When it comes to stock picking, International Value Advisers’ CIO, Charles De Vaulx, likes to buy the best house in a bad neighborhood. (Part 1 of a 2-part interview with Steve Forbes).
Steve Forbes: Charles, good to have you with us. You’ve had a long and distinguished career, and I want to begin by asking you to define “value investing.” It’s a term everyone uses, but people have various definitions of it. So, what is your definition of “value investing”?
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
Charles De Vaulx interview is embedded below
Charles De Vaulx transcript via Forbes
Charles de Vaulx: The basic definition is the belief that there are at times discrepancies between the intrinsic value of a company and the price at which that stock trades. So sometimes we try to identify companies, when there’s a large gap between the price of the stock and what we think the real value of the company is. Having said that, we have always had a bias towards better businesses; in other words, those that are able to compound their value over time.
Forbes: Are those harder to find than the trash companies?
de Vaulx: Those are much harder to find, obviously than the net-nets, the cigar butts Ben Graham (PH) talked about. But if you can find those, the beauty is that time becomes your friend. If you buy into an average of mediocre business, you need that gap between the price and value to be closed as quickly as possible. You need, the old man to die. You need a new management to come in and restructure.
Forbes: A catalyst?
de Vaulx: You need a catalyst. Conversely, if you own a compounder, then time becomes your friend. And we also have a clear bias, Steve, towards companies with significant insider ownership. We believe that eating your own cooking is a very powerful thing whether it’s us as money managers, or