Every now and then we get an opportunity to have a fireside chat of sorts with the people behind the Portfolio Manager title. A few months ago we met with Lisa Myers of Templeton Global Equity Group, and this week we had a similar up-close and personal chat with Peter Langerman, chairman, president, and CEO of Franklin Templeton’s Mutual Series, the New Jersey-based deep value investing group.
On His Pre-Investment Life
“I had a variety of interesting summer jobs when I was in college. Among them, I worked on a ranch one summer in Montana. It was a pretty solitary existence but it taught me a lot. I had a bunch of responsibilities which I had no experience doing prior to that time. I learned a lot about individual responsibility. Some of these lessons shaped how I do things even today.”
On His Career
“I’ve been in the investment business since 1986. Through some good fortune, I ended up getting introduced to Michael Price, then-CIO of Mutual Series in the late 1980s. I was working for a major law firm in New York in the bankruptcy area, and I had some big notions in my mind that it might be interesting to find a way to become an investor in bankruptcies and turnarounds—not just as the lawyer doing transactional work. That was really my introduction to the investment business. I very much like what I do. I’m doing things that are interesting and dynamic and challenging, so every day I can feel like my career is exciting and I’m doing this for a good purpose, which is helping our investors – who are real people with real needs – satisfy their longer-term investment goals.”
On Managing People
“In my view, people need to be given an element of discretion and responsibility for themselves. For example, at Mutual Series we have an investment philosophy that is consistent, but there are different ways to execute on it.
So I think that at the same time that you want to promote strict discipline, style and consistency, you need to find the balance between that and giving people their own latitude.”
“As I tell people in our group: long-term track records are an accumulation of short-term track records. Every day we’ve got to make incremental progress. When what you’re doing isn’t working as well as some other investment styles, it can be frustrating. But we’re certainly committed to our value style because, over the long term, it’s made sense, and I think it will continue to make a lot of sense. We’ve definitely been through volatile periods like this before. I think the global economy will ultimately get back on track. Not overnight, but eventually.”
On the Importance of Culture
“Culture is a term that gets thrown around a lot but it really does apply at Mutual Series. The collaborative investment culture has been something that I’ve very much tried to perpetuate. We have a ‘single room’ structure with open dialogue and transparency around every investment decision. There are also a lot of interpersonal discussions about investment ideas and what we should be doing in a portfolio. Mutual Series is a team in every sense of the word, and our analysts and portfolio managers work together beyond the individual portfolio responsibilities they may have. Of course people are judged on the individual performance of their given portfolios, but their contribution to the overall organization is really the key.”
“Value is something that’s defined and dissected in a lot of different ways. For us, it’s always been trying to identify securities that, in our view, are trading at significant discounts to their present-day intrinsic value. That means, for example, that we buy something that we think is worth a dollar today—based on our bottom-up analysis and valuation metrics—but that the market believes is worth less than a dollar because there may be aspects of the business that aren’t being taken into account. So for whatever reason, it’s trading at 30% or 40% below what we feel it’s worth. In our opinion, this helps temper the downside but also offers some significant upside potential. So in simple terms, that’s always been conceptually how we think about value.”
On the State of the Industry
“As Franklin Resources Chairman Charlie Johnson said many years ago, we believe mutual funds are the best and most efficient way for the average investor to gain access to the markets, and I continue to believe that to be true. At the end of the day our industry relies on trust and confidence, or it just doesn’t work. One of our jobs is to regain that trust after periods like the global financial crisis in 2007-2008, because our industry tends to get mistakenly lumped together and associated with things like the bank bailouts, the deficit, and so forth. Then you wind up with investors who are reluctant to enter the markets. Our industry needs to be able to demonstrate that it adds value, and I think it does.”
Until next time, here’s a Sir John Templeton quote to consider:
“If we become increasingly humble about how little we know, we may be more eager to search.”