?

MP: It’s my way of thinking. My sons had the best of both worlds. They were encouraged to think and to explore various ideas and were never constrained, but they had the discipline. One thing that I did want to say about investing is you have to be disciplined around what you do. That’s what gives you the ability to invest for the long term. There are traders that have made a fortune. We’re not traders. There are guys that do concepts that make money, but whatever it is that you do, you have got to figure out what it is that you do well and then be disciplined about it.

We all believe in what we’re doing with the process because it delivers and we stick to it religiously, because through the process, we check the companies, we check the management. We know that that will give us the right results and when the volatility hits we circulate the capital into those other opportunities that are maybe in other parts of the market. That’s what gives us the next leg up. You’ve got to be sure that you’re in those companies that can recover; that are strong enough. That’s where we come back to the return on equity that we look for in companies. It’s the strength, the strength of the balance sheet, and the ability for that business to grow. And that depends on the management team. It depends on the structure of the business, the industry, that’s all the work that we do.

What characteristic of yourself do you think is underrated by others?

MP: I believe that a handshake is all important. That came from when I was a kid, I was trying to buy a motorcycle when I was at university. I came across one that I really liked, and I convinced the guy to not sell it before I next got paid. I was working in the mines to make extra money. I needed two weeks before I got my paycheck and another chap said, ‘Come and see me. I’ve got plenty of money.’ He was working in the oil industry. I said, ‘I’ll be there on Saturday’. When I went to his home, he’d gone on holiday. I explained he’d promised to help me, but his brother said, ‘Tough luck.’ I was very upset. I happened to see another friend as I was walking back to town, and he asked me why I was so down in the mouth. I told him the story of how I had been let down by this fellow. He said to me, and he worked in a bank, he said, ‘Listen, I’ve got a bit of savings in my savings account. How much do you need? I told him and he said, ‘Come.’ We walked to the bank, and he drew out every cent that he had, and he gave it to me. He is still my best friend.

What the other guy did to me was really embarrassing so to this day, if I shake hands with somebody, that’s it. And likewise, don’t cheat me, because I will never forgive you for that.

Is there anything in your daily routine that you cannot live without?

MP: My daily routine is fairly routine. I get up, eat breakfast. I don’t generally have lunch because I’m busy doing things. I have breakfast with my wife in the morning and go to Pilates and I read. I’ve never had an issue with motivation. I just get up and know this is what I’ve got to do today. Let’s get on with it.

You have other interests. What do you enjoy doing outside the business?

MP: I’ve always believed that people in this industry should do something with philanthropy and we’ve done it from day one. If somebody says to me they like coaching kids, go coach, because I know they’ll make up the time and some of the guys are the secretary of the local hockey club, all that sort of stuff. I believe you have to put back into the community. We support causes that no other people really want to support, one of which is refurbishment of old paintings at the New South Wales Art Gallery. It is extraordinary when you see the result.

What is something you apply to how you live each day?

MP: There is an expression, ‘It’s better to sleep well than to eat well.’ There’s been a number of times in my life that we could have made a lot of money. But it was like skating on thin ice. And in this industry, the only thing that you have is your reputation. You lose that, and wherever you are, it’s very hard to come back from it. So, I’ve always said to the boys to remember that whatever decision you make, be sure that you can sleep well.