We are pleased to bring you the 27th edition of Graham & Doddsville. This student-led investment publication of Columbia Business School (CBS) is cosponsored by the Heilbrunn Center for Graham & Dodd Investing and the Columbia Student Investment Management Association (CSIMA).
In this issue, we were fortunate to speak with four investors who offer a range of perspectives based on their unique paths to and careers in investing.
John Phelan of MSD Capital discusses lessons learned over decades of investing with mentors such as Richard Rainwater, Sam Zell, Eddie Lampert, and Michael Dell. John offers insights into the development of MSD Capital as well as his own development as an investor and PM, while shedding light on challenges he sees today in the investment management industry.
Alex Magaro of Meritage Group discusses his many experiences, from running a business as an owner-operator to investing in early stage companies, which led him to co-manage Meritage Group. Alex talks to G&D about long-term investment horizons across asset classes and the return potential of businesses with durable competitive advantages.
Adam Wyden ’10 of ADW Capital discusses the influence of an entrepreneurial spirit on his firm and investment process. Adam walks through past ideas such as IDT and Imvescor Restaurant Group (IRG.TO) as well as current theses on Ferrari (RACE) and Fiat (BIT:FCA).
Mark Cohodes shares his experiences from a lifetime of short-selling. He offers his perspective on the discipline and temperament required as well as the intellectual rewards of a career in short-selling. Marc discusses ideas such as Home Capital Group (HCG) and Tempur Sealy (TPX).
This issue also highlights photos from the 19th annual CSIMA Conference as well as the 9th annual Pershing Square Challenge.
Lastly, we are proud to include in this issue finalist pitches from current students at CBS who competed in this year’s Pershing Square Challenge.
When we inherited Graham & Doddsville as editors last year, we wanted to continue the tradition of providing our readership with high quality interviews and investment ideas. We sought to provide diversity of thought and experiences via our interviews. We hope we have lived up to those objectives.
We are honored and privileged to have continued the Graham & Doddsville legacy, and we look forward to reading thenext generation of issues, helmed by three outstanding individuals in Brandon Cheong ’17, Eric Laidlow ’17, and Ben Ostrow ’17. We want to thank Brandon, Eric, and Ben for their commitment and dedication to Graham & Doddsville over the last year.
As always, we thank our interviewees for contributing their time and insights not only to us, but also to the investment community as a whole, and we thank you for reading.
- G&Dsville Editors
John Phelan of MSD Capital
John Phelan is Co-Managing Partner of MSD and Co-Founder of the firm. Prior to forming MSD, he was a Principal from 1992 to 1997 at ESL Investments, a Greenwich, Connecticut based investment firm. At ESL, Mr. Phelan was responsible for ESL’s Special Situation Investments and helped grow the firm from $50 million to over $2.0 billion in assets under management. Prior to ESL, Mr. Phelan was Vice President in charge of Acquisitions (Western Region) for the Zell-Merrill Lynch Real Estate Opportunity Funds.
John Phelan began his career at Goldman, Sachs & Co. where he worked as an Analyst in the Investment Banking Division.
John Phelan received his M.B.A. from Harvard Business School and graduated cum laude with distinction and Phi Beta Kappa from Southern Methodist University with a B.A. in Economics and Political Science. Mr. Phelan also holds a General Course degree with an emphasis in Economics and International Relations from the London School of Economics.
Q&A with John Phelan
Graham & Doddsville: To start off, talk about your background and your path to investing, including mentors and influences along the way.
John Phelan: My mother was a very big influence on my development as an investor. My father was a doctor and, like most doctors unfortunately, not a very good investor. My mother, on the other hand, came from a real estate background and focused very much on cash flow. My parents gave me a Disney stock certificate for a birthday present when I was five years old. That got me hooked—I was fascinated by numbers and seeing something trade every day. That's what got me into stocks.
I initially went into real estate, where my mother taught me quite a bit, including two principles: make sure you can always pay your bills and debt service and the importance of free cash flow for levered assets like real estate. She also encouraged me to go find good mentors. She said one of the things about good mentors is you can learn on someone else's nickel. It's something you don't realize when you’re younger. But it struck me at a very early age to try to go find people that were the best in their particular businesses, and I think my mother pushed me towards that.
In my real first job, I worked with an uncle rehabbing apartments in New York. I was doing that during college. That was an eye-opening experience that forced me to focus on cash flow every minute of the day. It was a very tough business and I was doing a number of different things. The work ranged from running the numbers to actually doing construction work. That teaches you a lot. I also learned I didn't want to break my back doing that for my entire career.
I was fortunate enough to get a job with Goldman Sachs, which was really the first big company I worked for. At the time, Goldman was still a private partnership. I learned a ton and I had a number of great mentors at Goldman Sachs. I worked with truly exceptional people there.
As great as my experience at Goldman was, it did make me realize that I did not want a career in investment banking. Instead of being the person who is on call 24/7 to serve my client I wanted to be the client. I preferred being a principal as opposed to an advisor. I decided to attend business school and was accepted into Harvard Business School. The summer between my first and second years at business school I worked for Richard Rainwater, and that's where I met Eddie Lampert. Richard introduced me to Eddie. Of those ten weeks that summer, I spent about three or four with Richard and the rest with Eddie.
Graham & Doddsville: How did you connect with Richard?
John Phelan: I had been hoping to get back to Texas after business school and I wrote Richard a letter. In that letter I told him I would be willing to work for free and one of my professors at Southern Methodist University had suggested I contact him. I told him I just wanted to learn from one of the best and was