Welcome to the 43rd Edition of Value Investor Digest
In this special edition of Value Investor Digest we feature a video of “Mastering the Market Cycle” with Howard Marks of Oaktree Capital from the Value Invest New York conference last year, as well as a complimentary interview with Dan O’Keefe of Artisan Partners from Value Investor Insight and 12 other articles.
“So I’m writing this book about cycles and I’m pouring everything I know from 50 years in to this book on cycles and about two thirds of the way in I said to myself ‘hold it, why do we have cycles?’…I think the answer is that we have a trend line and we are progressing on the trend line and then people get optimistic and they depart from the trend line on the upside, I would call that ‘an excess’, and when the excess becomes sufficient it either collapses of its own weight or something else brings it down and it becomes a correction.” This session is a masterclass from Howard on market cycles. As a reminder, at the next Value Invest New York on December 3rd, Joel Greenblatt will be taking part in a similar type of session titled: “The Evolution of Value Investing” a Fireside Chat and Audience Q&A with Richard Pzena, Pzena Investment Management.
Value Investor Insight has kindly offered VID readers access to this interview where Dan O’Keefe of Artisan Partners gives a detailed discussion of his investments in Booking Holdings, Citigroup, Samsung Electronics and NXP Semiconductors and others – plus his lack of enthusiasm for investing in the auto industry. Long-term VID readers will recall that Dan was a presenter at the inaugural London Value Investor Conference back in 2012, his stock pitches were Google (now Alphabet) and Aon. We are delighted he will be joining us again at the LVIC 2020. David Samra of Artisan Partners will also be speaking at Value Invest New York next month.
“I met these two psychologists, Daniel Kahneman and Amos Tversky – this is in the late 70s – and they were in the midst of their pioneering work. What they were showing is that when people make judgements they use simple rules of thumb and that’s fine, it’s good to use rules of thumb, but that the use of these rules of thumb lead to predictable mistakes – and that idea was my big a-ha moment”.
Django Davidson – Hosking Partners: The End of the Beginning or the Beginning of the End? Investment Opportunities Late in the Technology Cycle
“It is a pattern where investment returns are front loaded early in the cycle, ahead of a period of technological maturity where society emerges as the ultimate beneficiary – disruptive innovation triumphs, but late arrival investors often lose out. A simple observation lies at the heart of this: human psychology is hardwired to extrapolate current trends.”
“In a small basement office near Portman Square in London, wedged between the Grazing Goat pub and the Red Sun Chinese restaurant, a handful of eggheads are attempting to code a robotic Warren Buffett.”
“Saving money is near and dear to Germans. Their saving rate (saving relative to disposable income) is significantly higher than that of most of their European peers. For example, it was around 10% in 2017, i.e. almost twice and three times the euro area and EU averages respectively. Only Swedes saved more, while Spanish and British households actually had negative rates.”
“We were doing what was called Windows Mobile. We missed being the dominant mobile operating system by a very tiny amount. We were distracted during our anti-trust trial, we didn’t assign the best people to do the work – so it’s the biggest mistake I made in terms of something that was clearly within our skill set; we were clearly the company that should have achieved that.”
“Until her father’s passing, Charlene had no money to her name except a single share of Heineken stock—then worth 25.60 euros, or $32—that her father had given her. Now, as his only child and the sole heir to the Heineken fortune, she was inheriting about 100 million shares, equal to one-quarter of the company’s total stock outstanding.”
“Well obviously there will be a Harvard Business School case study about WeWork, but what will it say? What is the lesson? It’s a good lesson, right? A lot of kids starting at Harvard Business School next fall will be hanging up posters of Adam Neumann in their dorm rooms. Neumann, the founder of WeWork, will walk away from this corporate bonfire with a billion dollars and a bunch of fancy houses.”
Continuing the wework theme, this Bloomberg video covers the story of”when a company got too much money, too fast with no effective oversight on how to spend it.” Astoundingly, according to Business Insider, the below is a real slide from Softbank’s quarterly earnings deck last week…
“Recalling the old joke that a recession is when your neighbour loses his job but a depression is when you lose yours, Mr Asness said: ‘To us a recession is when the value factor performs poorly but we still do well, a depression is when we suffer with it. For most of the last 10 years of the value factor’s drawdown it’s been a recession. For the last almost two years it’s been a depression.'”