Value Invest

April 2014

“The Security I Like Best”: Warren Buffett’s article on GEICO from 1951
In December 1951, Warren Buffett wrote this article for The Commercial and Financial Chronicle titled “The Security I like Best”;  that security was GEICO. In this article, Buffett set out the virtues of GEICO and his view that at 8 times 1950 earnings “no price is being paid for the tremendous growth potential of the company”. GEICO had already grown significantly from 2,514 to 143,944 policyholders in the decade prior to 1950. Berkshire Hathaway initially bought 30% of GEICO in the 1970s and the rest in 1996. It now has 12 million policyholders and is still growing rapidly.

Excerpt from Seth Klarman’s recent letter to Baupost investors
In the opening line of this excerpt, Klarman refers to the market heading in to 2014 as “resembling a Rorschach test. What investors see in the inkblots says considerably more about them than it does about the market.” Through his analogy of a “Truman Show” market, Klarman states that “a policy of near-zero short-term interest rates continues to distort reality with unknown but worrisome long-term consequences.”

Just the Facts
This article written in the FT by Terry Smith uses Microsoft as an example to describe how when making investments we should just stick to the facts. He writes that much of the research and commentary surrounding Microsoft is based upon “the biases of the commentators, who often seem to feel that because Microsoft is not hip or fashionable, and doesn’t have the design sense of Apple, it doesn’t deserve to succeed.” Microsoft has been a large holding in the Metropolis Valuefund since 2011.

Factor in the changing investment cycles
David Stevenson, writing in FT Money, provides an overview of the different investment styles.  He discusses the recent relative under-performance of value investing but confirms his conviction that it still works in the longer term for investors who can afford to be patient.

Howard Marks – Dare to be Different II
This memo revisits some of the ideas raised in the first version of his Dare to be Different memo from 2006. He identifies some of the unconventional behaviour required by investors if they are to achieve superior investment performance. As Marks puts it: “Passive Investors, benchmark huggers and herd followers have a high probability of achieving average performance and little risk of falling far short. But in exchange for safety from being much below average, they surrender their chance of being much above average. All investors have to decide whether that’s okay. And, if not, what they’ll do about it.”

Activist Insight
The Activist Investing Annual Review 2014 looks at the most influential activist investors in the industry for 2014. Included in second place is ValueAct Capital, whose President Mason Morfit will be speaking at the upcoming London Value Investor Conference on 22nd May.

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  • “It’s very much the Rolls-Royce of the investor conference market”
    Paul Scott, Stockopedia
  • “The people in that room were a more powerful cadre of the powerhouse of investment than has been gathered for a very long time”
    Jonathan Ruffer, Ruffer LLP
  • “It’s kind of like Glastonbury isn’t it, for the Value Investing community”
    Nick Train, Lindsell Train
  • “What I like about it is that it is a practitioners conference and it’s an opportunity to come and hear from your peers about the work that they are doing and how they see value investing”
    Hassan Elmasry, Independent Franchise Partners
  • “I think people really look forward to it and enjoy it. There’s a good bunch of people here who have travelled a reasonable way – the speaker after me was from Hong Kong and there’s a big Canadian crew and a big US crew – people come from around the world to see this”
    Nate Dalton, Affiliated Managers Group
  • “If somebody’s already been through that process of seeing what the conference is about and then is willing to pay their money for the effort of coming here, that’s a great filtering process.”
    Gary Channon, Phoenix Asset Management
  • “The conference has become a part of the furniture of the London scene. You can discover that is what lies inside you – that you are innately a value investor.”
    Richard Oldfield, Oldfield Partners
  • “I do speak at a fair number of conferences to investor bases, this one is really quite a good list – some very, very good investors present and some very interesting speakers”
    Jon Moulton, Better Capital
  • “Definitely worth it and I know a number of people who have ‘ummed and arred’ about coming along and I’m sure that they will be regretting that they didn’t come today – and it’s only going to get better as far as I can see”
    Tim Green, Private Investor
  • “Having sat through the whole day as I wanted to come and hear all of the speakers – I’ve been really impressed by the quality”
    Anthony Bolton, Fidelity
  • “I’ve got a bunch of business cards to add to my collection and some folks I’ve been looking forward to meeting, plus some firms I didn’t even know existed but sound really interesting and I’m looking forward to building on that relationship base”
    Mason Morfit, ValueAct Capital
  • “You couldn’t find that anywhere else really, where you’re speaking to the principals who have been voted on to the Board [of Microsoft] to effect change”
    David Shapiro, Willis Towers Watson
  • “What I was impressed with is, because the subject is very similar, value investing, they found a variety of ways of attacking the same subject. I was also very impressed, having done this in another location, of seeing them stay on target time-wise so that it moves along at a great pace and I think the audience is greatly rewarded by that discipline”
    Don Yacktman, Yacktman Asset Management
  • “Very well organised and it was a treat for investors like us to hear some great speakers”
    Roli Saxena, Drona Capital
  • “I came last year and I liked it so much that I have been looking forward to today ever since”
    Dominique Levy, Sonian Capital
  • “We’e got a very sophisticated audience who are used to value investing – I think this is a good audience”
    David Samra, Artisan Partners
  • “The profile of the speakers is one of the main reasons that I came”
    Niels Borgen, Private Investor
  • “When you look at the ideas speakers have put forward in previous years and how they have performed over the last few years, they’ve done very well – if that performance continues it would be quite remarkable. It does show that you can pick up some good ideas at a conference of this sort”
    Jonathan Mills, Metropolis Capital
  • “I came last year as well and I thought that it was the most outstanding event that I have been to”
    Leon Boros, Equity Strategies