How the Best Value Investors are Navigating the EU Crisis

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Last week, in addition to attending in person the Santa Fe Institute conference, I also “virtually attended” the European Investing Summit put on by ValueConferences and the Manual of Ideas.  It too was quite the experience, in terms of the quality and quantity of content and its groundbreaking format for connecting global value investors.  These days it’s nearly impossible to amass the brainpower and experience of informed presenters in one conference room over the course of two days in any physical sense.  That’s why the Manual of Ideas had the idea to orchestrate a virtual conference, with a blend of live streaming and pre-filmed interviews, replete with presentations and interactive conference rooms to connect with fellow attendees and presenters alike.   Many thanks to John and Oliver Mihaljevic for conceiving and executing on an outstanding idea, and for gathering some of the foremost talent in the industry.

I spent a whole lot of time last week and over the weekend listening to and absorbing as much as I could from the videos.  I particularly liked the fact that nearly all of the videos offered great lessons on the process and philosophy side as much as they did on the ideas front.  I went into the conference with plenty of thoughts on Europe and where I saw the crisis inevitably leading to, plus I had already deployed capital strategically into four distinct European investment opportunities, but I really wanted more considering the vastness of opportunity amidst crisis. (Be sure to check out my post connecting Europe today to the Articles of Confederation USA entitled The Answer to the Eurozone Crisis was Written in 1787).

I “left” the conference having learned of several very intriguing ideas that are queued up for immediate further inquiry, but maybe even more importantly, I “left” feeling like I made important strides in continuing the evolution of my own investment philosophy.  In this blog post, I would like to share some of the more macro ideas from the live sessions on day 1 of the conference, including perspectives on the European markets and some important philosophical points on value investing in this present environment.  Anyone who finds these ideas remotely intriguing would extract considerable value from attending these online sessions at

Guy Spier, Managing Partner, Aquamarine Capital

The live portion of the event kicked off with Guy Spier’s keynote address on “Investing in Europe in the Face of Crisis and Uncertainty.”  Spier started his analysis with some very informative charts on the debt-to-GDP ratios of the various EU entities, including a breakdown between public, private and corporate debt.  There were some interesting observations on the charts, including just how troubled Greece is from a public debt perspective, how much greater Ireland’s aggregate debt burden is compared to the rest of the EU and US, and how much actual private wealth exists in Italy.  Obviously we all know about Greece’s woes, but I think in valuing investing circles, the troubles of Ireland stand in stark contrast to conventional wisdom, and Italy’s wealth is often overlooked (this is something I’ve covered on my blog in the past in a post called Why Italy Doesn’t Worry Me).

In my opinion, one of the more important points Spier made off of these charts is that “fear-mongers try to make money off of selling fear, but the globe has a whole lot more wealth than is ever talked about.”  This is exactly how crises go.  People get caught up in the negative emotion and willfully look past some crucial realities.

We then turned to a chart on the odds of a country leaving the EU, which has greatly decreased since ECB President Mario Draghi’s aggressive late summer statements and actions.  This segued nicely into how Guy in the recent past thought the Euro would in fact break up, however, politics, not economics paved the way for Draghi to bypass the rules in practice, and keep the currency union together.

Next Spier broke down the two lenses through which people view this crisis: the Anglo Saxon vs. the Continental.  Anglo Saxon countries are more individualistic and place a greater degree of value on personal freedom, whereas the Continental lens is more collectivist.  This creates a dichotomy whereby those who adopt the Anglo Saxon perspective view the crisis through an economic lens, while Continental people take the political view.  Each perspective has its own unique consequences; however, it’s clear that today the Continental approach is winning.

Spier himself asserted that he has moved his understanding in the Continental direction.  This then evolved into a discussion on how the crisis itself is a catalyst for further integration to the point where without crisis, integration itself stagnates.  That raises the question of whether crisis is desired amongst those integrationists like Draghi, for without it they cannot continue the mission of Jean Monnet.

Please note: Spier then gave some very interesting investment ideas, but again, my focus here is to outline the European perspectives and what I learned philosophically about value investing.

Charles De Vaulx, Chief Investment Officer and Portfolio Manager, International Value Advisers

Right off the bat, De Vaulx continued on this theme of an Anglo Saxon/Continental divide: “Investing has always been an Anglo Saxon endeavor…it’s mostly those countries that have relied on capital markets to advance capital formation, while other countries saw their capital formation financed in other ways.”  De Vaulx then launched into a great history of value investing, and how it had predominantly been an American, and then British phenomenon.  Starting with the early 1990s recession, great American investors like Tweedy Brown and Michael Price ventured into global capital markets for value, mainly Europe.

Why did these investors turn to Europe? De Vaulx argues that this is due to some of the competitive advantages offered by European reporting.  Before the adoption of international account standards in Europe, man companies made it easier for some equities to get mispriced, or they ended up undervalued due to very conservative accounting practices (the opposite of many other places in the world).  In many of these cases, true economic earnings were thus understated.  Likewise, many companies had hidden assets on their balance sheets that were booked at historical cost, rather than present value.

Previously, the abundance of family owned and controlled businesses had been thought of as a risk in Europe, yet on further analysis, it became clear that these families were true stewards of investor capital, with their risks aligned in an advantageous way.  Further, many were open to the idea of takeovers and/or mergers as a means through which to realize value.

Right now, International Value Advisers has 10% of the fund invested in France and only 0.4% in Germany.  This sits in contrast to much conventional wisdom, which holds that Germany is the safest, and France’s regime will crush capitalism.  Many companies across Europe, and particularly

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