INVESTMENT COMMITTEES

"Positive decisions have to be made by an individual; groups can't do it. And I think a lot of the investment business was committee-orientated. " Adam Smith, The Money Game

“Search all the parks in all your cities; you’ll find no statues of committees.” David Ogilvy

‘The unicorn never comes from consensus. You need diversity. In a venture fund. the outlier - the deal only one person was passionate about - is usually the winner. Because if everyone at the table can see it, then everyone outside the organisation can, too.’ Dr Larry Marshall, CSIRO

"It has been my experience that the more power given to the investment specialist and the smaller the influence of the individuals on investment committees, the better the quality of the work accomplished." Phil Fisher

"I do not have a committee." Jim Rogers

"You just can't have two cooks in the kitchen; it doesn't work." Stanley Druckenmiller

"It is hard for one mind to work on the stock market and keep right, but it is much harder for two to agree and work in the market." William D Gann

"My idea of a group decision is to look in the mirror." Warren Buffett

"Groups search for consensus, individuals search for truth." Naval Ravikant

“The best performance is produced by a person, not a committee.” Sir John Templeton

"If no great book or symphony was ever written by committee, no great portfolio has ever been selected by one, either." Peter Lynch

"As your company gets larger and larger and you have larger groups making decisions, the decisions get more homogenised. I don't think you will ever get brilliant investment decisions out of a large committee." Warren Buffett

“A committee is an odd potpourri of people whose collaborative idiosyncratic behaviour is often in no way reflective of the brilliance or sagacity of any of the individuals of which it is made. A person’s capacity changes, and usually not for the better, when he or she submits to the will of a group.” Frank Martin

“John Templeton use to always counsel on the dangers of management by committee, where the only ideas on which there’s a consensus are the mediocre ones, not those that are creative and insightful.” Eric Marshall

 “A committee is a group of people who keep minutes and waste hours.” Mark Mobius

“To my knowledge there are no good track records that have been built by institutions run by committee. In almost all cases the great records are the product of individuals, perhaps working together, but always within a clearly defined framework. Their names are on the door and they are quite visible to the investing public.” Peter Cundill

“If you look at all the great inventions and discoveries and music and art or anything we value on the planet, it’s been a single mind that’s delivered. So Pabrai funds is focussed on delivering what one mind is capable of.” Mohnish Pabrai

"The more people you have, the more difficult it is to do well. You have to satisfy everybody. If you have a limited number of decision makers, they are more likely to agree." Lou Simpson

“After years of first hand observation, I am convinced beyond a shadow of doubt of the counterintuitive notion that one astute individual has five times the investment decision-making capacity of a committee of five persons who, individually, are equally endowed intellectually.” Frank Martin

“It’s hard to think of great success by committees in the investment world – or in physics. Many people miss this. Look at John Wooden, the greatest basketball coach ever: his record improved later in life when he got a great idea: be less egalitarian. Of 12 players on his team, the bottom five didn’t play – they were just sparring partners. Instead, he concentrated experience in his top players. That happened at Berkshire – there was concentrated experience and playing time.” Charlie Munger

“Committees are small crowds and, according to my favourite book on crowd psychology, ‘The Crowd’ by Gustave LeBon, when smart men and women combine their intellects to presumably optimise a solution, the result tends to be surprisingly counterproductive. Rather than being boosted by brilliance, groupthink has a perversely dilatory effect on collective reasoning.” Frank Martin

“The mass never comes up to the standard of its best member, but on the contrary degrades itself to a level with the lowest.” Henry David Thoreau

"Committee members cast an imposing mien. Each member reinforced the others' doubts, often to the point where only the consensus was to table a decision or water it down. History has shown that this is no way to steer a mutual fund, especially during tumultuous times." John Neff

"Groupthink (or maybe is should be called groupstink) is the disease that plagues every committee and most don't even know it. In fact most luxuriate in it. The more compatible the group, the more its members respect and like each other. The bigger the committee and the more important a place in the group becomes, the likelier it is to make bad decisions." Barton Biggs

"Large organisations usually haven't had very good results as fund managers. Superior analysts are rare, and funds seem to do well only so long as the decisions are made by a small group of talented people." Ralph Wanger

"Guardian [Fund] was my baby. It was pretty much a one-man operation. I was its sole manager for more than 28 years." Roy Neuberger

"In general, it's hard to get intelligent people to agree on stuff that is hated and unloved and in meaningful quantities. As you add more team members to an investment team, you will get closer and closer to buying the flavour of the day and the odds of beating the market go down dramatically. In investing, the more people you add, the worse off you are. The best investing teams are small." Mohnish Pabrai

"Big is not necessarily beautiful; having a large research staff not only does not guarantee good investment judgements, it often serves as a poor substitute." Bennett Goodspeed

"Group decisions - My perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size with all parties really participating in decisions." Warren Buffett 1965

“Well we all know something about the dysfunctionality of group based decision making, you’ve got one guy leading the debate, he’s the authority figure, he suggests a course of action, everyone anchors off that suggestion, maybe bonus time is looming and so no one wants to object.You are all aware that a competitor across the road has just taken the same course of action. And nobody objected. Social Proof. And of course, it’s a perfect disaster. We all know social decisions can be suboptimal, but even so, that is how most decisions are made .. At least on the boards of public companies and investment firms I know.” Nick Sleep

"While managing money successfully is not easy for anyone, many institutional investors compound that difficulty with a tendency toward conformity, inertia, and excessive diversification that results from group decision making." Seth Klarman

"I had made the decision late the previous year to manage the portfolio with a committee-decision structure, and it was a disaster. Nobody was responsible for failures and everybody took credit for successes, which led to a lot of bad decisions. You have to have one or two people carrying the keys who have full responsibility and are waking up in the middle of the night worried about risk. We limited the damage to one year, but it was a hard lesson learned." John Day

"Like art, portfolio management can rarely be done in teams (or worst in committees). We can add experience but we lose in personal creativity. Like Warren Buffett once said: “My vision of a group decision is to look into a mirror.” Francois Rochon

"If there were such thing as the Laws of Investing, they would have been written by Graham, Buffett and Munger. A small team size (ideally one) would be one of these laws." Mohnish Pabrai

 "Investing probably is not played best as a group sport." Leon Levy

"The most important investment judgments at most big institutions and for most large portfolios are made by committees, but few realize the negative dynamics of group interaction. I think that, in most instances, groups of intelligent people have so many inherent liabilities that a lone individual has a far better chance of making good decisions. The collective intelligence of the group is surely less than the sum of its parts, and the more people on a committee, the less chance it has to be wise and crisp in its decision making. It’s a throwaway line, but Nietzsche was onto something when he said madness was the exception in individuals but the rule in crowds." Barton Biggs

"Committees rarely take high-risk positions for which the members can be criticised. They rarely embrace idiosyncratic opinions. They rarely capture the most insightful member's uniqueness, as expressed in a lone non-conformist viewpoint. And thus they rarely produce highly superior investment results.” Howard Marks

"The founding impulse of the hedge fund idea is independence of thinking, it's the opposite of committee or investing by committee. The earliest hedge fund folks were by themselves, they were privateers in the world's investment oceans." Paul Singer

"At headquarters, we have never had a committee.” Charlie Munger

"I also believe that investments by a large committee tend to be less good than a very small committee." Ed Thorp

"The main individual (or perhaps individuals) who run the portfolio is the absolutely critical choice. A committee can't do it." Barton Biggs

“You can read about the dysfunction of investment committees, but until you're on one and you actually hear people say the stuff, you don't really realize that it's real and it happens.” Mike Trigg

“The worst of all possible worlds is one in which committees assume they and their successors will be able to stand short-term pain and therefore can sensibly have a very equity-heavy portfolio, only to find out the hard way that it was simply not the case. Rapidly changing committee membership and a lack of institutional memory make this an easy trap to fall into.” Jeremy Grantham

“Professors Terrance Odean and Brad Barber examined the performance of investment clubs in their study, "Too Many Cooks Spoil the Profits: The Performance of Investment Clubs." The study covered 166 investment clubs, using data from a large brokerage house, from February 1991 to January 1997. They found that when performance was adjusted for exposure to the risk factors of size and value, alphas (performance above or below benchmark) were negative, even before transactions costs. After trading costs, the alphas were on average -4.4 percent per annum.” Larry Swedroe

“There’s a negative correlation between the number of people making the investment decisions and the results. If you have a lot of people involved, you tend to have the least competent person making the decision, because you need consensus.” Lou Simpson