There is a story behind every person.
Prospector’s founder John Gillespie joined Havener Capital Partners founder Stacy Havener, to tell us about his story. In this podcast, Mr. Gillespie walks us through his own journey, which started with a Wall Street Journal subscription while he was in college and eventually led to him brushing shoulders with insurance legend Jack Byrne (ex-GEICO CEO).
Today, after working at GEICO and T. Rowe Price, where he spent 11 years as an equity analyst and ultimately a portfolio manager, Mr. Gillespie can reflect on a unique set of investment experiences, as well as lessons from some of the best mentors imaginable. These include principles on running a successful business, inspiring people and managing risk.
A financial advisor once described Mr. Gillespie by saying, “He’s a true value investor, an investor in businesses, and there are so few of them left.” We encourage you to listen to the story of John Gillespie (11 min 8 sec).
Or read the transcript of the interview below.
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INTERVIEW #1 – (FULL TRANSCRIPT) - THE PROSPECTOR STORY WITH JOHN GILLESPIE
John Gillespie, Founder & Portfolio Manager/Analyst at Prospector Partners
Stacy Havener, Founder & CEO, Havener Capital Partners
Stacy: Today's guest has worked alongside some of the world's most talented investors. He has been a lead Portfolio Manager at one of the industry's most respected fund companies and served as a director on the boards of some very successful companies. For the last 22 years he has been at the helm of the asset management firm he founded in the quaint seaside town of Guilford, Connecticut, joined by a team of pedigreed investment professionals. A financial advisor once described our guest by saying he's a true value investor, an investor in businesses, and there are so few of them left. I'm very pleased to welcome John Gillespie of Prospector Partners to our studio today. John - thank you for being here.
John: Thanks for having me Stacy.
Stacy: So, just to set the stage a little -The goal behind this podcast is really to shine a spotlight on the people behind the portfolios. We want to talk about the things you can't screen on - who you are, why you do what you do and really your story, and that's where I'd like to start. I've had the benefit of hearing your story and it's an amazing one. Could you take us through it? Everyone’s got one, tell us yours, what was your journey to arrive where you are today?
John: Okay, well, let’s hope we have enough time for this. So, I've always been fascinated by the stock market, you know, way back before my professional career started. I'm the kid who had a Wall Street Journal subscription when I was in college. I graduated from Bates College in 1980 and went to work for Geico, the auto insurance company in Washington D.C. I was a human spreadsheet there. This is back before the days of personal computers, and it's where I worked first for a guy named Jack Byrne who was the CEO of Geico, who’s one of the key figures in my business career. And I learned a lot about the philosophy of value investing from Warren Buffett who was the largest owner of Geico at the time.
So, I had a really good four-year experience there. I went to graduate school and got an MBA from Stanford. I then went to T. Rowe Price where I spent 11 years getting a classic training in equity research, became a portfolio manager, and really had quite a good run at T. Rowe, but I’d always wanted to start my own business and so I did back in 1997. I went back to my old boss Jack Byrne and said “Jack, I'm pretty good at running money, but I’m not so good at raising money, please put up the money for me to manage, and I'll start my own company”. He then put me through my paces by sort of testing me over the course of a year, making sure I was determined rather than restless and in the end he decided that he would back me. He put up the first $20 million and locked it up for five years and with that commitment in hand, I resigned my post at T. Rowe and started Prospector.
Interestingly Jack had left Geico and gone to a company called Fireman's Fund where he had taken it public out of American Express, again in partnership with Warren Buffett. He then sold the insurance company at Fireman's Fund to the Germans in 1990, renamed the public company White Mountains and it was at White Mountains where Jack was again CEO and Warren was again the largest shareholder that I became partners again at Prospector.
Stacy: Awesome - and actually, why don't we stay with that. So clearly Jack Byrne was a mentor for you in addition to being a business partner. Talk about that what was that like and what was the most valuable lesson he taught you and if there are other mentors, please walk us through that as well.
John: Oh sure, happy to - Jack was amazing and you're right he was not my only mentor. I'll start with my first mentor who was my dad. You know he taught me about life, he taught me about doing things the right way, he gave me a work ethic, he was demanding so he’s really the one who set the stage for me and lead by example. Now he was also a trust and estate lawyer for 60 years and so he knew quite a bit about the markets as well and he's the one who offered me my first lessons in investing. I will never forget him saying, you can’t eat pre-tax returns and you can't eat relative performance, so the lessons started there. But with Jack, you know he was an amazing guy. He was demanding, but he always made it fun and he was a great leader of a team so people would follow him anywhere and do anything for him.
He had four principles that he hammered home over and over. First at Geico I learned them, then I re-learned them again at White Mountains which was how to properly run an insurance company. His four principles were: underwriting comes first, maintain a disciplined balance sheet, invest for total return, and the fourth one was think like an owner.
Now I I've taken those four principles and I've adapted them to the investment management business because I think they're very relevant and I've let those lessons sort of guide me through my career. Underwriting comes first, that means bottom up fundamental company analysis, always comes first. Maintain a disciplined balance sheet, that means don't invest in over levered companies, don't borrow too much, and don't rely on just in time capital if you're running a business. The third one invest for total return means the same thing so long run focus investing for total return which is what we try to do here at Prospector. And then the fourth one, which was think like an owner, well that's an easy parallel. For us it's find portfolio companies with managements who think like owners and then try to become their partners. So those are really the core lessons I learned from Jack, you know there's a million others, but those are the most fundamental ones.
I would say the other key mentor for me was Warren Buffett. He was the largest owner at Geico and he was the largest owner at White Mountains so I got to interact with him quite a bit. I'll never forget the most important message that he taught to me, which was there's two rules to investing in equities, he said rule number one is never ever subject yourself to a margin call. And that means never put yourself in a position where, if something bad happens, either to you or to your financial position that you're going to be in a position where you have to sell equities to fund something at what could be an inopportune time. So it’s always size your equity allocation such that you can withstand any downturn. And then Rule number two of course was whatever you do, don't forget rule number one. So there really was only one rule from Warren and so I've carried those through my whole career, up to and including today.
Stacy: Wonderful, those are great and actually it's a pretty good tie in to the next question I have in your story which is what are you most proud of in your career?
John: Well I’ve got a lot to be thankful for, I've been very lucky and been in good places at good times, but what I’m definitely most proud of was starting Prospector. I mean I had a really good job at T. Rowe Price. They are a great company - I was a fund manager there and that was the job I had always aspired to. And it really did take a bit of a leap of faith, you know to make a bet on myself to step out of a safe and very exciting and great job, you know to make a bet on myself and start Prospector. And so that's the thing I would say that I'm most proud of. Probably the runner up would be that I'm still at it. I mean, there's a great Benjamin Graham, quote, which is to finish first you must first finish, and just being able to stay in the game you know I'm proud of that. There's a lot of value investors who have sort of fallen by the wayside in recent years and we're still at it, we're still kicking, we're still generating good returns so I’m proud about that as well.
Stacy: Thank you John for sharing your story with us. Whether it was working for his mentors Jack Byrne and Warren Buffett or honing his craft at T. Rowe Price, the story of John Gillespie and Prospector Partners is one where all roads lead to the heart of value investing. Due diligence is not just screens and statistics, there is an element of art. Behind every portfolio is a person or a team of people spending time learning who they are, how they think and what inspires them is just as valuable as quantitative work on their investment strategies. At Havener, we believe there are a lot of talented portfolio managers running funds that have yet to be discovered. We are on a mission to help them get found. Thank you for your time today and for being a part of our tribe. Listen to more of our conversation with John Gillespie, learn about the Prospector team or read about their process by visiting the Prospector website.
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