In the spirit of the upcoming Value Investing Congress which I plan on attending and reporting from, I found some interesting videos from the previous Congress in 2008 which I wanted to share. I discovered a total of 11 videos on the internet. Most of them are quite interesting, and informative.
I wrote about a brief summary of each video which I will be posting over the next few days, and embedded the video below.
It is important for context to understand that the conference took place in late 2008 at the height of the financial crisis.
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
Several mutual fund and hedge fund managers spoke, giving their formula for finding successful companies. The moderator quotes football coach John Woodman: “The coach with the best players almost always win.” The goal of a successful financial manager is to find the best team members and let them do their thing. Put a genius in charge, and the result will be success. Put regular people in charge, and the result is not so much success.
A financial manager’s job involves two parts:1. To preserve capital, and2. To grow capital and create wealth.
One manager emphasized that, “Most years are not as terrible as this one.” He said he has no idea what will happen over the three-month, six month, or even nine-month period. However, over five or six years his financial firm will do well.
A manager specializing in small cap companies buys companies most people have not heard of. Everyone researches large caps like Apple and Google. In addition, everyone buys the large cap stocks. Yet since 1970, small cap stocks have outperformed mid and large caps. Small cap performance since 1970 was 15%, mid caps 14%, and large caps just 10%. Seeking companies with special circumstances such as turnarounds and restructurings, buying and holding for long periods of time, results in success over the long term.
Value investing means looking for bargains. This often means seeking out companies other investors have abandoned or neglected. They have moved on for any number of reasons, such as earnings disappointment, missed product cycle, merger and acquisition problems, financial problems and market fears. If research indicates these companies have potential, buying and holding them often results in huge profits. Another avenue for value investors are companies that have gone public in the last couple of years and are now trading at a fraction of their IPO price. A buy and hold strategy often results in success with these companies.
Speakers touched on the sub-prime problems hitting the market and resulting credit issues, including a tightening debt market.
Magic Formula Investing was discussed, highlighting a book by Joel Greenblatt, The Little Book That Beats the Market, published in 2006. The book focuses on the fact that high return on capital is an indicator of a good business, and high earnings yield means the business is cheap. A basket of good cheap businesses often results in above average results over time.
The reason more managers do not follow the rules and ideas mentioned above is that they are hard to put into practice. It is especially difficult to hang in during the tough times.
The last part of the video discusses a Texas-based company called Contango that specializes in drilling exploratory wells. The company’s founder, Ken Peak, has been successful by following the formula made famous by Warren Buffet: give smart people capital, give them an incentive to do well, and let them do their thing.