Meryl Witmer, Eagle Capital Partners, reveals what she’s learned from Wall Street legends. They all seem to have one thing in common, she says, they’re “confident but humble” and are willing to change their minds
Meryl Witmer video and transcript CNBC interview below
we are continuing our discussion with one of the mostimportant voices on wall street. in her cnbc interview is merylwitmer, recently added to the board of directors at berkshire hathathaway. thank you for being here today. my pleasure. great to be here. you’ve been someone we’ve been trying to get on theprogram for a long time. you’re here today because of jimmy dunne. absolutely. tell us about your relationship and how you met. we met socially a long time ago, in 1991. and jimmy and my husband — jimmy’s wife susan and i, we’re all very good friends. and we also have a business relationship. i mean, we do and have done trading through sandler o’neill, it’s a terrific firm. i think i really know a lot about jimmy, how he built sandler o’neill back up. and so, you know, when he asked me to be on, he’s one of the few people i would not say no to. so i look back and just taking a look at some of the people, some of the legends on wall street, you know, it’s jimmy dunne. you know warren buffett on the board with him and you started out you investment career with michael price. yeah. and another person very helpful to me over the years was mario gabelli who is@ on here a lot. is there something you’ve learned from all of these legends? well, i think there’s a similar — i learned a lot from everyone. but i think there’s a — they all definitely have some similarities. and i think they’re all confident but they’re humble. i think they’re humble because they’re very logical. so, you know, they — they’re confident, they look at the facts, have opinions, but when they’re presented with new information, they’re willing to change their minds, which, another way you could put that is they’re willing to say they’re wrong. and that’s a pretty rare trade amongst people. a lot of people they stake out a claim, they’ll defend it until they fail. and i think every one of these people we mentioned is very happy to get new information even if it contradicts what they’re thinking and they’llchange their mind. i also think they’re all optimists. and it’s funny because they take advantage of adversity to a certain extent. michael buys stocks when they’re down, warren too.jimmy hires people, whether they’re fired or part of the business has gotten slow in m&a. he’ll look for people to bring over. in that, you have to be an optimist and say, hey, this is going to come back. people like them. i think it’s because they treatpeople fairly so they build up that good will. a lot of similar veins. but really one of the key, key things is the ability to change your mind when new information comes. we’ve got some very different information yesterday than we were expecting from the fed. right. tell us a little bit about what you think in the post no-taper fed world. what does this mean for the markets? well, you know, our style really is bottoms up.we’re looking at individual companies and trying to find a cheap one. find something that’s misperceived. i don’t spend a ton of time. and we use a 10% when we discount the after tax free cash flow. i will say i was a little disappointed because a fewstocks hovering around where i want to buy them and i washoping negative news would come out and i would add a position or two. the way i see the market, it doesn’t look cheap to me. people put money into stocks because they want the yield or they’re gambling or getting nothing on their cash. i think that really adds to just a speculative environment, a bit of a bubble, and at some point you have to pay the piper. that’s the thing. and, you know, when that’s going to be, i don’t know.that’s the issue. we could be paying — we may — we will have to pay the piper, but it could two years from now, four months from now, it would be years from now. if you think yellen is as dovishas steve and others are suggesting. yep. yeah, so — i don’t know when it’ll be. what do you therefore do? as a value investor, how do you live in the speculative bubble? well, we have some cash and then we — when we look for stocks, we want something that’s really cheap. so we want something where we can see ourselves making 50% over a couple of years. so i can — so maybe we’ll make zero or maybe we’ll make 30 or be lucky and double our money, hopefully not lose any money rule number one. but we’re really looking for themisperceived situation at eagle. what is a stock that fits into that? there aren’t so many now. i think one area is refining. and i in particular phillips 66 which is a position of ours. and there you have a refining business but you have two otherbusinesses that are really great businesses. there’s a cp chemical business, great niche, high return on capital employed. and then they have a midstream business that moves oil and gas around. when we look at that, you know, we really love those two businesses. it was spun out ofconocophillips and we bought it when it was spun out and webought some since even around the current prices. so we have two great businesses in there that i think are high multiple businesses. 15, 16, 17 type multiple, i think is what they deserve with their growth characteristics and return on capitalcharacteristics. and then you have refining and refining in the u.s. has advantages. so one of them is natural gas prices are really cheap. that’s a big input into cracking crude oil. sure. and so that — you know, all things being equal, they should make $1 a barrel more in the u.s. than in the rest of the world. that advantage if not more. and then you also have, you know, we have some advantage crudes here. and the good companies, and in particular psx, really getting good at sourcing these advantage crudes which are from the shale fields and then the canadian heavy crudes. so, you know, they should all things being equal over time make money. plus they’ve put all thiscapital into their refining business. and then the other thing andit’s really interesting, these older businesses. they have a lot of value under rocks is kind of how i think about it. and phillips 66 when we were meeting with management a couple of months ago, they talked about an export terminal they want to have for their refined products. and, you know, they’re going to build one.where did you get the land? and they said, oh, it’s land we’ve had. and i said when did you buy it? and they said 1940. what is that on the balance sheet for? 2,000? right. so they have a lot of advantages like that. they also — just — they’ve created a new division where all the pipelines they have that move the oil around to the refineries. they have many they’re not using and they’re finding some that have real commercial use to others.and they’re monetizing that. and moving oil around for others or finished products. so there’s a lot there. and the ceo’s very good, really understands allocating capital. and if there’s something to do there, he’ll do it. and i think over time, you know, if you sort of normalize earnings, 650 is a number,they’re buying back a lot of shares. the stock’s 57. the earnings could go into the sevens on a normalized basis because the refining earnings are volatile. and we see a stock like that that should trade at least in the 70s if not higher. so — what’s it like being on the berkshire board? well, for me, it’s fantastic. you know, i love learning. so seeing warren, you know, occasionally so to speak is really great. he’s so bright. and the other members of the board are bright. but the thing i really love alsois, you know, meeting the different company managements and learning about those businesses. you know, recently lucky enough to see the geico management. and that’s a terrific company. warren was so smart to buy that entire company. i mean, they’re really a great company, low cost, something to the consumer, everyone should really see if they can save 15%. the camel. hump day. the iconic, the advertising for i don’t know how many iconic commercials are good for. there’s like five different themes i can remember and they’re all pretty good.yeah, they have the gekko the pig the camel. the two guys.camel on hump day. yeah. some other good ones. cave men.oh, you remember? the cave men. there was a sitcom came about from — right. they didn’t cast the right guys because the geico guys were so much better. right. talks about how muchadvertising helped. it’s like — what? did they go up ten times their advertising budget and came back in spades. it’s a great business model and they keep their costs low and pass that on to the consumer and the consumer can save money. what a great thing, right? to save money on your insurance, you have more money to do something fun. biggest surprise being on the board snr either about the meetings, i don’t know. is there a debate that go during these meetings? i’ve always thought that warren was so agreeable that it’s hard to actually have a debate about anything. well, we have probably the best ceo in the country, right? from that point of view, it’s great. there are probably some debates here and there, business issues that come up. but it’s a well-run company, a lot of great subsidies and it’s not so contentious. but it’s a big company. it’s a big, big company. really, industrials are, i think, if i have a strength,that’s a strength of mine. but, you know, really learning even more about, say, geico, the insurance businesses, reallylearning about marketing. strong in finance, strong in industrial, but geico’s marketing to a large extent. so that is very, veryinteresting to see how that’s done. it’s fantastic. we want to thank you very much for joining us today. thank you.
