Preston Athey Of T. Rowe Price On Finding The Right Investments

Preston Athey Of T. Rowe Price On Finding The Right Investments

I don’t think I have mentioned this publicly, but I am on the board of the the Baltimore CFA Society.  My main task is to be co-chair for Programs, though I also like working with college students via the CFA Institute’s Global investment Research Challenge.

In general, I help where I am asked to help.  The two times that I have been on the board of the Baltimore CFA Society, I joined because I was asked.  I don’t need to lead.  I am very happy to not lead, except when things are confused, and no one is leading.

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One of the fun things about being on the program committee is that you get to interact with a bunch of interesting potential speakers, some of whom turn you down, and others that accept the invitation.

And so it was my great pleasure to introduce Preston Athey (AY-thee), to speak to the Baltimore CFA Society.  He manages the T. Rowe Price Small Cap Value Fund.  That fund has 4 stars from Morningstar over 3 and 5 years, and 5 stars over 10 years.  It has other awards from Money Magazine and Kiplinger’s, and I’m pretty certain a number of others.

When he sat down at our table, prior to the talk, we talked about finding good companies in bad industries, which is a concept near and dear to me.  So he asked us what industries are hated now?  I volunteered shipping and coal, and later mentioned steel.

I then introduced him to the Society, and he gave his talk.  He highlighted four things:

  1. The CFA Institute has capitulated to the academics who teach the nonsense of the CAPM.  Volatility is not risk.  Risk is the permanent impairment of capital.  (I commented that when the economics profession went mathematical in the ’40s and ’50s, they felt everything had to be quantified, whether it was correct or not, and that anything that made the math simple was a boon to being able to publish “research.”
  2. The companies that actually do buybacks, as opposed to merely announcing them, do very well, and that is intensified for those that buy back stock at high free cash flow yields.
  3. Lower turnover in mutual funds tends to lead to better performance.  He attributed it to having more conviction in the companies that you buy.  His turnover rate is 10%, and half of that is due to buyouts.
  4. As a result, he talked about letting your winners run, though he also mentioned trimming positions to reduce risk.  That is similar to what I do.

He also mentioned how new management with a company that has gone nowhere can produce large returns.  Analyzing the nature of the new management is necessary — their past track record, current incentives, etc.  During the Q&A, he handled a number of questions — one that stuck out to me was industries where there are non-economic competitors.  I think of Chinese steel companies as an example that has finally failed.  The world does not need that much steel, even at current prices.

Aside from that, he was a Gentleman, as a few informed me he would be… a really nice guy.  Wish I had gotten to know him earlier.

Now if you want to know more about him, I have some articles here:

We had a great time with Preston Athey today, and for those that hung around thereafter, he answered many more questions.  Truly generous with his time, and gracious.

By: alephblog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.