Earlier this week I received the following email:
“Hello Chuck, we have a team of founders from Harvard and are backed by professors from MIT and Harvard. Would you be interested to invest in our Series A round?”
This came from someone named Archie at a firm named GenesisAI. That is the entire email. They went to Harvard, know a professor at MIT, and have AI in their name. What else could an investor possibly need to know? You can’t make this stuff up.
One of our core rules for investing is to know what you own and know why you own it. It is a concept we stole from Peter Lynch. In my opinion that rule, and the concept of spending at least as much time in research when one buys a stock as she would when buying a refrigerator, are Lynch’s two greatest gifts to the investing public.
Maybe you think my email example is a one-in-a-million crazy name-dropping direct marketing ploy, but it happens regularly. Earlier the same day I received an email from someone who claimed to be familiar with us because he used to work at Morgan Stanley. He then listed a handful of large private equity firms that are clients of his firm and asked for some of my time. I have no idea what his firm does; I’m supposed to want to talk to him because he works with some well-known people in the financial world.
This is emblematic of a bigger issue in our society today: Being part of the “right” crowd has become more important than doing the right thing, or even attempting to think through what the right thing is. Of course, the “right” crowd is in the eye of the beholder, hence our perceived notion of society being polarized.
There is a sign on our den wall at home that reads, “Great minds discuss ideas, average minds discuss events, small minds discuss people.” We are becoming increasingly small-minded in our society today. Maybe I am just a romantic, but I truly believe that if we could move our conversations away from people and toward ideas, then we could begin to mend a lot of fences.
We are coming up on our nation’s birthday. It always frustrates me when people push back on the idea of American exceptionalism. This isn’t a boast, it is simply a fact: the United States of America is the exception. We are a nation founded on an idea; there really isn’t another nation that can claim that. As Lincoln so famously said in his address at Gettysburg, “…our fathers brought forth, on this continent, a new nation, conceived in liberty…”
Our founding fathers were not interested in name-dropping. We are a nation conceived in liberty largely because one man, George Washington, cared more about an idea than he did about being listed among the great rebellion leaders of history, nearly every one of which went on to be just as much of a tyrant as the tyrant he overthrew. Washington was offered a crown, and he turned it down. That is exceptional.
I have always loved the 4th of July, but over the last 20 years it has had special meaning to me. Iron Capital, as we know it today, began when I came to an agreement with my co-founder, Larry, on July 1, 2003. I had left Invesco at the beginning of the year with an idea in my mind, and it took me several months to turn that idea into a business plan. I quickly figured out that I was not going to be able to do this alone, so I contacted an old friend and former colleague who I thought might know someone who would be interested in investing in my idea. I got less than halfway through my presentation when he stopped me and asked someone in his office to grab a certain file. They came back with the file of a client located in New Orleans that had just sent a letter essentially asking for the services I had just described.
Specifically, they wanted someone to conduct a thorough independent analysis of every investment in their retirement plan and potential alternatives. This was on Wednesday, and Larry had a meeting with the client on Monday. The request was outside the scope of his firm’s capabilities, and he didn’t know how he was going to handle it until I came in with my presentation.
That afternoon I contacted a friend still at Invesco; I needed access to a particular software and a database, and he gave it to me (I have never told that part of the story, but it was 20 years ago…the statute of limitation has to be up by now). With access to the right software and database I worked for 50+ hours in three-and-a-half days and met Larry at the airport to fly to New Orleans. Together we saved the client for Larry, and he and I discussed our partnership on the plane on the way back home. It was late June, and we made our agreement effective July 1, 2003.
Larry had purchased a broker-dealer named Iron Capital Markets, and the previous owners had set up an investment adviser named Iron Capital Advisors. It was an empty shell with no actual clients; he was going to just shut it down, but instead we used it to implement my idea. He asked me if I wanted to change the name, but it was the idea that mattered to me, not what we called it. The name stayed.
Don’t worry, the first thing we did was purchase that software and the database. We still use it to this day. What was my idea? People seeking investment advice should have direct access to expert investment counsel. It is hard to state how revolutionary that idea really is. Our industry has evolved to add layers, and with those layers came conflicts.
Maybe we would be more successful if we just dropped names everywhere we went. Wouldn’t you like to invest with the same people who handle her portfolio? How cool would you be? I didn’t go to Harvard, but I did go to Wake Forest, and will put that education up against any in the nation. We could probably impress a few folks if we dropped client names, but that isn’t our style. We would rather focus on the founding idea that makes us who we are than on how impressive our background and our client list is. That is what we have been doing for 20 years, and it has carried us this far. I am thankful for the team of professionals who have joined me on this journey, and we are all deeply grateful to the clients who have trusted Iron Capital along the way.
Great minds discuss ideas, average minds discuss events, and small minds discuss people. For 20 years Iron Capital has strived to keep our focus on ideas. I don’t claim that this has made us great, but it has made us better than we otherwise would be. At least that is my perspective.
Here’s to 20 years of providing clients with direct access to expert investment counsel.
Warm regards,
Chuck Osborne, CFA
Managing Director
