After a patient innings, Argo boss Rob Patterson declares Exclusive: Damon Kitney From: The Australian October 23, 2010 12:00AM
THE nation's greatest cricketer, Donald Bradman, could pick the line and length of any bowler.
But when it came to picking the traits of Argo Investments' managing director Rob Patterson, "the Don" could arguably be accused of declaring a little too early.
It was 1985 and at the age of 75, Bradman had recently stepped down from the chairmanship of Argo, Australia's second-biggest listed investment company.
Argo had been in a big growth phase and Bradman handed Patterson, who had taken over as chief executive three years earlier, a scrap of paper with a simple phrase written by American humorist and movie actor Will Rogers.
It read: "Even if you are on the right track, you will get run over if you just sit there."
"He told me, 'I think this describes you very well, Rob'," Patterson tells The Weekend Australian in an exclusive interview.
A quarter of a century later, Patterson has proven Bradman wrong.
When he steps down as managing director at next week's annual meeting after 41 years with Argo, the 63-year-old will leave behind a company that has become renowned for its patience and long-term investment philosophy.
Patterson rationalises Bradman's comment this way: "I guess I am mindful that the company's role is to be patient.
"Despite my impatience, perhaps I have toed the company line," he says with a chuckle.
Under Patterson, the Adelaide-based Argo has adopted a simple philosophy, investing in a diversified portfolio of quality blue-chip stocks for the long term.
Patterson has insisted on avoiding becoming a forced seller of any stock by having too much debt. In Argo's case, there is none.
This formula has seen Argo produce a Total Portfolio Return compound growth rate per annum of 13.6 per cent over the past two decades, net of all costs and corporate tax. That compares to 10 per cent for the All Ordinaries Accumulation Index.
Argo currently has $3.6 billion in assets, no debt and cash reserves of about $240 million. In August, it reported a 17 per cent increase in net profit to $153.8m for the year to June 30.
Argo chairman Chris Harris, who has worked with Patterson for 16 years -- including 12 as chairman -- says the long-standing CEO has been a "quiet achiever" who acts "honestly, diligently and with integrity".
"He's never allowed money to burn in his pocket. At times, Argo has had up to $300m in A Grade bank deposits but Rob has never been one to want to throw it around the market," Harris says. "Rob always had the best interests of shareholders top of mind."
Patterson says he owes plenty to Alf Adamson, a chartered accountant who formed Argo in 1946 and taught him the skills of investing over more than a decade.
And then there was Bradman, who was chairman of Argo between 1982 and 1984 and remained a consultant for the next nine years.
"I really did get a lot from Bradman. He was terrific," Patterson says. "He had a very good economic understanding and good contacts within companies. A lot of corporate heads were cricket tragics, so the idea of meeting Bradman was pretty good.
"We were a founding shareholder in Hill Samuel Australia (which became Macquarie Bank) and Bradman was really the introduction to that."
Over his career, Patterson has seen two credit crunches, two mining booms and a tech wreck.
He has also watched the evolution in international communication, which was once mainly by airmail correspondence, telex or booking international telephone calls. Share registers and investment records were once maintained on magnetic stripe ledger cards and dividend cheques were individually signed by hand.
And today there is a rigid continuous disclosure regime for the sharemarket, compared to an era when fund managers heard from companies only two or three times a year.
But he has never deviated from his investment philosophy, despite the increasing push towards short-termism with quarterly reporting and investor demands for instant returns.
"I am not convinced it (short-termism) has led to better returns," he says.
"There has been recent talk that our kind of model is not going to work any more.
"We have been going for 64 years and it has worked. We have a long track record of outperforming the index over long-term periods. So as long as people stick with us, I am confident we are going to be able to do that."
So how did he manage to resist the urge to take a punt? At times it was tough.
"I recall the tech boom was very hard to resist because, like all these things, they go on longer than you expect," he says.
"You can see that it is not right. We were valuing companies on multiples of sales because there were no earnings.
"And yet it was going on and on and I had people in the boardroom questioning why we were not part of it. Then one day the music stops and you are a hero. But boy you have to resist for a while."
Today the same pressures remain with single commodity resource companies or exploration companies selling off high multiples. Argo is not in them.
"They have been causing us pain by outperforming in recent times. That is why we need a long-term view," he says.
Patterson says the best chief executive he has seen is Wesfarmers boss Michael Chaney.
Not far behind is Don Argus, former chief executive of National Australia Bank and chairman of BHP Billiton and Brambles.
The worst is a tie between Pacific Dunlop boss Philip Brass and Sandy Oatley, the son of Oatley patriarch and founder of Rosemout Estate wines, Bob Oatley.
Sandy Oatley ran Southcorp after it acquired Rosemount, before the former was acquired by Foster's Group in 2005.
"Both were classic cases of sales people, marketing people, being CEOs. Just being driven by the sales line -- you see it all the time," Patterson says.
He nominates his best stock picks as Macquarie Bank and Perth mining services company Fleetwood (which has also been a favourite of the Pratt family's private investment vehicle, Thorney Investments). But in investing, the greatest skill is getting the sell decision right.
And Patterson nominates his best, but hardest, sell call as John Spalvins' debt-laden Adsteam group. It took one report from an analyst at Rene Rivkin's stockbroking firm to spook Patterson well before the empire collapsed.
"I had never done it before and I totalled up our four investments (in Adsteam) and they came to about 8 per cent of our portfolio. And I went to the board immediately and explained the situation, that there was a stockbroking analyst saying the structure would not stay together and that I had serious concerns about it and the board resolved to halve the holding immediately. We then went on to pretty much sell out," he says.
But Patterson wasn't so lucky with another 1980s icon, Christopher Skase's Qintex Group.
"Funnily enough, Bradman and I got to know Chris Skase very well and were an early investor," he says. "Chris did some pretty good things in the early days and obviously went off the rails with delusions of grandeur, trying to take over MGM."
But in between Patterson was lucky enough to enjoy some of Skase's legendary Christmas parties, where international stars of the time such as John Farnham provided the entertainment.
And then there was Rivkin's legendary largesse.
On the wall of Patterson's Adelaide office proudly sits a plaque commemorating his victory in Rivkin James Capel's Great Catamaran Race run off Queensland's Hamilton Island in December 1986.
"It was just before the crash and Rene put on this huge bash at Hamilton Island, all expenses paid. Two 747s flew up there, one from Melbourne, one from Sydney. Everyone flew in and you could have helicopter rides to the reef. It was a whole weekend thing," he recalls.
Fast forward to today, and Patterson believes the sharemarket is looking better, but he still has reservations. Cash makes up 5 per cent of the Argo asset portfolio.
He says the level has come down slightly over the past 12 months "as we have felt a bit more comfortable that things have settled".
"It looks like things are slowly getting back on track globally, but there are still plenty of risks," Patterson says.
But as of Monday afternoon, after Argo's AGM at the Adelaide Convention Centre, Patterson won't need to worry any more about what he is doing with other people's money. And he's confident about the future of Argo under new chief executive Jason Beddow, only the firm's third CEO in its 64-year history.
Argo's name came from the Greek mythological tale of Jason and the Argonauts, in which Jason took a successful voyage in the Argo to recover the golden fleece.
"I am proud to be leaving behind a team that I have helped train and that I am confident will take the company forward," Patterson says.
Now he's looking forward to enjoying a few more bottles of his favourite aged rieslings on his 43-foot Jeanneau cruiser, aptly named "ASX", which he and his wife plan to take across to Port Lincoln and Kangaroo Island in the months ahead.
There might even eventually be a trip around the east coast and up to the Whitsundays.
"One of the reasons for retiring is that I need to reacquaint myself with my yacht," he says.
"(And) I think it (investing) is a bit of a younger person's game. Its been a good innings, 41 years.
