Change is the very essence of the investment business. Because of this reality, every portfolio manager I’ve known has a desk that can only be described as saved chaos. And that’s not including the piles of newspapers on the floor. Some managers even have a library behind their desk. Not in nice wooden cases as you would expect but stacks of books piled high lying sideways also on the floor. It’s because every investment manager knows change in the investment world is constant. After all, you never know when you might feel the need for supporting information to make a better decision.

However, specific information is not knowledge, it’s the application of that information that is true knowledge.  The recognition of this is now being grasped in academia. Sloan School (M.I.T.) for one has always trended toward a more entrepreneurial approach to management. That curricular focus -on a knowledge-based economic structure - was funded by Alfred P. Sloan, once the head of the largest industrial company in the world in its time, General Motors.   

Given that, why are so many entrepreneurs college dropouts? I submit, it’s because an entrepreneur has a different mindset than the average person. He’s driven by passion. That person, whether Bill Gates, Steve Jobs or Mark Zuckerberg, can’t wait to start his adult life. It’s why Irving Stone called his novel about Vincent Van Gough “Lust for Life.” It’s indigenous to almost every creative person.  

We must all evolve or face becoming irrelevant as we age. I learned this as a young man when a client’s wife came into my office in Harvard Square. She had brought me a Standard & Poor’s stock guide dated from the 1920s. As I looked through it, I suddenly realized, I didn’t know the names of any of the companies. She gave it to me thinking I would enjoy it, and I did. But that day I realized, for the first time, that corporations go through a life cycle much as people do. And neither lasts forever.

This continuous need for new information would impact me negatively a few years later. A research report titled, “Not Enough Rural Areas,” had been dropped on my desk. It was a sell recommendation on Wal-Mart. At the time, Kmart was the largest retailer in the country. In the report, Wal-Mart was considered a “wannabe” from Arkansas.  At the time – 1972 – I was into retail stocks and the box store concept was fairly new. I was interested in knowing why the negativity, so I called the analyst.

The analyst said, “Wal-Mart can never overtake Kmart. It’s growing rapidly because, they’re focused on small rural areas in the Midwest that Kmart has no interest in. Those markets are too small.” How could an analyst get a “story” so wrong? The research report never mentioned Sam Walton was even thinking about outsourcing production to Asia. “It was his vision” said one former Walmart executive.  Kmart, Sears, Target and JC Penney were already doing it. It was a new change in retailing.

With China’s cheap labor, he could undercut virtually every retailer in the country. Perhaps, at the time, the analyst didn’t know. If he didn’t, he should have, and if he did, he lacked the knowledge to understand the potential impact. Walmart had gone public in 1970 at $16.50.  If one had bought just 100 shares of the IPO, for sixteen hundred dollars and fifty cents, today you would have over $24 million. Walmart’s current C.E.O., Doug McMillon, carries a 3-by-5 card in his wallet with a list of the ten largest companies in the United States by revenue. Walmart is now number one. It’s a reminder to him of the situation that existed in 1970 and the need for constant change. His comment about the card: “I look at it every day.” He would have made a good stock analyst or a superb portfolio manager.