NYSSA Conference – The NYSSA had an all star panel today for their Ben Graham Conference. ValueWalk attended the conference and below are our informal notes, Enjoy! At the bottom of this post are more notes on the Ben Graham NYSSA Conference for 2016.
NYSSA Conference: Tom Russo – Keynote Speaker
Munger’s three words that keep him out of trouble: “and what’s next?”
In Brexit, seemed a lot of that there. Always think about what the long term “and then what?” and what that leads to. The members of the UK seem to have forgotten to ask this question.
[drizzle]Up until the past 3-4 months, I didn’t have a new investment since 2010. The ability to do nothing with a portfolio is vastly undervalued. For all those at bats you swing at, you have to pay the government 35% – or more in NYC! One of my main takeaways from Graham and Buffett was this ability – the ability to be inactive.
Capacity to suffer. We love family-owned businesses – ones that don’t bow to the demands of Wall Street who demand constant profits. 60% of our businesses are family owned. I love finding properly-aligned companies like this. They have a time horizon like ours – forever. This is because they’re multi-generational, they have no interest in activists. Buffett made his success on businesses like this – ones that can take bets others can’t take.
We also love businesses we can follow and understand – ie why a consumer would choose Jack Daniels vs Jim Beam. Makes it easy for us to do due diligence and help us understand pricing power.
Emerging market reach is another criteria. Ones that can reach growing parts of the world, favorable population demographics, GDP growth
Historically we’ve owned non-US businesses. “Americans often don’t have a clue” – (Russo asks the room how many people follow cricket – no hands go up) – “Local players have a big advantage here. Cricket has 1.7 billion fans!” 75% of the assets I see are in non-US companies.
Globalization is starting to go the other way. I had this as a tailwind for my career. Now you have Syria, Russia/Ukraine, Brexit – it feels like things are changing – it used to be that new markets would open up, new competition was welcome, initiatives like the EU blossoming… not the same feeling anymore
Q: How do you think about FX risk?
A: “We don’t seek out currency risk in making investments. We think over time as more capital and commerce goes into emerging markets their currency will strengthen.
Q: Thoughts on Buffett/3G?
A: Businesses don’t get as cheap as they used to because of 3G – they have a big cash cannon. Every company we’re involved in is nervous for the potential of 3G coming along. It affects the multiples we’re paying.
Q: Sell discipline?
A: “I sold several companies in 2006 – all family controlled, but they lacked reinvestment. H&R Block, International Speedway. Powerful franchises but they couldn’t go beyond our shores. In some cases, it was too late – they’d already made very bad decisions – I pulled back and redirected the capital to businesses that I think have limitless reinvestment. Global ones. Sometimes a business we own advances sharply and we sell it down to rebalance the portfolio.”
NYSSA Conference – Second panel: “Never Lose Money” – David Poppe, John Levin
To never lose money requires that you have the right basis in your stocks. And so you have to be patient. Most of us don’t have the patience to wait a year to buy a stock. You need an investor base that is ready for long periods of inactivity punctuated by bursts of activity. Many of us don’t have that – the average investor wouldn’t be happy to go two years without a single investment.
Sole decision maker model can be powerful but also can take you down the wrong path. Consistency of process and clarity of expectations is crucial to having a high-functioning team.
We try not to incentivize people based on how many of their stock picks get into the portfolio. Sometimes the right thing to do is to have less.
There’s a lot of smart people doing this now – way more than there used to be. We try and be humble about what our edge is. Expert networks have taken away a lot of the informational edge that firms like ours enjoyed. We spend a lot more time on qualitative factors than quantitative. Key example: runway for reinvestment. How long is it? This matters a lot more to us than what the firm’s P/E ratio is. If a firm has powerful brands then this generally is conducive to a long runway.
“Never lose money” is a process. As public investors we buy companies with incomplete information and so from time to time you will lose money. It’s about consistency of process. Know whether you’re a growth or a value investor. Buffett stuck to his knitting and was congruent with himself. Long-term capital is another significant competitive advantage.
The rate of disruption is picking up. Long term investing has gotten more difficult as a result. Any company’s competitive advantage can erode much faster than ten or twenty years ago.
NYSSA Conference – Third Panel – “Margin of Safety” – Leon Cooperman, Jason Karp,
Risk is the probability of losing money. I’ll take a volatile 15% return any day over a straight line 10%.
We have a stock selection committee – three senior people. They need to approve any idea. If the stock takes out the downside risk target – then the “cesspool committee” – yes, this is an actual thing – takes over and grills the analyst. Do we want to double down or sell? Usually if you like a stock at 10, you should like it more at 9 and even more at 8. Sometimes circumstances change though – we try and drill down and see if anything has changed. We look for 3:1 risk reward ratio.
Stocks are the new bonds. 65% of the S&P now yields more than bonds. In 1958 – that was the year of the yield reversal. Before that, stocks yielded more than bonds. In 1958 they started buying into total return. The market got repriced. Today we can find so many companies with decent yields and growth prospects – far superior to bonds. Market is fully valued but there’s a lot to do.
This is not a market where you earn 10-15% in stocks. 6-7% is fair. Play it safe. Stocks are still the cleanest shirt.
Income disparity is a huge issue. 45% of jobs in today’s economy will be replaced by automation
“Wall Street is in the midst of a very serious downturn”
“Every investment committee in America is meeting to redeem out of hedge funds.” Inevitable downward pressure on fees. But everything is cyclical. This all happened