March 12, 2024 • 57min

Anne-Marie Peterson - The Capital System - [Invest Like the Best, EP.364]

Invest Like the Best with Patrick O'Shaughnessy

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Anne-Marie Peterson, an equity portfolio manager at Capital Group. With nearly three decades of experience in the investment industry, including 20 years at Capital Group, Anne-Marie has developed expertise in retail, restaurants, and other sectors. The conversation explores Capital Group's unique culture, Anne-Marie's investment philosophy, and her insights on various industries and companies.

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Key Takeaways

Capital Group's unique culture and investment approach is centered on empowering individuals while fostering teamwork, with a focus on long-term relationships with companies and clients
The best retailers often have cult-like qualities, with obsessive focus on customer experience, strong company cultures, and the ability to build customer loyalty and habits over time
Power dynamics and industry structure are critical factors to consider when evaluating investment opportunities, sometimes trumping other factors like company culture
Healthcare, particularly pharmaceuticals, may be entering a new era of consolidation and power similar to what occurred in big tech, creating potential investment opportunities
Analysts tend to get too attached to ideas and are slow to recognize negative changes, while portfolio managers can make mistakes by relying too heavily on valuation as a shorthand or missing broader industry trends
Studying the long-term history of enduring companies like Hermès, Caterpillar, and HCA can provide valuable insights for investors
Gratitude and mentorship play a crucial role in professional development and success in the investment industry

Introduction

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Anne-Marie Peterson, an equity portfolio manager at Capital Group. With nearly three decades of experience in the investment industry, including 20 years at Capital Group, Anne-Marie has developed expertise in retail, restaurants, and other sectors. The conversation explores Capital Group's unique culture, Anne-Marie's investment philosophy, and her insights on various industries and companies.

Topics Discussed

Capital Group's Culture and Investment Approach (02:31)

Anne-Marie begins by describing Capital Group's distinctive culture and investment approach:

Founded nearly 100 years ago, Capital Group manages $2.5 trillion in assets
The firm's culture emphasizes teamwork and individual empowerment
Employees are shareholders, creating alignment with clients' interests
Long-term focus in everything, including hiring and investment decisions
"We have these long term relationships with companies. You can look, since we've been around so long. I was researched from the 1930s, meeting with the Dow ages ago."

Effective Management Meetings (11:08)

Anne-Marie shares insights on conducting productive meetings with company management:

Identify 2-3 key things to get out of each meeting
Understand what matters most for the investment case
Set a tone that encourages openness and honesty
Ask probing questions to understand motivations and decision-making
Use different meeting strategies depending on the goal and audience

Big Tech and AI Developments (16:58)

The conversation shifts to the current dominance of big tech companies and AI developments:

Focus on who's spending money and who's benefiting (e.g., Nvidia)
Consider potential cracks in the armor 3-5 years out
Look for less obvious beneficiaries (e.g., Shopify as a potential "operating system for commerce")
Importance of trust in management and their focus on customers

Retail and Restaurant Industries (24:27)

Anne-Marie discusses the common traits of successful retailers and restaurants:

Best retailers are often "cults" with strong cultures and customer loyalty
Examples: Costco, Home Depot, Lululemon
Restaurants face unique scaling challenges due to labor and customer experience at the unit level
Successful restaurant chains like McDonald's and Chipotle have found ways to overcome these challenges
"The best retailers are cults. This is a cult." - Alan Wilson (colleague) on Lululemon

Healthcare Industry Dynamics (30:25)

Anne-Marie provides insights into the evolving healthcare industry:

Payers and regulators play a significant role in driving or inhibiting change
Historical shifts in power from hospitals to HMOs to pharmaceutical companies
Potential for pharma to become more like big tech, with scale and innovation driving success
Examples of companies benefiting from these trends: Eli Lilly, Vertex, HCA

Power Dynamics in Investing (36:40)

The discussion turns to the importance of power dynamics in investment decisions:

Power can sometimes trump other factors like culture (e.g., Visa)
Understanding industry power structures is crucial
Look for companies that have been "battle-tested" over time
Brand power in luxury goods and other industries can create enduring advantages

Analyst vs. Portfolio Manager Mistakes (40:37)

Anne-Marie compares common mistakes made by analysts and portfolio managers:

Analysts:
- Getting too attached to ideas
- Slow to recognize negative changes
- Miscategorizing companies or situations
Portfolio Managers:
- Misunderstanding early trends or getting caught up in hype
- Using valuation as an excuse to own or not own something
- Selling at the wrong time due to lack of understanding
"I think using valuation as an excuse to own or not own something at extremes is fraught with error."

Studying Enduring Companies (48:32)

Anne-Marie suggests three companies for new analysts to study:

Hermès: Family business that has endured and adapted over time
Caterpillar: Long-standing industrial company with dominant market position
HCA: Hospital company that has created local monopolies and consistent returns
Importance of understanding company histories and how they've navigated challenges over time

Gratitude and Professional Development (54:54)

The conversation concludes with Anne-Marie expressing gratitude for her career and mentors:

Appreciation for Capital Group's culture and learning opportunities
Importance of mentorship and believing in others' potential
Active management's role in the U.S. economy and supporting companies' visions
"I feel very blessed. I don't have the background. Go to business school. I started as somebody's secretary just because I needed a job and wanted to work, live in San Francisco."

Kindest Professional Act (55:04)

Anne-Marie shares the kindest professional act someone has done for her:

Her original boss, John Weiss, promoted her twice and believed in her potential
He encouraged her to take his job as a sell-side analyst despite her initial reluctance
Introduced her to clients and supported her transition
"Had he not done that, I had no interest in doing this, but I love what I do. He said, this is what you're great at. Stop focusing on the things you're not great at. You're going to be great."

Conclusion

This conversation with Anne-Marie Peterson provides valuable insights into the investment philosophy and culture of Capital Group, one of the world's largest and most respected investment management firms. Anne-Marie's experience and perspective on various industries, particularly retail and healthcare, offer listeners a deep understanding of how professional investors approach company analysis and decision-making.

Key themes that emerged include the importance of long-term thinking, understanding power dynamics within industries, and the value of studying enduring companies. Anne-Marie's emphasis on gratitude and mentorship also highlights the human element of the investment profession and the role that relationships and personal growth play in long-term success.

For aspiring investors, the discussion underscores the benefits of working in an environment that fosters curiosity, teamwork, and continuous learning. Capital Group's unique culture and approach to investing provide a compelling example of how institutional investors can create value for clients while also supporting the broader economy through thoughtful, long-term capital allocation.