This is part two of a two-part interview with Glenn Surowiec, founder of GDS Investments and advisory board member of Value Conferences. The interview is part of ValueWalk’s Value Fund Interview Series.
Glenn founded GDS Investments in 2012 after leaving Alsin Capital Management where he worked as an equity research analyst. Before joining ACM, Glenn worked for Enron Corp. as a derivatives structuring manager, and for Commerce Bancorp (now TD Bank) as a real estate credit analyst. Since inception (December 2008), GDS has achieved 13.03% annualized for clients.
He also currently serves as an advisory board member of Value Conferences – an online-only conference featuring some of the most prestigious value investors across the globe and has done several interviews/presentations in the past with the Manual of Ideas and Value Conferences.
A few weeks ago, Glenn was kind enough to answer some questions for ValueWalk about his investing process, background and some equities he believes are undervalued right now.
The interview has been divided into two parts you can find part one below.
Glenn Surowiec on value investing in the oil sector [Pt 2.]
RH: You’re also finding value in the oil sector I believe. Can you reveal what you’re looking at in this industry?
GS: I’m a huge fan of the two capital cycle books by Marathon Asset Management –Capital Account and Capital Returns. One of my favorite quotes from those books is “[y]ou don’t want to think linearly in a cyclical world”. Capital flows into and out of various industries, and this impacts future returns. Because of this, there are limits to how strong and weak profitability can be in a particular industry throughout a full economic cycle. Oil prices at sub-$30/barrel (when I initiated most of my energy positions) are no more sustainable than oil at $140/barrel because of the economic laws I mentioned above. Today’s massive reduction in capital spending will eventually restore pricing and profitability in the energy markets.
RH: Is there a particular oil sector play you can discuss?
GS: Without discussing a single position in detail, my advice is to find the highest quality companies in terms of cost structure, commodity price breakeven level, management, and balance sheet. I have positions in British Petroleum (NYSE: BP) and National-Oilwell Varco (NYSE: NOV), as well as a few other companies which are leveraged to higher energy prices (e.g. Loews Corp (NYSE: L)).
RH: And lastly, what advice would you give to value investors who are just starting out (or even experienced value investors) to help them navigate today’s market?
GS: Here is a list of items to consider:
- You must accept that there is a lag (often in years) between when great ideas are initiated and when the rewards come. I’ve seen too many intelligent investors short-circuit strong ideas simply because the payback didn’t come quickly enough.
- Understand the interplay between short-term underperformance and long-term outperformance. These two flow through each other.
- Avoid Internet “addiction,” and stop watching daily price changes.
- Be intellectually honest with your strengths and weaknesses and invest in situations which maximize strengths and minimize weaknesses. This increases the probability of success during adverse times (e.g. an investment has 20%+ in unrealized losses).
- Be obsessive when it comes to learning and study the top 2-3 companies in each industry.
- Become a better stock owner. Thinking clearly is easier to do before initiating a position than after.
- When it comes to investment analysis, look through the windshield and not the rear view mirror. In this vein, practice what Howard Marks calls “Second Level Thinking.”