Value Invest London

March 2019

Welcome to the 39th edition of Value Investor Digest

Featured in this edition are 15 articles including the Berkshire Hathaway Annual Shareholders Letter, a Barron’s article on LVIC 2019 speaker David Harding of Winton Capital, a Value Investor Insight interview with Oldfield Partners, a John Authers article titled “Let Me Tell You How It Will Be ’Cause I’m the Taxman”, Michael Mauboussin’s recent research paper “Who Is On the Other Side?”, Aviva Investors Little Book of Data, a CNBC video on where Joel Greenblatt sees value now, a Sir Martin Sorrell interview, a podcast which analyses why print magazines endure, a Kopernik letter from Mark McKinney, a Citywire Selector article on azValor, a Howard Marks Memo, an FT interview with Bill Gross and two videos with Charlie Munger – one an interview with CNBC and the other the video of the Daily Journal Annual Meeting.

Conference Calendar:

London Value Investor Conference – 14th May 2019
(Jonathan Ruffer, C.T. Fitzpatrick, David Harding, Alex Roepers, Sir Martin Sorrell and others)
Value Invest New York 2018 – Overview Video
(Sign-up to be kept informed about VINY 2019)

Berkshire Hathaway – Annual Shareholders Letter

Buffett did not cover a lot of new ground in his annual letter to shareholders in Berkshire Hathaway this year, other than to introduce a new “forest” analogy to explain how to evaluate the value of the large number of businesses now owned by Berkshire. “We own a vast array of specimens, ranging from twigs to redwoods. A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty. Fortunately, it’s not necessary to evaluate each tree individually to make a rough estimate of Berkshire’s intrinsic business value. That’s because our forest contains five ‘groves’ of major importance, each of which can be appraised, with reasonable accuracy, in its entirety.”

You can also see our video archive of all Berkshire Hathaway Shareholders meetings since 1994, including selected highlights from each year.

Barron’s: Winton Capital’s Idiosyncratic Founder on Artificial Intelligence and Statistical Fallacies

London Value Investor Conference speaker David Harding features in this Barron’s article. Harding says that “For 35 years, we have made money from trading momentum in markets—quite extraordinary…People like ourselves and our fellow travelers don’t look at individual situations. We look at patterns across time and across markets.” According to the article Winton’s London offices have a room devoted solely to charts that display the long-term price movement of 80 different assets from sugar to stocks.

Value Investor Insight Interview with Oldfield Partners: Value First

The editors of Value Investor Insight have allowed us to include a feature interview with Nigel Waller and Andrew Goodwin of Oldfield Partners in this edition of Value Investor Digest. In the interview Nigel and Andrew speak about their investments in Siemens, Tesco, Viacom, BT Group, Kansai Electric Power and Mitsubishi UFJ Financial.

John Authers: Let Me Tell You How It Will Be ’Cause I’m the Taxman

“Prepare to worry about something new” says John Authers, who is now Senior Editor for Markets at Bloomberg having previously spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. In this article he looks at a potential negative driver for markets from any political moves back towards higher rates of taxation: “The money that goes into hedge funds and stocks in general tends to disproportionately come from lightly taxed wealthy Americans. If the political bandwagon for higher rates continues to gather steam, that will be a significant negative for U.S. assets over the next two years.”

Michael Mauboussin: Who Is On the Other Side?

This detailed Blue Mountain Capital Management Research report by Michael Mauboussin looks at the sources of the edge an investor can have by understanding who is on the other side of the purchase or sale of a security: “If you buy or sell a security and expect an excess return, you should have a good answer to the question “Who is on the other side?” In effect, you are specifying the source of your advantage, or edge. We categorize inefficiencies in four areas: behavioral, analytical, informational, and technical (BAIT).”

Aviva Investors: The Little Book of Data

This compendium of over 30 visual depictions of interesting data sets was put together by Aviva Investors. The visualisations cover demographic issues, global debt, trade tariffs, trade flows, R&D spend by country, illiquidity premium and dozens of other worthwhile snapshots of the data.

Where Joel Greenblatt Sees Value Now

Joel comments in this video that there are plenty of good opportunities for most investors“Buffett is famous for saying that a fat wallet is the enemy of investment returns…For better or for worse we don’t have as much money to manage as Warren Buffett and so we don’t really have quite the challenges that he does..Even in the S&P 500 there are plenty of opportunities…The S&P 500 is an average of 500 names, if you look under the covers of the dispersion of those companies there’s plenty of opportunities.”

Sir Martin Sorrell Interview with Ian King

Sir Martin Sorrell will participate in the London Value Investor Conference this May, where he will be interviewed by Robert Hagstrom, who is also presenting at the conference. Whilst the bulk of the conference focuses on presentations from investment managers, the session with Tim Martin of J D Wetherspoon at the 2018 conference was so well received we have decided to make an interview with a CEO a feature of the conference every year. Sir Martin uses this interview to talk about his career and also his plans for S4 Capital “I’ve had three lives, not nine lives yet, so another six to go…one with the Saatchi’s, one with WPP and now one with S4 Capital. I can’t see myself retiring to the beach or on the golf course…and I can’t see myself doing a portfolio and I really want to remain active.”

Why do Printed Magazines Endure in an Era of Declining Advertising Revenue and Sales?

In this BBC podcast Evan Davis interviewed three publishers from across the industry, including Wolfgang Blau of Conde Nast International who commented that “You want a really intense close relationship to your readers and a print reader spends more time with you. So the print reader is your most valuable reader in terms of the time spent and the identification with the brand. And in the short term there is also the higher margin of your print advertising.”

Kopernik: These Go To Eleven

Mark McKinney of Kopernik focusses in his recent letter on the macro picture, while addressing some inaccuracies in public narratives surrounding Government policies from around the world: “While we at Kopernik always frame discussions around the fact that we are bottom-up stock pickers, I like to look at the big picture (macro) scenario to frame the risk profile. It is from this point of view that I consider the macro picture…I can’t speak for all value investors, but anecdotally I find that as a group they tend to question the common narrative more than others.”

Why These Spanish Value Stars’ Flagship Fund is 65% in Commodities

This Citywire Selector article looks at azValor’s investments in the natural resources sector. Fernando Bernad commented on gold miners “We are speaking about a sector that no one wants. The biggest funds in the world consider it uninvestable. We think this is very positive but it hasn’t been reflected in markets. This has allowed us to buy the best gold miners in the world at very interesting prices that aren’t reliant on the prices of gold increasing.”

Howard Marks Memo: Political Reality Meets Economic Reality

Two of Howard’s past memo’s were titled Economic Reality and Political Reality. In this, the latest of his memos, he explores what happens when the two realities collide: “The purpose of this memo is to describe what happens when political behavior collides with economic reality, as illustrated in one area where the government is taking steps – tariffs – and another in which debate among politicians is heating up – restrictions on the capitalist system.”

Bill Gross: ‘We Were Looking For Every Penny We Could Get’

Bill Gross who retired last Friday sat down with the FT’s Robin Wigglesworth where they discussed his long career: “Active, aggressive bond investing was Gross’ big innovation. Historically, insurers and pension funds were the big buyers of bonds. They rarely traded — in fact bonds were typically kept in a vault, and selling meant physically mailing them to the buyer — and enjoyed cordial, clubby relationships with Wall Street. Pimco, on the other hand, actively traded in and out of positions, expanded assertively into hot new areas like junk bonds and emerging markets, and used its increasing clout to cudgel banks into giving them better bids.”

Charlie Munger February 2019 CNBC Interview

Charlie Munger sat down with Becky Quick for this 30 minute CNBC interview which covers a lot of ground on investing and other topics. On the difficulties facing some investors at present he said: “There will be opportunities in the future, there are times which are easier and there are times which are harder. Now it’s tougher – it’s (A) that the valuations have come up and (B) that the competition sorting through those opportunities is more intellgient and more aggressive and more numerous – of course it’s harder. The net result is that people are going to get worse results. But I think valuations will go up and down because they always have.”

Charlie Munger: Daily Journal Annual Meeting

This 2 hour session with Charlie Munger has Charlie speaking at the beginning (5-46 minutes) on several topics then taking questions from the audience (47-120 minutes): “I do think that index investing, if everybody did it, won’t work – but for another considerable period index investing is going to work better than active stock picking where you try and know a lot…At a place like Berkshire Hathaway, or even the Daily Journal, we’ve done better than average and now there’s a question why has that happened? The answer is pretty simple. We tried to do less. We never had the illusion we could just hire a bunch of bright young people and they would know more than anybody about canned soup and aerospace and utilities and so on and so on. We never thought we could get really useful information on all subjects like Jim Cramer pretends to have. We realised that if we worked very hard we could find a few things where we were right and the few things were enough and that that was a reasonable expectation.”

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