adratic ocean view from bari italyI think that in general I tend to learn from almost anyone I meet. Okay, not some crazy person who thinks he is the Messiah on the streets of Manhattan. However, most people you can learn something from.

Even if I meet a macro investor, I might not agree at all with his philsophy; but he might give me some new information about the economy, which I never knew.

At a value congress, I am much more likely to learn new things since the styles are so different.

Here are some of the lessons that I took out of the conference:

Capacity to Suffer, and to reinvest cash flows

Even though I consider myself more Ben Graham than Warren Buffett, when I spoke to Tom Russo (who is the most Buffett-esque investor possibly, with a dose of John Templeton) , and heard him speak I learned so much new information despite him having a totally different philosophy than me. Besides for him being  100x smarter and more successful than me (having 16% per annum returns for 26 years, and managing over $4 billion), he also had some amazing insights.

i.e. The theme of Tom Russo’s speech is “the capacity to suffer”. What Russo means is he likes management that will do what is needed to grow the business despite missing earnings for a few quarters. If they need to buy a new plant, and it costs them money; which the “street” wont like, they do not care because they know it will be accretive to the business in future years. On that note, Russo mentions the importance of companies that have the ability, not only to produce tons of free cash flow; but also the ability to re-invest that cash flow back into the business.

Pricing Power

John Tarasoff- Talked about the true meaning of pricing power. He said there are companies that can keep up their pricing to match inflation, and then there are those that can rise prices above inflation. The former is a requirement, the later is an amazing power, which can lead to fantastic returns.

Above Inflation Pricing Power: The ability to raise prices in excess of inflation without adverse consequences. Above-inflation pricing power is extremely valuable because the ‘above inflation’ incremental revenue is pure profit. If a company with operating margin of 15% can raise prices at inflation +1% and that would produce a growth of 7% in operating income.

Never give hot stock advice

Friends of mine know that I invest, they sometimes ask for a hot tip. I never give them, because I believe beginners should use index funds. However, even if they are investing in stocks I advice always to tread lightly. One reason is because I do not think that my advice is all that worthwhile. Secondly, without sounding too arrogant; I possess the ability to control my emotions, which I think very few people have.  When stocks were tanking in early 09, I was buying like crazy (I was 100% invested, and added any money I could to my account to buy stocks). Everyone says in hindsight that it was obvious time to buy, no it was not! And when you have your own money on the line it is 10x harder. Third; when do they sell, I use intrinsic value, many people have no idea what these means. 4. Finally, I am diversified. Most people if they ask me for a stock might just buy it. I own close to 30 securities so I can afford to be wrong on some of my ideas. In fact, as I stated yesterday Nucor has not been a great performer for me since my account’s inception in early 08. Despite the stock lagging the market, I have outperformed the market due to it only being 4% of my portfolio.

This was confirmed by something I saw at the end of the conference. Although, I cannot post the excel file with all the stock ideas from last year. They pulled it up, and the speaker with the best idea from last year won a prize. The stock was up about 162% since the previous conference. However, the speaker recommended another stock, which was down 70%. The speaker has a great long term track record, but if someone had just listened to one of the two stock ideas, and invested their money in the company, they would not be very happy today! This confirms my theory never to give stock advice.

Don’t Box Yourself into a Corner

Rahul Saraogi: Discussed a concept which made a big impression on me. He said that he does not like to define his strategy in any specific way. He gave a good example: Let’s say you do merger arbitrage, you make a lot of money investing that way or in special situations. It is early 2009, and you see a merger arbitrage situation which can return 10% in a few months. Good return right? The answer is no. It would be insane, because there were so many stocks available which had the possibility of being 5-10 baggers. Similarly, I would say now with the market over-valued, which I still cannot understand based on the macro picture being so gloomy; it might make sense to invest more in cheap companies with “real pricing power”, than cigar butts, which will collapse in both a deflationary or inflationary environment.

I learned a lot from the conference, these are just a few of the lessons I wanted to share with readers.

For my full coverage check out the following link-