Lessons from Bruce Flatt

Bruce Flatt is the CEO of Brookfield Asset Management.

On Investment Philosophy

Focus on Intrinsic Value, Not Market Trends. Flatt emphasizes a value-oriented strategy, concentrating on an asset's intrinsic worth rather than popular trends. [1] This involves identifying assets that are undervalued compared to their fundamental value. [1]
Be a Contrarian. A core tenet of Flatt's philosophy is to go against the crowd. [1] He advises diverging from popular trends, which often leads to identifying undervalued assets that the market may later recognize at their true value. [1]
Invest in Tangible, Real Assets. Flatt advocates for investing in real assets like infrastructure, real estate, and renewable power. [1][2] These assets provide stability, protection against inflation, and have intrinsic value tied to physical components. [1][3]
The Rules of Investing Haven't Changed. While the investment landscape has evolved with things like data centers and renewable energy becoming asset classes, the fundamental principles of buying great businesses and holding them for cash returns remain the same. [4]
Promise Moderate Risk with Good Returns. The goal isn't to achieve spectacular short-term gains but to generate reasonable, consistent returns compounded over decades. [4]
Seek Profitability, Not Just Growth. Growth without profitability does not necessarily add value. The focus should be on investments that generate strong cash flow. [5]
Buy Below Replacement Cost. A key principle is to acquire assets for less than what it would cost to build them today. This provides a competitive advantage and a margin of safety. [5]
Don't Follow Fashion, Follow Value. Flatt warns against chasing fashionable investments, stating that returns will be much greater over the long term if you stick to a value-based approach. [2]
Invest Where Others Are Not. The most lucrative opportunities are often found where other capital is not flowing. This requires moving against the current market sentiment. [5]
Quality Matters, But Price is Paramount. While it's acceptable to pay more for great assets, it should not be at any price. The price you pay is a critical determinant of your return. [3]

On Long-Term Perspective and Patience

Embrace Long-Term Thinking. Flatt is a proponent of acquiring and holding assets for the long haul, allowing the power of compound interest to work its magic. [1]
The Biggest Mistake is Selling at the Wrong Time. Average investors often sell when prices go down. Flatt advises having conviction and staying invested for the long term. [6]
Short-Term Volatility is a Distraction. Daily price movements in public markets are often noise and can be "terribly distracting" when the underlying asset's fundamentals haven't changed. [7]
Time Horizon is a Competitive Advantage. Having a long-term view allows you to weather economic cycles and make investments that may not pay off immediately but will generate substantial value over time. [8]
In 20 Years, Today's Turmoil Won't Be Relevant. Flatt maintains a calm perspective during crises, believing that in the long run, most current market upheavals will be insignificant. [9][10]
Don't Get Wrapped Up in the Moment. Experience has shown that many crises feel worse in the present than they appear in hindsight. Focusing on the long-term trend is crucial. [9][10]

On Risk Management

Focus on Downside Protection. The investment committee at Brookfield concentrates almost entirely on protecting the downside, with the belief that "the upside takes care of itself." [4]
Make Little Mistakes, Not Big Ones. It's impossible to avoid mistakes in investing. The key is to limit the impact of those mistakes so they don't jeopardize the entire organization. [3][9]
Structure Debt at the Asset Level. Brookfield uses non-recourse, fixed-rate debt at the individual asset level. This creates a firewall, so if one investment fails, it doesn't endanger the parent company. [4]
Don't Be Seduced by a Bad Business at a Cheap Price. One of the mistakes Flatt admits to is buying a low-quality business simply because it was inexpensive. [3]
Be Wary of Lax Financial Covenants in an Up Market. When capital is freely available, it's crucial to remain strict with financial covenants to protect against future downturns. [3]
We Don't Have to Be Everywhere. Brookfield is selective about where it invests, requiring a strong rule of law, a culture that respects capital, and a market large enough to operate in. [6]

On Operations and Competitive Advantage

We Are Operating Investors. Brookfield's background as an industrial conglomerate means they are not just financiers but also operators of the businesses they own, which provides a different and often more insightful perspective. [6]
Operational Improvements Drive Value. A key part of their strategy is to create value through active operational management and enhancements to the assets they acquire. [2][8]
Complexity Can Be a Competitive Advantage. Brookfield's ability to handle complex situations and corporate structures gives them an edge and allows for both operational flexibility and unique investment opportunities. [4][11]
Scale Eliminates Competition. Having a large pool of capital allows Brookfield to undertake large transactions that few others can, reducing competition and potentially leading to outsized returns. [12][13]
Identify Places with a Competitive Advantage. The first investment guideline at Brookfield is to invest in areas where they have a distinct edge. [5]
Bigger Businesses Attract Better Talent. As the firm has grown, the quality of the businesses and the management teams they can acquire has improved. [12]

On Market Dynamics

Markets Are Never Efficient. Flatt believes that markets very seldom trade at the actual intrinsic value of securities, creating opportunities for value investors. [4]
Passive Indexing Creates Price-Value Disparities. The rise of passive investing has led to significant gaps between the market price and the true value of companies that don't fit neatly into an index. [4]
Private Markets Are More Important Than Ever. The increased volatility in public markets, partly due to passive investing, makes the stability of private markets more attractive for long-term capital. [7][13]
All Capital Not Needed for Liquidity Will Be in Private Markets. Flatt predicts that in the next 25 years, institutional investors will hold the majority of their assets in private markets to avoid public market volatility. [7][13]
Change Brings Opportunity. Periods of significant change, while unsettling, create new investment opportunities. [2]
Today is a Really Easy Environment to Make Money in Real Estate. Flatt has stated that the current environment offers clear opportunities in real estate, particularly in properties with sound fundamentals but with leverage not suited for the current interest rate environment. [13]

On Leadership and Culture

Think and Act Like Owners. A core part of Brookfield's culture is to encourage all employees to have an ownership mentality. [5]
Build Relationships Based on Integrity. For a business to endure over very long periods, it must be built on a foundation of integrity in all its relationships. [5]
A Mix of Wisdom and Youth Gives Gravitas and Speed. Flatt believes that combining the experience of older professionals with the energy and fresh perspectives of younger talent is a powerful combination. [4]
Learn Through Osmosis. Brookfield's open-floor-plan office, where even the CEO doesn't have a private office, is designed to foster a culture of learning through constant interaction. [4]
Bet on Youth. The firm has a history of promoting young talent to significant leadership positions, believing in their capabilities. [4]
Conduct Post-Mortems on Failures. When an investment doesn't work out, they analyze whether the issue was with the execution, the timing, or the fundamental investment thesis. [4]

On Global Trends

Focus on Three Megatrends: Digitalization, Energy Transition, and Deglobalization. Brookfield's investment strategy is heavily influenced by these powerful global shifts that are reshaping the economy. [4]
Backbone Infrastructure is a Massive Opportunity. Many of the essential infrastructure assets of today, such as data centers and cell towers, didn't exist as an investment class 20 years ago and require enormous capital. [4]
Trade Doesn't Really Matter to Us. As long-term investors in local assets within countries that have a strong rule of law, Brookfield's business is not heavily impacted by trade disputes. [9]
Inflation Can Be a Positive for Real Assets. For tangible assets like real estate, inflation can lead to higher property values and increased rental income. [12]
The Need for Private Capital is Immense. The capital required for global trends like the energy transition and digitalization is so vast that there is not enough money from public sources and sovereign funds alone. [9]

On Wealth Creation

Compounding is a Miracle. The additive nature of learning and returns—whether in business or personal development—is incredibly powerful over time. [6]
The Key Isn't Making Quick Money, but Earning Consistently. True wealth creation comes from reasonable returns compounded over very long periods, as exemplified by Berkshire Hathaway. [4]
Maintain Discipline Through Highs and Lows. A consistent, disciplined approach to investing through all economic cycles has been fundamental to Brookfield's long-term success. [14]
We Remain Committed to Investing in High-Quality Assets. The primary objective is to invest in assets that earn solid cash returns on equity while emphasizing downside protection. [15]
The Goal is to Increase Intrinsic Value Per Share. Ultimately, the focus is on growing the underlying value of the company on a per-share basis over the long term. [14][15]

Learn more:

Lessons from Bruce Flatt

On Investment Philosophy

On Long-Term Perspective and Patience

On Risk Management

On Operations and Competitive Advantage

On Market Dynamics

On Leadership and Culture

On Global Trends

On Wealth Creation

Written by Antoine Buteau

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