I just got back from a week or so in London. As I flew back and forth and waited around in airports, I decided to re-read Capital Returns; the book which details Marathon Asset Management’s memos throughout the capital cycle between 2002 and 2015. Re-reading quality literature can be more value accretive than reading new ones. A particular chapter stood out to me this time around; chapter three ‘Management Matters’. This chapter details the importance of management’s proficiency in capital allocation. It starts by documenting one specialist analyst’s failure to anticipate the collapse of a major Dutch-based international food retailer. They proceed to identify the dangers of being a specialist; i.e. an analyst with deep expertise in a specific field or industry in contrast to a generalist who covers a wider range of sectors and investment types.
The long and short of it is that specialists can easily succumb to cognitive dissonance; the tendency to block out information that is contra…