Ian Beattie – Follow a Structure, Not Emotions

Ian Beattie is currently the co-chief investment officer of NS Partners London, an investment management boutique. He holds a B.Sc. degree in economics from City University of London and started in the investing business in the early days of January 1992 as an Asian equitist. Since then he has been involved in East Asian and Asian emerging markets. Ian joined NS Partners in 1996, and just a year later, he became head of Asia and has since been focusing on the products closest to his heart, emerging markets, and Asian equity investments in the region.    “I think we’ve got to learn from our mistakes … and to learn from them, you need to know what you got wrong. And some of those are un-forecastable genuinely exogenous events. That’s why you have a diversified portfolio, right?”   - Ian Beattie     Investment journey  Ian started investing CAR Inc., a car rental company based in Beijing, despite the fact that there existed a handful of popular and booming ride-sharing companies in the continent, such as Uber and local operators that posed a threat. The balance sheet looked great and it had a good foundation for its name, with training by Hertz managers who helped to set it up.    “There’s nothing like a globally significant crisis to really test your knowledge of markets, whether it’s how our company works, how an economy works, and how those two are joined up. Pretty exciting learning experiences are not always a pleasant one.”  – Ian Beattie    But after a while, his investment started to fall. What caused it? Ian cites his initial positive assessment about the company’s management proved wrong, but on top of that, he underestimated the threat of the competition. Ian failed to see the bigger picture and the impact that the bigger companies would bring to his stock in the long run.   Emotional attachment was misplaced  As part of the peer review process, younger members of the team had been asking him early on what he was doing and why he wasn’t seeing the risk of car-rent apps such as Uber and their China equivalents and why the company was not getting more cash out of its operations (free cash flow (FCF), the cash a company produces through its operations, less the cost of expenditures on assets. FCF is the cash left over after a company pays for its operating expenses and capital expenditures, also known as CAPEX).     “I’m getting hit with this (strong feedback). And I realized I cannot defend it … If you bought a stock – or a valid investment – for a valid reason, that should still be the reason why you hold onto it. And if that story is broken, then you should sell.”  – Ian Beattie    There have been many cases such as this, wherein an investor’s reason for buying a stock suddenly changes midway through ownership. This happens mostly when the stock starts to depreciate, and when it does, it should be a clear red flag that it is no longer profitable and actions should be taken to prevent further damage. Ian, however, failed to see this flag sufficiently early on in the game.    Reassessing the situation  Ian is reminded of the OODA Loop, a discipline he has used to reset his mindset and that of his team to what is really happening. Created by US fighter pilot John Boyd during the Korean War, the OODA loop is a strategic tool used for analyzing situations for re-orientating in the heat of the moment. Part of it came from a theory to achieve success in air-to-air combat developed out of Boyd’s observations of dog fights between MiG-15s and North American F-86 Sabres in Korea. It is a disciplinary method that helps people remain calm and properly gauge what is being faced and because it’s a loop, it allows for constant re-assessment amid changing conditions. <span data-ccp-props=...