Investing for Resilience
Trish Regan is one of America’s most recognized financial journalists and digital media hosts. An award-winning reporter, author, television personality, and speaker, Trish is a leading economic and political thought leader who helps viewers to better understand the most critical issues facing the economy and American business today. With extraordinary access to newsmakers and industry sources, as well as a knack for anticipating opportunities and risks in investing, Trish leverages her knowledge of how the mainstream media works to enable subscribers to best understand the information moving markets.
Trish is the Co-Founder and Executive Editor of 76research. She is also the founder, owner, and host of the daily livestreamed Trish Regan Show with more than 16 million views per month. Prior to founding 76research with longtime friend Rob Hordon, Trish anchored some of the most highly rated financial programs at America’s most noted financial networks including CNBC, Bloomberg, and most recently, Fox Business News.
Throughout her career, Trish has interviewed numerous heads of state, including multiple U.S. Presidents, foreign leaders, Fortune 500 CEOs and other institutional, charitable, and government leaders.
Trish credits her start in journalism to her fifth grade position as school correspondent for her local New Hampshire newspaper. But, while Trish showed an early interest in reporting and writing, it wasn’t until years later that she chose to make journalism her career. In fact, she originally intended to pursue a career in finance and worked as an analyst in emerging debt markets at Goldman Sachs while a student at Columbia University. Fluent in Spanish, Trish focused primarily on Latin American sovereign debt markets including Argentina, Mexico, Venezuela, and Brazil, but when Bloomberg Television offered her an opportunity to work as a correspondent, she made the jump into financial media.
Beginning at Bloomberg in 2000, Trish was on the front lines as the dot-com bubble burst. She covered its aftermath from Silicon Valley and San Francisco as a correspondent at MarketWatch before moving back to New York to work as a correspondent for CBS News. In 2006, Trish returned to her financial roots as an anchor on CNBC’s top-rated daily markets program The Call where she reported on the 2008 financial crisis in real time. While an anchor at CNBC, Trish also reported business news for NBC's Nightly News and The Today Show. In addition, she produced and hosted the two most highly rated documentaries in CNBC's history – Marijuana Inc and Marijuana USA, which investigated a massive and fast-developing underground industry. Trish predicted that industry would soon become mainstream in her book Joint Ventures: Inside America's Almost Legal Marijuana Industry, published by Wiley & Co. in 2010.
In 2011, Trish went back to Bloomberg Television to anchor the network's afternoon market close coverage as host of Street Smart with Trish Regan. While at Bloomberg, Trish was the network's main political anchor for all political television coverage of the 2012 election, including both the Republican and Democrat conventions and the election itself. From 2013 through 2016, Trish also worked as a front-page economic columnist for USA Today, writing on the biggest trends in business, markets and the economy.
In 2015, Trish left Bloomberg Television to join Fox News and Fox Business as the anchor of her new program The Intelligence Report with Trish Regan during FBN’s market hours. She would later move to an evening program and become the only woman in cable TV at that time to host a primetime show. Trish Regan Primetime grew 8pm ratings to a level never before seen at Fox Business.
While at Fox, Trish Regan also anchored two Republican Presidential debates – making history as part of the first all-woman team, with colleague Sandra Smith, to anchor a Presidential debate. She also appeared as an economic and markets contributor to all Fox News programming and was also a guest anchor on Cavuto, Fox and Friends, The Five, and primetime programming. In addition, Trish anchored all primetime coverage of the 2016 Democrat and Republican conventions for Fox Business and was a co-host alongside Neil Cavuto, Maria Bartiromo, Lou Dobbs and Stuart Varney for the network's main political events. Trish left Fox in 2020 and began work on the creation of her own digital media enterprise which debuted in August 2020. Her focus now is her own program and 76research, although she still appears regularly on other platforms both in cable news and in digital media.
Trish graduated with honors from Phillips Exeter Academy before going on to study opera at New England Conservatory and graduate cum laude with a degree in history from Columbia University. While at Exeter, Trish was the first-place winner of the Harvard Musical Association’s Competition for Excellence in Music, becoming the first singer to win the top prize since the organization was founded in 1837. She later studied opera and German at The American Institute for Musical Studies in Graz, Austria. Her operatic singing skills enabled her to represent her home state as Miss New Hampshire in The Miss America Pageant, where she won the talent competition and the first B. Wayne Award for the contestant with the most promise in the performing arts.
Trish's journalism awards have included multiple Emmy nominations for her documentary and investigative reporting. Trish was also recognized with a George Polk nomination for her long-form reporting covering the aftermath of Hurricane Katrina with a team from CNBC. While at MarketWatch in San Francisco, Trish was named SF’s Society for Professional Journalists most promising broadcast journalist.
Trish Regan was born and raised in New Hampshire. She now makes her home outside New York City with her husband and three young children.
A successful fund manager and stock picker, Rob Hordon has extensive experience investing across asset classes, sectors, geographies and strategies. With consistent emphasis on ways to preserve and grow assets and manage risk, Rob has offered guidance to thousands of financial advisors and wealth management professionals in the United States and abroad over the course of a multi-decade Wall Street career.
Rob’s professional investment career began in the late 1990s as an associate in the Equity Research department of Credit Suisse First Boston, where he covered wireless telecommunications stocks at the dawn of the mobile phone era. As a recent college graduate, Rob had a front row seat at one of the epicenters of the tech bubble. He witnessed for the first time the stock market’s potential to deliver immense value creation through innovation but also its characteristic tendency towards excess.
Rob went on to obtain his MBA from Columbia Business School, where he focused on security analysis and through his course work learned from some of the top investment practitioners in the country. Upon graduation from Columbia, he took an analyst role in the Risk Arbitrage department of a firm then called Arnhold and S. Bleichroeder Advisers, which would later be renamed First Eagle Investment Management.
For approximately seven years, Rob worked as a member of a small team that ran a hedge fund strategy focused on identifying mispriced long-short opportunities among companies involved in merger and acquisition activity. Just prior to the 2008 financial crisis, he transitioned over to First Eagle’s Global Value team under the auspices of the legendary international investor Jean-Marie Eveillard.
As an analyst on the team, Rob was responsible for initiating and covering several billion dollars of public equity investments across a wide range of industry sectors and countries. This move also reunited him with renowned Columbia Business School economist and author Bruce Greenwald, who had recently joined as Director of Research. As colleagues and mentors, Bruce and Jean-Marie would become the two most formative influences on Rob's investment career.
In 2011, Rob proposed and worked with the team to develop a new multi-asset investment strategy built around the same long-term value-oriented investment philosophy pioneered by Jean-Marie. As co-portfolio manager of the First Eagle Global Income Builder Fund, Rob was directly responsible for over a billion dollars of assets under management with a particular focus on dividend-paying stocks and credit instruments. Rob and his partner later re-created and managed this strategy at a London-based boutique investment firm, J O Hambro Capital Management, beginning in 2017.
In 2023, Rob teamed up with his longtime friend Trish Regan to form 76research, where he is Co-Founder and Chief Investment Strategist. This entrepreneurial venture merges his passion for investing, research and writing with his desire to help others benefit from the long-term wealth creation potential of the stock market.
The son of an economics professor and elementary school teacher, Rob is a proud husband and father of three whose interests include history, philosophy, sailing and world travel. He was born in New York City and grew up in northern New Jersey, where he attended local public schools.
Rob Hordon is a Chartered Financial Analyst. In addition to his MBA from Columbia Business School, he received his Bachelor’s degree in Politics from Princeton University and was awarded a Certificate in Political Theory. His senior thesis, entitled Justice without Truth: Contingency in American Moral Thought, explores how the philosophical tradition of American Pragmatism offers a roadmap out of the moral and political abyss of postmodern relativism.
Investing for Resilience
A corporation is simply a form of organization used by human beings to achieve desired ends. – Supreme Court Justice Samuel Alito, Burwell vs. Hobby Lobby Stores, 2014
A business is nothing more than a collection of people, trying to earn profits through some combination of physical, intellectual and financial property.
There is a strong tendency, however, for people to analyze businesses in very impersonal terms, as though they were machines or physical objects. This is especially true in finance, which has developed using economic frameworks that borrow heavily from fields like statistics and even physics. Businesses are often treated like billiard balls colliding, rather than living, breathing arrangements among human beings
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A corporation is simply a form of organization used by human beings to achieve desired ends. – Supreme Court Justice Samuel Alito, Burwell vs. Hobby Lobby Stores, 2014
A business is nothing more than a collection of people, trying to earn profits through some combination of physical, intellectual and financial property.
There is a strong tendency, however, for people to analyze businesses in very impersonal terms, as though they were machines or physical objects. This is especially true in finance, which has developed using economic frameworks that borrow heavily from fields like statistics and even physics. Businesses are often treated like billiard balls colliding, rather than living, breathing arrangements among human beings.
This tendency is reinforced by the character traits of the sort of people who are usually drawn to professional investing and investment research. The investment world is awash in mathematical data, so it is no surprise that it attracts quantitatively oriented individuals who have a strong preference for hard numbers over subjective impressions.
In certain realms of finance, like fixed income and derivatives, the bias towards an almost purely mathematical approach is clearly warranted. But when it comes to stock picking, the quantitative impulse arguably goes too far at the expense of qualitative factors that deserve more emphasis.
If you enroll in an MBA program, or pursue the Chartered Financial Analyst program, one of the main things they want you to learn in the context of equity investing is “discounted cash flow” or DCF analysis. The idea is to project out many years, if not decades, of cash flows and then discount them back at an appropriate rate to arrive at a precise valuation for a business.
DCF analysis is theoretically sound, and the attempt to forecast future revenues, profits, capital expenditures and so forth can be a useful intellectual exercise. But to a large extent, DCF modeling is a fool’s errand. Unlike bonds, where you have great visibility into future cash flows as a result of strict contractual obligations, predicting what a company’s financial statements are going to look like in ten years is a lot closer to guesswork than a scientific undertaking.
Many if not most of the best investors in the world understand that successful stock picking is based on obtaining a firm grasp of the key fundamental characteristics of a business, rather than complicated mathematical calculations. Buffet and Munger repeatedly bash DCF analysis as offering false precision. Jean-Marie Eveillard always spoke about concentrating on the three or four most important features of a business, rather than financial minutiae or unreliable long-term forecasts.
When hiring analysts, Seth Klarman, one of the all-time greatest value investors, said he looks for “ideational fluency,” by which he means creative thinking, rather than mathematical prowess per se. Say what you might about his politics, George Soros, who began his adult life as an academic philosopher, has been one of the most successful investors of all time.
We once heard a multi-billionaire hedge fund manager we know say he only hires liberal arts majors. Full disclosure: the founders of 76research were respectively history and politics majors, so we may have some bias here ourselves.
Investor and writer Robert Hagstrom has actually written an interesting book on this topic called Investing: The Last Liberal Art. He makes the case that a range of disciplines can and should be brought to bear to enhance the “mental models” that we apply in the process of deploying capital. Of particular interest to us is his chapter on biology, in which he discusses how the legendary economist Joseph Schumpeter believed “economic phenomena more closely resembled biological processes than the standard mechanized theory.”
We find it very helpful to think about investments through this sort of biological lens. Companies are ultimately more like a pack of animals, trying to survive and thrive in the wild, than billiard balls bouncing around a nearly frictionless pool table. When you buy into a company by investing in its shares, you are in essence making a bet that a very specific tribe of people will prosper well into the future.
What is investing for resilience?
Investing for resilience is all about finding companies that will prevail in the long-term evolutionary battle. A resilient business is one that does not just perform well in a specific environment but evolves and successfully adapts as conditions change. For long-term investors, resilience is an essential characteristic.
Truly resilient businesses have a blend of attributes that are difficult to quantify. There is no silver bullet financial metric, or combination of them, that one can screen for to identify businesses that will display resilience long into the future. The search process is more organic and requires consideration of a wide range of factors and, often times, subjective judgment in lieu of calculation.
What should investors focus on?
To determine our universe of resilient businesses, we focus on five main areas of inquiry: (1) Competitive advantage; (2) Structural backdrop; (3) Optionality; (4) Leverage; (5) Leadership.
(1) Competitive advantage
Identifying businesses with sustainable competitive advantages is arguably the most important task of any fundamental investor. The Great White shark as we know it has been around some 70 million years. Its genetic ancestors were around for several hundred million years before that. The only known predators of the species are the killer whale and humans. Investors should look for businesses that, like the Great White, are supremely well adapted to the ecosystems in which they operate. Buffet likes to frame this kind of structural advantage as a competitive “moat.”
…[W]hat we’re trying to find is a business that, for one reason or another — it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it. – Warren Buffett, Berkshire Hathaway Annual Meeting, 1995
Resilient businesses are able to earn excess returns on capital, and survive economic shocks, because they have one or more inherent qualities that give them an edge over competitors and potential competitors. These advantages vary from company to company and industry to industry, and they are not always as durable as people think as a result of technological disruption and other changes.
Like Darwin in the Galapagos trying to understand why some species win and some lose, investigating the nature, trajectory and longevity of competitive advantage is the primary task of a resilience-seeking investor.
(2) Structural backdrop
A species may dominate a particular ecosystem, but if the ecosystem fails, the species fails with it. So in addition to understanding how well a business can fend off competitive threats, it is essential to understand the overall environment in which a business operates. A business can only be as resilient as the industry in which it competes.
Investors looking for resilient businesses therefore need to pay close attention to the underlying structural drivers, which ideally point to a growing rather than shrinking pie for all competitors, whether they are advantaged or not. The ideal combination is of course a competitively advantaged business playing in an area with a solid long-term outlook.
(3) Optionality
While certain industries can be fairly stable, technological and social change are a constant in the modern economy. Resilient businesses need to be able to adapt to survive but also to grow in new directions to take advantage of these changes and leverage off their dominance in one phase to recreate it in another. Resilient companies have an ability to innovate new products and services or grow through acquisitions.
The option value of future growth areas is hard to determine and therefore often overlooked, but over time has a tendency to become the most important variable of investment performance. So many of the most successful technology companies today derive a huge portion of their current value from cloud businesses, which are a relatively recent development.
Investors a decade ago might have been aware of the potential for the cloud to grow into something big, but it would have likely been a minor consideration in most instances. Amazon.com delivered a compounded total return of more than 22% per year over the 20-year period ending year end 2023. This was largely as result of its unique ability as a platform to extend into new product categories and business lines, such as the cloud.
(4) Leverage
A company’s leverage profile can be likened to its immune system. Companies collapse when they are swallowed up by their liabilities. Excessive debt is often the first consideration, but leverage can be dangerous in many forms. Operating leverage refers to a company’s fixed costs; these are often contractual obligations from which a company may not be able to escape even if there is a sharp reduction in revenue.
Often, the nature of a company’s financial debt is as important as the magnitude of it. Businesses fail when they can’t pay or refinance maturities as they come due, which means an understanding of the maturity schedule should be a high priority.
The type of financial liability can also matter. By all accounts, First Republic was a well-run bank, except for the catastrophic mistake management made with respect to the interest rate sensitivity of its balance sheet. Investors ultimately lost everything. Resilience-oriented equity investors should always apply a credit lens to assess the vulnerability of a business to an external shock that may create a cash flow negative position that sends it into a death spiral.
(5) Leadership
Businesses are not machines but organizations run by real people making real decisions on a day to day basis. One challenge of long-term investing is that management teams may come and go over time. It is tempting to focus on the assets of the business rather than the individuals exercising control over them, which can change, but the reality is the choices these individuals make can have a major impact.
The human element extends to the board and overall corporate culture. Investors should pay heed to the ownership structure of the company, including the presence of founders or large strategic investors, to understand management incentives, particularly with regard to shareholder value creation.
Why does investing for resilience make sense?
There are three principal reasons why an investor should seek to identify and then build a long-term portfolio around a core of resilient businesses: (1) Tax-deferred compounding; (2) Fewer decisions to get right; (3) Stability and opportunity in a crisis.
(1) Tax-deferred compounding
One of the compelling features of a buy and hold investment strategy is that you can avoid realizing capital gains on a frequent basis. So even if the average rate of return is the same relative to a shorter time horizon approach or a trading strategy, after-tax returns are likely to be better.
Potential tax advantages are amplified by the ability to coordinate capital gain realizations when offsetting losses are available, or until there is a low-income year, perhaps in retirement, or even death, when there is a step-up in basis. But only an investment that can work through multiple market cycles and phases is suitable for a long-term buy and hold approach.
(2) Fewer decisions to get right
Investing is a time-consuming process that requires research, analysis and continuous monitoring. A high turnover approach, where one moves from one short-term opportunity to the next, not only consumes more time and creates more personal stress but has the added disadvantage of requiring the investor to be repeatedly correct in his or her assessments. It is much preferable to find an investment that will ideally get you to a similar or better long-term outcome with less time, effort and pressure and lower risk of making a damaging mistake along the way.
(3) Stability and opportunity in a crisis
Resilient businesses are, by definition, businesses that will make it through difficult times and perhaps even improve their long-term positioning as weaker competition withers. It makes sense to develop a strong familiarity or “circle of competence” (to borrow a Buffett phrase) with a universe of resilient businesses in order to take advantage of opportunities when they surface.
In periods of stress and market sell-offs, it is difficult to put money to work knowing sentiment may only worsen. But when an investor has a thorough understanding of a resilient business, this can provide the necessary confidence to put capital to work in difficult conditions marked by a great deal of macroeconomic uncertainty.
Severe market sell-offs often provide the best entry points into resilient businesses—you potentially get the benefit of a temporary but significant discount in the share price and then, even after prices normalize, you own a solid long-term investment that can continue to compound without having to realize taxable gains.
Valuation still matters
Once the universe of resilient businesses is defined, the final determination of what goes into the portfolio is driven by valuation or price (along with consideration of sector diversification). With a longer time horizon, investors should logically have less sensitivity to entry price versus more short-term trading opportunities where, almost by definition, one is trying to capitalize on a perceived mispricing that will soon correct itself.
Amortized over a long period of time, a 10%, 20% or even 30% deviation from fair or “intrinsic” value could become immaterial relative to improvements in the profitability of the business that may lead to growth in intrinsic value.
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. - Warren Buffett, Berkshire Hathaway Annual Letter, 1989
While an investor might have more flexibility and willingness to accept a valuation premium for an exceptionally well-positioned business, the price one pays needs to be reasonable. One major risk of investing in high quality businesses is that there is a high probability that you are not alone in your assessment. This could translate into a stock becoming dangerously expensive, especially if the factors driving the perception of quality prove to be transitory.
By drawing from a larger pool of resilient businesses, investors have the ability to maintain a primary focus on underlying business characteristics while applying a valuation lens to differentiate among them. Valuation discounts are not commonly made available for these types of investments but do occur, especially when certain sectors or themes temporarily fall out of favor.
The holdings of the 76research American Resilience Model Portfolio are the result of a process that begins with the identification of a larger pool of businesses that are expected to be long-term winners of the brutal natural selection process of global markets. Portfolio construction ends with a valuation exercise that is intended to discern the most attractively priced opportunities within this group that are currently available.