Tony ArrellTim Fraser
Tony Arrell looks back on a stellar 40-year investment career, and credits two role models - superstar investor Warren Buffett and Bay Street tycoon and philanthropist George Gardiner. While Mr. Buffett was his hero from a distance, Mr. Gardiner was his lifetime mentor. He died in 1997, leaving a legacy that included Toronto's Gardiner Museum of ceramic art, the Kentucky Fried Chicken franchise (which he brought to Canada), and a no-nonsense philosophy of buying and holding strong businesses. Mr. Arrell, chairman and CEO of Burgundy Asset Management Ltd., explains how he learned the value of good management and good works .
How did you get to know George Gardiner?
He was involved with the school of business at York University, where I was an MBA student. I became an analyst, and wrote a report on a company he was interested in, Scott's Hospitality, where George ended up making a lot of money. [Mr. Gardiner was Scott's major shareholder.]I studied that company and understood it better than anyone at the time. George cottoned on to this work, phoned me up and said 'Could I use your report? Could I meet you?' That was really the start of it.
I developed a real rapport with him. I became the president of his firm [Gardiner Watson] and I was pretty young. More important, I started to work on his own portfolio. I was very flattered because here was this guy who was a well-known, smart investor.
Did George teach you value investing?
He didn't call it that, but he was very conscious of the idea. He said 'Try to buy good companies and don't overpay for them.' You'd think that's what everybody would want to do, but surprisingly most of the investment business doesn't work that way.
With George, I started to see companies more closely - being on boards with him and helping strategize about how Scott's should diversify. You may own a stock, but what does it really mean in the boardroom?
He taught me that stocks aren't just little pieces of paper and things you read about in the paper. These are real, live organic entities. Some of the most important things about them can't really be quantified, such as the calibre of management. How well does the board work together and does it take its work seriously? These are things you can't calculate like a dividend yield or a P/E ratio.
And I got to understand the idea of competitive advantage. Buffett has written very elegantly on that topic, and George used to talk about it too.
So George Gardiner and Warren Buffett were your formative influences.
No question about it. With George, it was first-hand - I worked with him till he died, although not always in the same firm. Buffett has been a huge influence but that's different - it's arm's length. I've read about him, met him, but that is a bit like studying the Bible.
So you don't know God personally, but you read his work?
Yes, but I actually knew St. Peter.
So the two of them taught you the essence of investment?
At Burgundy, we pay attention to management quality. I think a lot of the Street ignores that until there is a problem. Buffett says it well: 'I only want to invest in companies where I'd actually like to be in business with the guy who runs it.'
George used to talk a lot about the value of having control of something. What he meant was it was important to appoint the CEO. He thought companies where there were nobodies in charge, like, say, some banks or big companies, don't tend to be as sharply focused.
Today, the world has got a little away from that concept. But we have found that companies with someone in charge - the Desmarais family is a good example - tend to be really well-run companies.
So family-owned companies over the long run are better performers?
In Canada, there would be a lot of evidence to support that view. Thomson, Weston, Desmarais - those three, for sure. You can always find a few on the other [negative]side, too.
George always felt that when times are real bad, there might be some uprising and management gets thrown out. And that does happen. So it is important to have control in the bad times, to get through and be able to make the long-term decisions.
Mr. Gardiner once described himself as 'decorator, collector, investor, benefactor.' Did you see those sides?
I was working with him when he had the idea of the museum [which opened in 1984] George built up this big collection and it was hard to have proper facilities for it. His wife Helen helped him see that 'you shouldn't have this all to yourself, where only you and your friends can see it.' George was also very interested in taxes. So he saw the museum as publicly the right thing to do; that other people could enjoy it; and there was a tax thing.
He was really a very good business guy, a highly ethical guy and he also wanted to do right by society, although I don't think that was his first driving factor.
Did you get your philanthropic side from him?
I was influenced by my family life. My mother was a social worker; my parents were both soldiers in the war and married in England. My mother as a social worker helped veterans after the war. My grandfather was a small-town lawyer who helped farmers who were losing their farms in the Depression. I grew up in a house where we believed we were lucky.
When I met George, he also talked about being lucky, and I feel that way today - to live in Canada, to have gone into the investment business.
Do you mentor people?
Big time. We really try to do that. You can't just artificially construct it. We have 80 employees and a lot of young people. How you develop those people has a lot to say about whether you have any competitive advantage in the future - in a business that revolves around people and judgment.
How do you do that?
It just develops. Most people don't know it is happening until you look back. It means just spending time with them and talking. I just had lunch with four [younger]people whom we move around the business. We talked about tips for success. How do you build a great company? How do you hire great people?
Is your market performance a validation of what you and Mr. Gardiner believed?
I think so. Looking back on 2008, it was the second most-tumultuous decline in modern market history. It was hard on investors because nobody likes to see their net worth go down. At Burgundy, we did a lot better than average, although we still went down.
I think we own better companies, especially better balance sheets. That was drummed into me early. When you have a business, you want to know about the upside but you've got be sure you'll live through the downside.
While bad times are hard on clients, they do create wonderful investment opportunities. And they created chances to strengthen the firm in ways that might have been hard - bringing in key people whom we had our eye on; taking cost measures that might have been harder to implement. I'm confident today we are stronger than two years ago.
What will be your legacy?
At Burgundy, we've done good things for investors but also stood up for some things, such as getting the Canadian Coalition for Good Governance going. And we developed some really good people. I'm proud of the stuff done for society - at St. Michael's Hospital or the new opera house. I like to think I am trying to help make a better society.