This article is a public version of a two-part internal memo written by one of TDM co-founders, Hamish Corlett, for our all-team strategy day with the purpose of aligning our team on our foundational belief that investing is best performed as a team sport.
Peek into the story behind ‘investing as a team’, why it is so important and how it is operationalised.
The frameworks that define our team philosophy include our key positions and skills matrix, 10 Decision-Making Principles, 10 Investment Tenets, and five company values.
If you were asked, ‘who are the greatest investors of all time?’, what would your answer be? No doubt these are some of the names would come to mind – Warren Buffett, Ray Dalio, Peter Lynch, maybe George Soros, Joel Greenblatt, Carl Icahn and Bill Miller.
What if you were asked, ‘who are the great investing teams?’, how many names would come to mind? This question is more difficult to answer. Try Googling ‘world’s greatest investment teams’ – the top results are all individual investors, no teams. Even ChatGPT struggles with this question.
Great investment teams, however, do exist. Buffett and Munger could be viewed as a two-man team, and they are without question the greatest. Howard Marks and Bruce Karsh from Oaktree are another great two-person team. Benchmark and Sequoia also appear to have taken more of a team-based approach to early and growth-stage investing. Josh Kushner talked about Thrive Capital’s team-based approach on Invest Like the Best.
Despite these success stories, it is rare or even unheard of to consider that investing at its best is a team sport. A chart that typically comes up in a search for ’world’s greatest investors‘ is this one published by Harriman House in 2014: Approximate excess returns versus the S&P 500 Index of top investors.
No teams. Only individuals.
No one at TDM aspires to get on that list. We are gunning for something different.
The TDM approach to investing is a team sport mentality. It is rugby, not golf. Every player has a different role, different strengths, different perspectives. Every position is critical. It is the team that succeeds or fails.
Most investment teams are built around hiring a bunch of playmakers—akin to fly halves in rugby, quarterbacks in American football or strikers in soccer. Perhaps this is why ‘great investors’ are considered to be individuals, not teams.
At TDM, we focus on building and developing a more complete team. The right mix of skills and strengths is critical to our success. We want everyone to be a ‘playmaker’ in their own way, but we actively work to ensure playmaking doesn’t revolve around one or two individuals.
Our mindset of investing as a team sport was no accident. It was a conscious choice we seeded at TDM’s inception and organically took root in every aspect of our business.
Tom (‘TC’) started TDM in 2005 on his own. Investing alone is tough; being in an echo chamber of your own thoughts, doubts, and biases is not a good set-up for high-quality decision-making. It’s also probably not great for your mental health!
Between 2005-2007 while I was at Caledonia Investments, TC and I would talk daily about everything investing—debate stocks, competitive advantages, valuations, portfolio construction, the market, and CEOs. He and I have always shared the same investing principles, but the way we think about things is often different; complementary. Our conversations would always lead to better clarity and deeper understanding for both of us.
When I officially joined TDM in September 2008, we had a plan to start raising money from external clients. A week later, Lehman Brothers went bust. The equity market went into free fall. At times in the subsequent months, it felt like equity markets were going to zero. Almost all of the potential clients who promised us money changed their minds. We didn’t know if TDM would exist in a year. This was the moment when investing as a team sport was etched into our DNA.
Going through that period alone would have been debilitating—emotionally and psychologically. Decision-making would have also been so much harder without having each other to work through things together. Just as importantly, coming out the other side was much more rewarding as a team.
We knew then that TDM would only achieve its highest potential by fully committing to a team-based approach. From that point on, we did everything as a team. Ben joined shortly after, and the benefit of the team grew even stronger.
Rarely, if ever, would a team member ’go into the wild‘ alone. One particular CEO whom we had met with several times commented: ‘You really do hunt as a pack’, and so ‘investing as a team sport’ became ‘hunt as a pack’; one of the five core values that went on to define our culture.
Over time, we further cemented our team mentality by developing frameworks to help guide us in everything from building and cultivating our team to the way we do business and make decisions. Fast forward to a team of now almost 40, and it’s clearer than ever to us that investing, at least the way we do it, is a team sport.
So far, it’s working well. We have compounded at 25% p.a. for 18 years, outperforming the S&P 500 by 17% per annum on average. Going back to the ‘the greats’ chart we shared earlier, this places us approximately here:
But true investing greatness is measured over many decades. Just look at Buffett—15%+ per annum excess returns over 60+ years. Mind-boggling! We have a long way to go.
The following chart shows how our team has grown since 2010.
As our team has grown over time, our ‘excess returns’ have remained consistently in the range of 15-20%. These excess returns have been generated on much larger sums of capital as time has gone on. Often in our industry, funds can perform well on smaller sums of capital in the early years but then struggle to produce strong excess returns as the funds increase.
There’s no question that the quality of the work we do, the quality of our decisions, and the quality of how we help our companies have improved over that period.
Our long-term goal (think: several decades) is to continue compounding our capital at 20% per annum or more. If we achieve this goal, in 30 or 40 years, when someone asks, ‘Who are the greatest investors’ we hope that answer includes not any individual’s name associated with TDM, but TDM itself.
We have consistently underestimated how the team would grow. How we operate as a team has changed dramatically as a consequence of this growth. It has not been easy. We haven’t nailed it yet; we keep iterating and improving. We are currently at 38 team members. Recently, we made the firm decision to permanently cap the number of team members to 50. We now think that cap should probably be 40.
Getting the size of the team right is critical. Too few and we don’t have the work capacity and skillsets to cover the breadth and depth of what we do. Too many and the quality of relationships and decision-making deteriorates.
There are now 15 of us in the Investment Team; the team has grown slowly but steadily over 18 years:
We believe 15 is the right team size for the game we want to play. It gives us the skillsets and work capacity to cover what we do—investing in and helping businesses we are proud of. Theoretically, we could help our portfolio companies more, or research more companies if we expanded the size of the IT. But there would be trade-offs:
There is no doubt that decision-making and maintaining high levels of trust gets more challenging as team size grows. We feel like 15 is the edge of the efficient horizon in this respect. Our plan is to hold at this number for at least a few years and push to make it work. So far, so good.
Several very unique aspects exist in how we have built and run TDM, but our team-based approach to investing is probably the most controversial aspect of how we do things.
We have fully committed to a rare extreme; investing as a team. There are rarely individual accolades. No individual attribution for ‘good’ or ‘bad’ investments. All team members contribute to each investment decision process, whether you started yesterday or 18 years ago. We have one pool of capital, one investment strategy, and one portfolio—all managed by one team of 15 people.
One pool of capital—No separate pools of capital are allocated to different strategies or individuals to make their own decisions. That pool of capital is evergreen, meaning if we have a bad couple of years, we can’t walk away from our mistakes, raise a new fund and start again.
One investment strategy—We have had one investment strategy since inception:
One portfolio—This is key. We only own up to 15 companies in the portfolio. Each of us cares about every investment decision—buy or sell—and we all take ownership of those decisions. Being across 10-15 companies in depth is a stretch for any one person. If we expect each IT member to contribute to decisions, it’s impossible to own more than 15.
Sub-teams—Each portfolio company has its own sub-team. This team of 3-4 IT members is primarily responsible for the work required for us to own and help a portfolio company, including:
Each sub-team has a lead who has the ultimate responsibility for these tasks. Sub-teams also have the responsibility of recommending investment decisions to the broader investment team. One of the benefits of this approach is having a majority of the team outside the sub-team who are less close to the business and management. Sometimes you see things clearly from a distance (but not too much distance).
The decision-making process—We expect every investment team member to contribute to the investment decision process. Our Investment Decision-Making Principles (below) outline what this looks like. We strive for a meritocracy; the strongest arguments and rationale should determine which path we take. Final decisions are made by the three team co-captains—Ben, TC and me.
How we make these decisions is open and transparent:
Another key aspect of making this team-based approach work is the frameworks and common language that facilitate discussions and guide decision-making. We have a range of these frameworks for different purposes:
Investment tenets—to reach your potential as an individual or team, you have to know who you are. We define who we are as investors with our Investment Tenets. How we invest at TDM hasn’t fundamentally changed in 18 years. It has evolved and improved, but the fundamental tenets are the same. As the team grew, it became apparent that we needed to define these tenets more clearly. Last year, as a team, we captured them as shown below. These hang in our office’s main work and meeting areas, always reminding us of who we are as investors.
TDM Investment Decision-Making Principles—We are in the business of making good decisions. If we want to be one of the best in the world, we have to strive to be one of the best decision-making units in the world. No group can agree on everything, but we must agree on the principles by which we make decisions. We have codified these principles below:
Four Pillars Framework—our Four Pillars provide a common framework for assessing businesses. I will be doing a deep dive into our Four Pillars – Growth, Competitive Advantage, People and Culture and Valuation in a separate memo but in the meantime it is covered in a lot of our podcast appearances including this one on the Hearts and Minds podcast
Other frameworks include our ‘What does great look like?’ series for assessing businesses, executives and boards; and our ‘One mission, one platform’ predictive model for category-leading businesses.
All of these frameworks primarily serve the purpose of enabling high-quality discussions and decisions as a team.
Jim Collins has been a huge inspiration to us and how we invest, probably as much as Buffett. One of the basic principles he impressed upon us is the importance of having ‘the right people on the bus’. All the above methods count for little if we don’t have the right people—culturally and capably—in every position. Having the right people allows for inevitable imperfections in the process and outcome. One of the main frameworks we use to ensure this balance of capability is our Skills Matrix.
Skills Matrix—the matrix outlines the five categories of capabilities we require in our IT.
The categories are broken down into five discrete skills, which are described in detail in an internal document. Each team member is assessed across the individual skills on a 1-to-5 scale. Where they rate is based on both experience and aptitude. Every IT member needs to be strong across the Foundational Skills. However, there can be significant differences between individual strengths and weaknesses across the other categories. For example, not everyone needs to be strong in ’Content Creation’ or ’Transaction Execution’.
We use the Skills Matrix to guide individual development. We also aggregate the team data to give a picture of relative strengths and weaknesses across the team.
Our core values – the underpinning of our culture-if the Skills Matrix ensures the right mix of skills and strengths, it’s our Core Values that ensure we have an aligned and cohesive culture. TDM’s five core values – We are Owners, Patience with Urgency, Hunt as a Pack, Wear the Yellow Hat and Passion and Perseverance – underpin the expected behaviours of all TDM team members.
We often say that people and culture are the beating heart of high-performing teams. Our Core Values are scoped out in detail with origin stories, sub-text, behaviours and specific examples. They are the blueprint for what standards look like at TDM. It describes the mentality and behavioural attributes required from every individual. They are non-negotiable. Where we give individual accolades, it is almost always based on extraordinary displays of being an ultimate teammate. Tough feedback conversations usually revolve around these issues. Remuneration is determined much more by our core values rather than skillset progression.
All of these components play a part in making ‘investing as a team’ work, but the culture we’ve built is the most important piece. The ground is always moving, and we are constantly recalibrating, but none of this works if our people on the bus don’t carry this innate belief in the team.
The whole system hinges on this intangible mentality, which sounds like it could leave you quite vulnerable, but when done right, leaves you incredibly strong.
All individual investors will pass on at some stage. My hope is that TDM will survive the inevitable tough times we encounter in the future and continue to thrive as we pass through future generations.
Read the original two-part blog on Hamish’s Substack “Game of Inches”.