Articles and Resources from the FourThought Team

< back April 16, by Scott Pinkerton, CFP®, AIF®, CIMA®, CPWA®

How a Norwegian Explorer Helps Us Make Investment Decisions

The year is 1911. Two famous explorers are planning expeditions to be the first to reach the South Pole: Roald Amundsen, a Norwegian, and Robert Falcon Scott, an Englishman.

In her book “A First Rate Tragedy,” Diana Preston details how Scott spent more money and made planning decisions that not only lost him the race, but also cost him and his crew their lives.  He focused on scientific advancement (actually carrying rocks with him) as well as new untested technology, and was over-confident in his plan and execution.

Amundsen, on the other hand, was a practical fanatic.  He researched not by reading papers and books, but by living with Eskimos.

Roald Amundsen understood the importance of consistency.

It is a fascinating story of focus, discipline and planning for contingencies.

The Role of Consistency in the Trek

One of Amundsen’s obsessions was consistent progress.  He had dropped food and supplies along his projected path and he carefully calculated the caloric needs of his crew (they ate their dogs, for example). He made sure his team maintained a steady 20-mile-a-day pace on their march.  Scott, on the other hand, became a victim of the weather, sometimes making no attempt to move forward on horrible days and then trying to make up for it by exhausting his crew on better days.

Amundsen’s team maintained a steady, 20-mile-a-day pace on their march.

In another book, “Great by Choice,” author and business sage Jim Collins spotlights the characteristics of a few great businesses.  One characteristic on which he focuses is consistency in earnings.

Certain companies consistently grow their revenues and earnings.  These companies find a way in good times and in bad to grow.  They are in industries that are not cyclical and they make decisions for the long term growth of the company.

Certain companies consistently grow their revenues and earnings.  These companies find a way in good times and in bad to grow.

Consistency in earnings matters.

Both of these return streams add up to 100, but if you use simple compounding return stream 2 ends up more than 20% ahead!

  1. 50%, -10%, 20%, -5%, and 45%.

  2. 20%, 20%, 20%, 20%, and 20%.

At FourThought, we currently manage around $800 million.  We are nimble. We don’t need to own every stock in the S&P 500.  We  make stock selections for our growth portfolios, but only those companies we believe, based on our research and processes, have the fanatical discipline to complete the 20-mile march.

Like Amundsen, we talk to the Eskimos (in our case, the best research analysts we can identify) to understand the cultures of the companies we’re considering and assess the quality and depth of their management teams. Then, then we put them through the filters (or screens, as we call them) we have developed to determine which ones have been consistent, or “Amundsen successful.”

Earnings consistency is one of the most important screens a company needs to get through in order to make it into our growth portfolios at FourThought.