Interview with Christopher D. Towle
Chris Towle serves as the President of Towle & Co.—a firm his father, J.Ellwood Towle, started in 1981. The firm focuses on long-term, deep value investing, and is located in St. Louis, Missouri. Towle, having joined the form in 1994, holds a BA in History from Williams and an MBA from Washington University in St. Louis.
BT (Alanna Wolff): What did you do outside of classes in high school that may have paved the path for your career in finance?
Chris Towle: I did some student government, I was in the chorus, and I was a three sport varsity athlete. I played football, basketball, and ran track, and actually ended up playing football at Williams. My interest in investing started around the dinner table at home. Discussions were driven by my father, now business partner. We covered topics such as the importance of compounding capital over the long-term and the power of contrarian, value investing in public equities.
BT: Did you have a sense then that you wanted to pursue a career in finance?
CT: Oh definitely. I kind of knew maybe in around eighth grade or freshman year. I was interested in the concept of Economic Freedom at a very early age. Economic Freedom means that you have the freedom to do what you want to do, give the way you want to give, and serve the way you want to serve. Through it, you can be there for your children, for your wife, and for your community.
BT: What about after college? Did you still have the same concepts in mind?
CT: Well, when I was at Williams we all kind of wanted to do investment banking or management consulting. I really wanted a job at a place like Goldman Sachs or Lehman Brothers, but I ended up not getting an offer because it was in the middle of the 1990 financial crisis. I did get an offer at Manufacturers Hanover Trust, however, in a commercial lending role, and that was in March of my senior year. Working at Manufacturers Hanover Trust was a great experience for me because it put me right into downtown Midtown Manhattan, and being a country kid from Missouri, it was really eye opening for me, and a great place to start. I was only there for about 11-12 months until I got the opportunity to work in the Shoe Holdings Group at Berkshire Hathaway, Warren Buffet’s holding company. It was an awesome move for me because I basically moved from doing credit analysis to working inside an operating company. It was a very non-traditional route, since many of my peers were doing the traditional investment banking to business school track. It made me a big fish in a small pond--I was no longer competing with kids who went to Williams, Princeton or Columbia, for example, but with kids who went to schools that, frankly, weren’t as elite. And it was a really great experience for four years--I ended up getting to meet Warren Buffet, and run one of the small divisions in the Shoe Holdings Group at a pretty young age, around 27. When I left Berkshire Hathaway, my father asked me if I wanted to come help him build up the firm back in St. Louis, which at that time, was just one person. When I joined him, we doubled our staff and slowly grew the firm. We’ve been working together for 21 years now, and it’s been a real blessing for both of us.
BT: What advice would you give to new college grads?
CT: I would say to, “just get going.” Most college grads have no idea who they are, what they’re about, or what they want to do. They waste a lot of time exploring different avenues, and not picking something reasonably interesting to just latch on to and get their career launched. Those who waited and explored different avenues ended up being 5, 6, 7 years behind those of us who said, “You know, we’re just going to get going.” And when you have those years ahead in terms of creating wealth and advancing your career, it makes a huge difference. So that’s my best advice; just get going and you’ll figure it out as you go along.
BT: How do you hire in your firm?
CT: Most of our professional hires have come through referrals or firm contacts. There was one individual who reached out to me and said, “I want to stay in St. Louis, and you’re the only firm I want to work for,” which, naturally, piqued my interest, but we had started a dialogue with him about two and a half years prior to that as well. When hiring, we look for people who are a great fit culturally for us; culture is the key to a successful firm. We like having employees who are enthusiastic, who have a very high sense of integrity, and who take ownership in the business. These types of people know how to work not only in the business, but on the business, and think like owners; they are able to take initiative on their own, and don’t have to be micro-managed. These are the best type of employees, and how the Millennials really want to operate. We also have a basic policy of family first: we have no vacation policy, and no personal day policy. We want everyone to basically own their sphere of influence, and run that like it’s their own business. This creates a great sense of trust and alignment of interests, and has worked well. Employee turnover and hiring mistakes are the enemy, so you have to get it right up front.
BT: What are some important leadership lessons you’ve learned?
CT: I think learning to work with a sense of purpose, which then spills over into the rest of the team. I would also say being very patient, and self-forgetful, (putting myself secondary) and making sure that each employee is being appropriately served and developed. Each employee has to have everything--from the right tools, to the right desk, to the right hours, to the right technology--all to get the job done. Being very optimistic and enthusiastic is also extremely critical.
BT: Why did you get involved in investment management?
CT: Our firm is actually very different. On the operations side we have someone who previously worked for an investment management firm, but otherwise, we don’t have a single employee who has worked previously at an investment management firm. This is pretty cool because we all come at these activities through a different lens. But as far as getting involved in investment management, the real reason for me was that it enabled a real equanimity, or a balance to life. When my dad asked me to join him we barely had a business. We started fundamentally from scratch in terms of building the infrastructure, so it was almost an entrepreneurial start up back in 1994. That was exciting because it was very different from working for a big bank or Berkshire Hathaway.
BT: Could you walk me through your firm’s fundamental investment strategies?
CT: We are investing in the bottom decile of the universe of publicly traded US stocks. This is the bottom decile in terms of price to book, price to sales, price to normalized earnings, and price to EBITDA. In short, we search in what I call the “underbrush” or the under appreciated part of the US equity market, and we are basically a liquidity provider for those stocks that don’t receive a lot of support, and a lot of investment interest, from traditional asset management firms. This creates opportunity to add value to our client portfolios, by buying these businesses that many times are forgotten, or severely out of favor. And since we have a three-five year time horizon, we can get involved in these names in periods of time when there might be too much risk, and too much uncertainty, which gives us a real advantage. This is possible because we are the largest investors in our strategy; we don’t really need to placate to outside investor concerns. We can do what we want to do, and we’re not compensated on short-term performance; we can think long term.
BT: What sets your firm apart from other investment management shops? tow
CT: Well, three things:
- We’re small. We only manage about $500 million. Unlike firms who manage $5 billion, or $50 billion, we can go anywhere, or between almost anywhere in the public equity universe, which is a huge advantage.
- We live in St. Louis, Missouri, so we have a very independent view. We don’t really know what the investment managers in Chicago, NYC, or Boston are thinking. And we don’t really care, because we think that’s sort of a distraction. Our location is an advantage because we don’t get as caught up in the herd mentality, and we can be independent thinkers.
- We don’t have any constraints. We are benchmark agnostic; we’re not interested in mimicking or mirroring sector weightings of the benchmarks. There’s a big portion of the investment management world where that’s really what they do. But we can think long term, and we don’t have to respond to drastic changes in investor behavior and emotion, and we can capitalize on that with the type of deep value investing I described earlier.