Tweet about this on TwitterShare on FacebookShare on Google+Email this to someone

“I think the real bargains are what they would call the smaller, ignored and unloved companies.” — Mario Gabelli’s

Mario Gabelli: Background & bio

Mario Gabelli is the son of Italian immigrants from the Bronx. As a high school student, Gabelli spent his summers working as a golf caddy at Winged Foot and Sunningdale in Westchester, where he often listened in on conversations about the stock market. At Fordham, he proved himself a well-informed entrepreneur. When power brownouts hit New York, he sold flashlights from the trunk of his car. He says he was first became attracted to value investing as a student at Columbia Business School, and after graduating he covered the auto industry at brokerage firm Loeb Rhodes, taking over for Michael Steinhardt. Gabelli went out on his own accord and opened a money-management firm in 1977, introducing his first mutual fund a decade later. His timing could not have been better. As he rode the ’80s bull market, he also became a TV celebrity when the financial media was just getting off the ground. The exposure both fed his ego and helped him promote his funds, landing him thousands of eager new investors.

Gabelli’s second wife is Regina Pitaro, a managing director at his company. It is her second marriage as well. He has four children with his first wife, Elaine. The Gabellis lives in the exclusive Belle View enclave of Greenwich. They also own a home in Moose, Wyoming where he goes fly-fishing and a 500-year-old farmhouse near Reggio Emilia, Italy, which has been in his family for generations.

Gabelli is perhaps the most highly compensated mutual fund manager in history until he took his company public in 1991; he had taken home an astonishing 20% of the firm’s pre-tax profits. Only after underwriters balked at the arrangement did he agree to limit it to 10% going forward. That kind of compensation strikes many as ironic, given Gabelli’s history as a corporate governance crusader.

Former employees have described him as a control freak that refuses to cede power over portfolios to the managers nominally in charge of them. He reportedly still serves as chief stock-picker for all of his firm’s portfolios and his high fees have turned off investors. His reputation has also been tarnished by several legal battles. In July 2006, he paid a $130 million fine to settle charges he created fake companies to bid for wireless phone licenses, and he settled a separate case to the tune of $100 million with two investors who claimed he had deprived them of what would have been hefty profits.

Mario Gabelli: Investment philosophy

One of Gabelli’s great investment themes is the notion of time and place. You can be anywhere, anytime. The distribution of information is going through a major change. Some countries are getting it first time; some are finding new ways to communicate. On the copyright side, he looks for things that travel well like music, MTV, jazz, films, sports, news and entertainment. Gabelli looks for a “catalyst” which will help narrow the “private market value” and the stock price to give him a rate of return within a definable time. The “catalyst” is an important part of what pulls the investment trigger some mechanical and arithmetic exercises. Examples of “catalyst” are change in regulation, divorce or death of a founder, family block that wants a change in their tax situation. It is no use if a stock trades at $1 when the private market value is $2, and in ten years the stock trades at $1.5 and the private market value is still $2. What you want is the private market value grows at least faster than inflation plus a hurdle rate.

Gabelli employs a research driven and value-oriented approach to investment analysis. For the analysis of stocks, he implemented the theory of value investing, which he lernt at Columbia University. He developed a metric of his own known as “private market value” (PMV). His proprietary Private Market Value with a catalyst methodology is a widely used analytical tool for value investors. This valuation metric places greater emphasis on analyzing a company’s cash flows and gives less importance to accounting profits. PMV means the price that a potential buyer would be willing to pay if she was to acquire the entire company, incorporating any synergies and premium for control. This method of valuing a company was extensively used in the analysis of LBO transactions (leveraged buyouts), whereby entire company is taken private by using borrowed funds. The methodology used in calculating PMV is often different from the standard way of measuring the value of public companies.

Mario Gabelli, like other value investors, seeks to identify stocks that are selling at a substantial discount to their private market value making them undervalued by the market. Usually, but not always, these stock are selling at low valuation multiples. This approach to investing, in sharp contrast to “momentum investing” which solely looks at earnings growth, tends to give importance to price as well. Typically, value investors search for growth at a reasonable price. According to them “price” is what they pay and “value” is what they get and the two may not be same at all times. Value investors contend that “growth” maybe mispriced in the market and as such one doesn’t want to buy stocks of growing companies at unjustifiably high prices. At the same time stocks with low price multiples maybe cheap that could simply be because of poor or deteriorating fundamentals. Mere fact that a stock is trading at a low valuation multiple does not make it an attractive buying opportunity. In either case, spotting a good buying opportunity requires rigorous research and this is what Gabelli is good at. Stocks with low multiples and high multiples need to be investigated relative to the peer group or the industry to which they belong before concluding whether they are overvalued, undervalued or appropriately valued.

Gabelli’s views regarding market efficiency seem to contradict academics. He does not believe in market efficiency that asserts that market prices of securities reflect all the available information and therefore price of a security always equals its intrinsic value. If that truly was the case there would be no way to make money in the market. He believes that price may not equal intrinsic value at all times and markets present moneymaking opportunities to those who have the ability to conduct thorough bottom-up research on stocks. Bargains can be found by digging deeper. The deeper you dig the better are your chances of spotting companies with good fundamentals yet selling at amazing discounts to their true value.

Gabelli’s approach to investing is very intuitive and appealing. The notion of a “catalyst” is an intelligent and sensible approach to the market.

Mario Gabelli: Gabelli Funds

Mario Gabelli founded Gamco Investors in 1976 and today the group manages over $46.9 billion  in assets using the same principles as the group was founded with during 1976. A focus on fundamental bottom-up research, a consistent investment process and a commitment to generating superior risk-adjusted returns.

List of fund and fund-specific information

Gabelli Funds Insights


Mario Gabelli: Quotes

“How can you allow the trading companies to locate computers closer to exchanges and flash millions of bids to give an unfair advantage?… Even professionals are losing faith in some aspects of the system.”

“The free market is at its best when everybody works in a fish bowl and tells you their point of view… The hedge funds and portfolio managers have a right to do this… We’ve muted the analysts and their presence in the system.”

“Always keep your portfolio and your risk at your own individual comfortable sleeping point.”

What we like to do is to buy, buy, buy when everyone doesn’t want it.”

“If somebody looks at me today and says ‘You made a lot of money,’ it wasn’t always that way. I still ride subways!”

“Value investing, the way I define it, is finding a good business run by smart people, at a reasonably good price relative to its values today and five or more years from now.”

When I started in this business 40 years ago, I spent half my time on research and the other half on things like investment banking. Today I spend half my time on research and the rest hiring analysts.”

“Over the past 20 years, our annual macroeconomic and market forecasts haven’t always been right. Fortunately for our clients… our investment methodology is not built upon accurately predicting interest-rate trends or timing the market, but rather on picking stocks, and many of our picks have fared quite well. One reason is that we’ve had a good batting average identifying trends – we call them catalysts – that have unlocked value in selected industry groups.”

“We believe free cash flow, defined as earnings before interest, taxes and depreciation (EBITD), or a slight variation, EBITDA, both minus the capital expenditures necessary to grow the business, is the best barometer of a company’s value.”

“When the informed industrialist is evaluating a business for purchase, he or she is not going to put a lot of weight on stated book value… What that informed industrialist wants to know is: How much cash is this business throwing off today and how much is he going to have to invest in this business to sustain or grow this stream of cash in the future.”

Mario Gabelli: Videos

Mario Gabelli: Articles
(Newest first)