How did a college dropout from Utah manage to get better returns than some of the biggest names on Wall Street? That’s what Smart Money is asking about one money manager.
Over the last 12 years, the 34-year-old Allan Mecham, who runs little-known Arlington Value Management, has gotten an incredible 400% return on his investments in U.S. companies such as PepsiCo and Phillip Morris. He even managed to make a little money during the 2008 financial crisis. And he did it all from a Salt Lake City office located atop a taco restaurant.
So what is Mecham’s secret? There is no wacky method, no confidential, complicated algorithm behind his success. He focuses on a few stocks, and ignores short-term analyses on those stocks, planning for the long haul. Mecham says he figures out what stocks will do well over time, and paying attention to long-term, not short-term, issues.
Only buying a few types of stock, Mecham does the opposite of many money managers, who focus on diversifying their portfolios. He also prioritizes researching the companies he is considering adding to his portfolio over spending a lot of time with spreadsheets. Mecham favors companies with strong management, great cash flow, terrific long-term futures, and “moats” – an inability for other competitors to easily overtake them. The analyst also says it is important to keep “emotions from corroding the decision process,” and not run around selling when patience would suit the situation better.
Those are not the tactics that many bigger names use, and this sets him apart. However, his investment strategy is similar to that of one other notable investor: Warren Buffett. Mecham, a big fan, recently took his girfriend on a trip to Buffett’s annual shareholders event in Omaha, Nebraska.
The companies Mecham and Arlington Value Management have invested in – Wendy’s, Wyeth, Watsco, AutoZone and Buffett’s own Berkshire Hathaway – aren’t the sexiest, but they are stable. And because Arlington only has $80 million assets under management, Mecham says he is able to tune out “noise,” like quarterly stock reports, something he might not be able to do with more investors.
Mecham’s philosophy is to build his portfolio for a marathon, not a sprint: he looks forward to see how companies will be doing 10 years from now, something other money managers can’t or won’t do. He also seems more relaxed than the competition, saying that “activity is the enemy of returns.” Mecham tells Smart Money that “it’s laughable to think that in this competitive world, you’re going to find brilliant ideas every day. The world’s just not set up that way.”
Lisa Swan is a Feature Writer for the Compliance Exchange. She is also a columnist for The Faster Times and a blogger for Subway Squawkers. Her work has also appeared in the New York Daily News, Yahoo Sports, Huffington Post and the books Graphical Player 2011 and Graphical Player 2010.