A farmer was interviewing for a farmhand position and would ask but one simple question – why should I hire you? After several applicants gave standard responses, a man gave the answer that intrigued the farmer: “you should hire me because I can sleep on windy nights.” The farmer could not get the reticent man to expound, but was intrigued and liked the man, and so he decided to hire him.
All was seemingly working out well with the new hire as far as the farmer could tell when the big storm hit. The farmer awoke in the middle of the night to the howls of the wind piercing through his home. Immediately, he began to panic about his assets: were the tractors stored in the shed, were the tools all put away, was the barn locked up tight, were the feedbags stored? Out into the tumultuous night he went to assess and ameliorate the damage as best he could. He traipsed about his property to find, in fact, that the tractors had been stored, the tools put away, the barn locked up tight, and the feedbags stored.
Before retiring to his own bed, he decided to stop by the hand’s quarters to check in on him. And what did the farmer find? Through the sounds of screaming winds and thunderous rain, the farmer found the farmhand sleeping as sound as a newborn, with not a worry in the world.
I like this story. As a conservative-tilted, fundamentals-based investor, “being able to sleep on windy nights” reminds that when we tend to business, when we know what we are doing (and do it), when we shun shortcuts with our analysis, and when we require that our companies make money and are not over-levered, we will survive the inevitable storms of the public markets when they come. And come they will (I sense one brewing at this present time and am anticipating its arrival before the clock strikes 2013). The current bull market is aging and will expire (it might have already) sooner or later. The astonishingly persistent rise since September, the subsequent splurge amongst the high-betas, the late cycle spike in oil, and the re-revving of the buyout markets feels a lot like 2006-07 to me and, as we all know, what cannot go on forever will end. The question for us is simple – will we be able to sleep at night when our stock prices (and their multiples) start going the other way?
If we have confidence in our analyses and our companies, we will. If we are playing video games with numbers on the screen, we will not. It is as simple as that.
“Sleeping through the windy nights” is different for our business than it is for farming in one major respect. Whereas we, like the farmer, must do our work beforehand in preparation; unlike the farmer, we cannot sleep through the windy night, for it will be during the storm that we sow our most profitable seeds. So I say that is now time to finish our analyses and then baton down the hatches and rest up; when the storm comes, and it will, we must be ready to go!