Parallels Between Great Investors and a Renowned Sushi Chef: Jiro Dreams of Sushi ~ market folly

Monday, April 21, 2014

Parallels Between Great Investors and a Renowned Sushi Chef: Jiro Dreams of Sushi

At first glance, it may seem odd to compare a sushi chef to an investor.  But as you'll see by the end of this post, they both share a common goal: to become masters of their craft.

Jiro Dreams of Sushi is a documentary about renowned sushi chef Jiro Ono in Tokyo, Japan.  His restaurant, Sukiyabashi Jiro, is a Michelin three-star restaurant, requires reservations a month in advance, and prices start at ¥30,000 (around $300 US).

After watching this insightful documentary, it became glaringly evident that investors and sushi chefs have a lot more in common than one would think.

Parallels Between Great Investors and a Renowned Sushi Chef

1.  Develop a constant, repeatable process.  Jiro does the same thing almost everyday.  He sculpts the pieces of sushi the same way over and over.  He constructs the day's menu and seating chart.  He even boards the daily train from the same exact spot each time.  His attention to detail might seem maniacal to some, but to him, it's a necessity to achieve greatness.

Applied to investing, great capital allocators seek to identify their own 'style' of investing.  Many of the greatest investors develop a repeatable process of finding ideas that meet various criteria.  Instead of being a deep value investor one day and then becoming a momentum trader the next, talented investors seek to find their niche and stick to it over and over and over again.

2.  Never stop learning, pursue perfection.  Jiro talks about how he is always trying to improve despite the fact that he was 85 years old when this documentary was filmed (in 2011).  He wants to be at the top of his game, even though he doesn't know how high up that is.

Jiro's fish vendor says that, "even at my age (50), I'm discovering techniques.  Just when you think you've figured it all out, you realize that you're just fooling yourself."  His shrimp vendor adds, "When you work at a place like Jiro's, you are committing to a trade for life."

The documentary also references 'shokunin' frequently, which literally translated seems to mean 'artisan,' but it sounds like the meaning goes much deeper than that in Japanese culture.  Jiro says that, "Shokunin try to get the highest quality fish and apply their technique to it.  All I want to do is make better sushi.  I do the same thing over and over, improving bit by bit.  There is always a yearning to achieve more."

Likewise, investing is a continual education.  Great investors are always improving and refining their process.

3.  Be passionate about your craft.  Instead of retiring, Jiro is doing what he loves on a daily basis: making sushi and perfecting his art.  He gives his all every single day.  Jiro says, "You have to love your job.  You have to fall in love with your work."

Some investors, like Warren Buffett and Charlie Munger, are getting up there in age but they don't stop.  They love what they do and they come into work each day excited to try to find their next investment and to perfect their art.

4.  Develop a discerning palate.   Jiro says, "The quality of ingredients is important but you need to develop a palate capable of discerning good and bad."  In investing, 'ingredients' can be the various inputs that determine the success of a business, such as the management team.  While that 'ingredient' is important, at the end of the day, you still have to develop a palate that's capable of discerning between a good and a bad business.

As Warren Buffett put it, "When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."

5. Be highly selective.  Jiro's vendors are very specific: 1 focused on tuna, 1 for shrimp, 1 for rice; each is the best of their trade.  This is somewhat akin to an investment fund that has analyst teams broken down by sector.  The analysts and sector heads become so immersed in those businesses that they become micro experts.  Jiro trusts these vendors to bring him the best ingredients, and fund managers trust their teams to bring them the best ideas.

There's also a fantastic scene at the Tsukiji fish market where Jiro's tuna vendor comments that, "I either buy my first choice or I buy nothing.  If ten tuna are for sale, only one can be the best.  I buy that one."

This is comparable to focusing on a strict set of criterion each investment must pass before it's added to the portfolio.  An example of this is Mohnish Pabrai, who frequently talks about the importance of an investment checklist.  Extrapolated further, many successful investors have allocated capital only to their best ideas.  As Fairholme Capital's Bruce Berkowitz says, "Why put money in your tenth best idea?" 

6.  Determine the important metrics.  Jiro's eldest son, Yoshikazu, helps run the restaurant and will succeed his father one day.  In the film, he goes to the market to buy some octopus and the vendor points out the color difference between two octopuses.  Yoshikazu doesn't care; he says he's only focused on one thing: the flavor.

In investing, investors need to identify the few key metrics that define and drive a given business.  Once those metrics are identified, it helps the investor really focus on the business' performance.

7.  Learn from a mentor.  A fish vendor says, "When you work for Jiro, he teaches you for free.  But you have to endure ten years of training."  There's a natural progression for employees at Jiro's restaurant from preparation cook to apprentice to a chef who opens their own restaurant.  Jiro is the master and his son, Yoshikazu, is the protégé being groomed to takeover.

On Wall Street, there are many examples of successful mentor/protégé relationships.  In value investing, you have Benjamin Graham and Warren Buffett.  In global macro, you have George Soros and Stanley Druckenmiller.  In long/short equity, you have Julian Robertson and all of his Tiger Cubs (John Griffin, Andreas Halvorsen, Lee Ainslie, among many others).

This just goes to show that some of the greatest investors (and sushi chefs) have spent time to learn under the best.  It also reinforces the junior analyst > analyst > sector head > portfolio manager hierarchy that many larger firms employ.  You have to gain valuable experience and learn the necessary skills to succeed in the craft of investing. 

8.  Identify your competitive advantage.  Jiro recognizes his strengths and weaknesses.  Investors should do the same.  Warren Buffett famously says to, "focus on your circle of competence."

There's one particular scene in the documentary where everyone says Jiro's rice is the best.  A hotel wanted to buy the same rice from Jiro's vendor, but the vendor said no because, "what's the use if they don't know how to cook it properly?"

Jiro purchases very specific rice from this vendor and uses a distinct preparation method that involves very high pressure to cook it and requires it to be served at a specific temperature.  He doesn't know anyone else who does this.

Other examples include the fact that his chefs massage the octopus for an hour to make it less tough texturally.  Jiro also plans the progression of the courses in a certain order, something it took him years to refine.  His specific vendors, focus on high quality ingredients, and preparation techniques are some of the things that differentiate him from the competition.

Fund managers these days are often asked by potential investors what their competitive advantage is over other active managers.  Good investors will have identified this and can quickly point it out, whether it be experience, style/strategy, sector focus, time horizon, their limited partners, or a myriad of other factors.

9.  Attention to detail is key.  Jiro is laser focused on every detail of the dining experience at his restaurant.  Before customers arrive, Jiro sets a seating chart in order to enhance the flow of the meal while accommodating groups so they can sit together.  If he notices a customer is left-handed, he immediately adjusts where he is placing the sushi in front of them.  He also alters portion sizes based on whether the diner is male or female.  The presentation of each piece of fish is timed ideally for taste, texture and temperature.  Jiro is very methodical in everything he does.

Attention to detail in investing is key as well.  Just ask hedge fund manager Jim Chanos, who famously identified fraud at Enron by obsessively examining their books.  This is also why so many hedge funds dig so deep on potential investments.

Analysts perform channel checks by visiting countless retail stores, talking with competitors & industry experts, surveying customer preferences, etc.  And don't forget the basics: listening to company conference calls and reading SEC filings (including the fine print) etc.  It's the little things that can make a big difference.

10.  Take advantage when opportunities arise.  Jiro doesn't necessarily have the same menu everyday.  His son sees what the best ingredients are at the market for that day and Jiro molds the menu around it.  In this manner, the fish market is a lot like the stock market.  Advantageous investors scoop up shares of specific companies when they find the prices they're looking for. 

There are other similarities, too.  Jiro and his chefs are familiar with all the ingredients they work with, so they know what is good at any given day at the market and when to strike (this ties back in to developing a discerning palate).

The same can be said for many investors who build a 'universe' of investments they've become familiar with over time from past research.  When a business they like finally trades at a price they're comfortable with, they can buy.

As you can see, there are some interesting parallels between great sushi chefs and great investors.   If you haven't seen it already, Jiro Dreams of Sushi is a well-done documentary worth viewing, especially if you like sushi (just don't watch it hungry).

Embedded below is a trailer for Jiro Dreams of Sushi:

You can purchase a DVD copy here or you can watch via instant video here.

"Always try to improve on yourself.  Always strive to elevate your craft.  That's what he taught me."  ~ Yoshikazu on his father, Jiro

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