Today’s Post is for Monty

This is a cockapoo, bred from a cocker spaniel and a poodle. This breed has something to teach us, yes, really.

A cockapoo encapsulates the dichotomy inherent in many businesses in which we invest our savings. It is at its most blatant in a trading business. A “star” trader demands to be highly paid to reflect his trading profits. He is the cocky cocker spaniel. The shareholders are compelled to overpay him otherwise, they are told, they will lose him. One year the trader loses everything he has made over the years and leaves the company. The shareholders have to clean up the poo.

This happens when the interests of the employees and the owners are not aligned. At Barings in Singapore the trader, as you will remember, went to prison. At Northern Rock in Newcastle the chief executive implemented a business model that made big short-term profits but was inherently flawed. His board of directors either didn’t understand the business model or weren’t prepared to stand up to him; probably a bit of both.

You can invest in businesses where the employees are significant shareholders and that’s a business model that strongly appeals to me. Two of my favourite investment trusts are RIT Capital Partners, where the Rothschild family are invested, and Caledonia, the Cayzer family’s piggy bank.

An entirely different sort of business is M P Evans, an old favourite of mine since the early 1980s. This AIM listed company grows palm oil, primarily in Indonesia, has cattle stations in Australia and a small property portfolio in Malaysia. The Hadsley-Chaplin family have been running the business for two generations and have a substantial shareholding. Incidentally, it’s worth buying a few shares for the post-AGM lunch, usually held in the summer under an olive tree in the courtyard of the Tallow Chandlers Hall.

So make sure the management in companies where you invest have a dog in the fight, but not a cockapoo.

Today’s post is dedicated with apologies to Monty, a cockapoo in Belsize Park.