Keith Trauner, The GoodHaven Fund, says he’s looking for companies that generate cash, like Microsoft, Hewlett-Packard, and Google. Trauner was on CNBC for a rare interview.
Trauner, Co-founder, GoodHaven Fund transcript and video below
Khrom Capital was up 32.5% gross and 24.5% net for the first quarter, outperforming the Russell 2000's 21.2% gain and the S&P 500's 6.2% increase. The fund has an annualized return of 21.6% gross and 16.5% net since inception. The total gross return since inception is 1,194%. Q1 2021 hedge fund letters, conferences and more Read More
when youpen an account. welcome back, everybody. let’s get some stock picks that may have your portfolio protected. joining us on set is keith connor, the founder of the good haven fund. fund is up, slightly outperforming the s&p 500. she also the former portfolio manager of fair holm spare home fund, keith, thanks, for coming in this morning. my pleasure to be here. you are looking at rising interest rates. you are on board with that assumption, correct? we just don’t think zero interest rates are a permanent position. q infinity, we will see higher rates at some point? at some point we will. we like companies that have cash that, generate cash or represent a royalty on somebody else’ cash. when rates are falling, the big benefit is to people who are levered and could refinance at lower rates and things like that. when rates are going up, you want somebody in the other position. let’s talk about the other stocks you like. microsoft is one of the names out there. there has been a lot of questions raised about the restructuring. what is your take? we started to buy microsoft in the low- to mid-20s when everyone was calling it dead money. over the last decade, they had grown triple the revenues. they’re sitting on about $75 billion in cash. we think they have a lot of franchise pieces of the business and, you know the company soultd do just fine. there are areas that are in distress. there are others doing very well. it’s a bank with a software company attached to it, isn’t it? a real franchise company. the faces enterprise in both office and server areas. you like other tech following names, too, including hewlett packard? ? hewlett is also an interesting situation. hewlett generates a lot of cash, hewlett obviously had some real issues, real management problems. we think those are on tear way to being resolved. if you talk to people inside and outside the company, customers, employees, they like what meg whitman is doing. and they have a lot of resources. we also paid a very inexpensive price for hewlett. what did you buy? what did you boy it at? i think our average cost is somewhere in the $18 area. back to microsoft, do you think the restructuring there works or does it need to be another step down? i think we are a littling a nostic. there are a lot of levers microsoft can pull to enhance share value that they haven’t yet. so wearing a nostic, but we like the fact that they generate a lot of cash and the key ploy it in ways to help the shareholder. you do like google. you don’t have any position when it comes to apple? google i think we started in the high 400s. we thought it was one of the best interests we have ever seen. i think google has after automatic money they’ve spent has over a hundred million in cash and continues to generate gobs of cash every quarter. apple, we don’t own. we’ve looked at i. our biggest concern is that it makes a lot of hardware, that it has very high margins on. ultimately in technology, high margins an hardware don’t go together. keith, when you are a fun manager, you have to look. you are always being compared against the s&p 500 or some other index, is it harder when the market is doing so well on its own? do you get pushed to try to find other ways to find outsized gains? it’s interesting. since we started. we probably averaged 25 or 30% cash since the day we started. and, yet, i think we’re up about 40 vs.28 since inception. so it obviously hasn’t killed us to hold cash. i think what most people miss is there is tremendous optionality value to having liquidity in a mutual fund structure. if you have cash you don’t have to sell, when other people are panicing. you can buy at that point. you can buy and the value of what your cash multiplies in a real downturn. so you can buy a lot more of what you leak. so, you know, we like that structure. we will always have some cash. we’re at the high side of what we’d prefer. eade always like to have some cash? what’s high side? in there plus 30%. oh. i was wondering. i fet the approach. you look for high crash companies right now in a rising rate environment. the flipsided overendebted on falling rates. doesn’t that approach also potentially take you to companies that don’t have prospects, so you got cash or you have a risk of that? well, we’re not interested in as a general rule in directing draconian businesses and we don’t like really, really bad businesses. what we are trying to do is to find a few and we only need a few to do well, and few good situation, and we would rather be roughly right than precisely wrong. thank you very, very much for