Value Invest

November 2018

Welcome to the 37th edition of Value Investor Digest

Featured in this edition are an article in the Economist titled “the Agony of the Value Investor”, a new video interview with Charlie Munger from October 2018, the story of Bill Benter, the gambler who “broke the horse racing code”; a Wall Street Transcript article with Kopernik’s David Iben, an FT article on Index Funds and ETFs not being responsible for market volatility, a rare 1997 interview with Amazon founder Jeff Bezos, two video interviews with Value Invest New York speakers Howard Marks and Joel Greenblatt; Ian Lance of RWC Partners gives his thoughts and reflections on 30 years in fund management, Miles Johnson of the FT on the sin of selling good stocks too soon; plus a Barron’s article on where to look for bargains in China.

Conference Calendar:
Value Investor Roundtable – November 13th 2018
Value Invest New York – December 4th 2018 (Greenblatt, Marks, Hagstrom & others)
London Value Investor Conference – May 14th 2019 (save the date link)

The Economist: The Agony of the Value Investor

This article in the Economist comments on the performance of some value strategies over the past ten years and features comments from David Einhorn, Cliff Asness, plus also this from James Montier of GMO: “This agonising is not for most people. They don’t want to be wrong for as long as it takes. Value investors hope to be rewarded for being so out of step with everyone else for so much of the time. But a select few can endure—and even enjoy—it.”

Charlie Munger Interview from October 2018

Charlie Munger comments on the benefits of owning a great company purchased at ‘the right price’: “A great company will just earn more and more and more whilst you are just sitting doing nothing. A mediocre company won’t do that. So you are harnessing long range forces that will help you and it’s just very important. These mediocre companies, by and large, are going to cause a lot of agony and very modest profits; then if you do fine it goes up a little and you have to sell and find another one – it’s a lot of work.” (This quote from 16m 35s)

The Gambler Who Cracked the Horse-Racing Code

This Bloomberg Businessweek article tells the story of Bill Benter, who wrote an algorithm that “couldn’t lose at the track”. The story reports that he made almost a billion dollars in his career, which started when he was part of a professional card-counting team before he and other profesisonal gamblers profited at the Hong Kong race track in part by applying the Kelly Formula to construct their ‘portfolio’ of bets to maximise profits and minimise downside.

David Iben in TWST Interview: “We View This as One of the Best Times to be an Active Manager in the Last Century”

David Iben will be speaking at Value invest New York on December 4th. In this TWST interview he comments on some current investments and also on the opportunities available to active managers: “I reiterate that we view this as one of the best times to be an active manager in the last century. It’s right in line with 1972 and 1999, times where people were paying way too much for many stocks and, at the same time, selling things at way too low a price if it’s unpopular.”

Do Not Blame Index Funds and ETFs for Market Volatility

This FT article by Jonathan Davis says that not only does data reveal no relationship between bear markets and the growth of indexing; but in addition he points to US research by Vanguard which indicates that for every $1 in ETF trading volume on exchanges, less than 10 cents resulted in primary market transactions in the underlying securities.

1997 Interview with Amazon Founder Jeff Bezos

In 1997 when this interview was recorded Amazon was just three years old. Jeff Bezos describes why he started the company and demonstrates that he had a clear vision for how he was going to grow the business: “Three years ago I was in New York City working for a quantitative hedge fund when I came across the startling statistic that web usage was growing at 2300% a year. So I decided I would try and find a business plan that made sense in the context of that growth. I picked books as the first best product to sell online…there are more items in the book category than there are items in any other category by far…so when you have that many items you can build a store online that couldn’t exist any other way.”

Why Gotham’s Greenblatt Likes ‘Gushing’ Cash-Flow Stocks

We are delighted that Joel Greenblatt has joined the speaker line-up for Value Invest New York on December 4th. In this video interview he speaks about his approach and also makes some comments about value “versus” growth: “While I say we are not traditional value investors and we are usually categorized by let’s say Russell or Morningstar as ‘blend’, but as Warren Buffett would say ‘growth and value are tied at the hip’ as that’s part of valuation. So they put us in blend and not traditional ‘value’ but when ‘growth’ is really going and these are the companies priced on hope and what’s going to happen in 2024 and 2025, when those are doing really well they’re probably not going to love what we are doing as much.”

Howard Marks – Conversations with Portfolio Managers: Cycles

Oaktree Capital have released a series of videos interviews between Howard Marks and other Oaktree Portfolio Managers. Howard commented on the nature of credit cycles: “I think one of the most important things for people to realise is that these phenomena, like the credit market, are not mechanical and they don’t work like finely honed machines – they are really driven by psychology and it’s important to realise that psychology tends to go to excess. So when the delusions are prevalent people swallow them hook, line and sinker and then when some unceratinty arises they reject them wholesale and the credit window certainly slams shut from time to time and you can’t borrow.”

Thoughts and Reflections on Thirty Years in Fund Management

Ian Lance of RWC Partners has written this article with some observations from thirty years in the industry. “The last three decades have been mostly enjoyable, sometimes stressful, often frustrating but always interesting. There are, however, some things that I would not repeat if I had my time over again and other things that I would have begun sooner. So what follows are a few observations from thirty years in the industry that will hopefully also serve as advice to anyone entering the industry today.”

Alongside Nick Purves, Ian Lance will be participating in the Value Investor Roundtable on 13th November, which is a conference for those who work in Manager Research and Selection. You can reply to this email if you are interested in attending.

The Unspoken Sin of Investing is Selling Good Stocks Too Soon

In this FT article Miles Johnson analyses the “when to sell” problem which faces investors. He quotes both John Armitage and Charlie Munger in the article, making it an interesting read for many investors. From John Armitage: “I’ve bought stocks that have gone down, and they sear on your soul, but selling winners, that’s the big mistake . . . I have been a very bad seller of shares. I’ve sold lots of winners.”; from Charlie Munger:“Psychologically, I don’t mind holding a company I like and admire and I trust and know that it will be stronger than now after many years…and if the valuation gets a little silly, I just ignore it. So, I own assets that I would never buy at their current prices but I am quite comfortable holding them.”

Barron’s: After a Slide in Chinese Stocks, Where to Look for Bargains

This Barron’s article provides a summary of where some fund managers are finding value in China at present. Value Invest New York speaker Rajiv Jain is featured in the article, he commented “We are not piling into China in a big way, but valuations are very attractive, and the stimulus should bring a floor. You can’t underestimate policy makers’ willingness and ability to calm people.”

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Speakers: 14th May 2019

The speaker line-up will be announced in November 2018

  • “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