Interview With Tim Melvin On Deep Value Investing by Lukas Neely, Endlesssrise Investor
Safe, Cheap & Skeptical
Tim Melvin is deep value investor all the way. He’s not just looking for cheap investments. He needs them to be “safe and cheap.”
Tim Melvin explains his intense focus on the balance sheet, his thesis of community banks being the “trade of the decade”, how he finds high quality community bank opportunities, and why he see upside in Sears Hometown, Home Trust Bancshares, Cape Bancorp.
Tim Melvin has been known within the deep value investing world for a long time. He’s been around the greats, such as Marty Whitman and Chris Browne. He is the author of the Junior Chamber Course On Value Investing, an investment education program geared towards young adults.
It’s his focus on community banks that has everyone’s attention right now. He calls it the “trade of the decade.”
“In the aftermath of the real estate and credit crisis many banks have seen their stock prices fall to levels not seen since the early 1900s. Small banks in particular are very cheap, “ says Melvin.
Today, in addition to community banks that are misunderstood by the market, he’s finding value in such areas as brick and mortar retail.
How did you get started in the world of investing?
I started with John Hancock Financial Services in the early 80’s, and that’s when we were all making a transition. We realized we weren’t going be life insurance agents anymore – we were going to be financial planners. I started in Baltimore, and eventually (for family reasons), moved out to a little town called Merced, California, in the San Joaquin Valley. We were selling insurance, mutual funds, and financial planning services, but across the street from us was an E.F. Hutton office. And these guys dressed better than we did, they drove nicer cars, they sure seemed to be having a lot more fun than I was.
So I dropped in and made a few trades. The most memorable was Bethlehem Steel, back in the 80s. At this time I started to get really fascinated by the stock market, so I started reading Barron’s, and the Wall Street Journal all the time, and all I wanted to be was a stockbroker. That was it. My mind was made up.
I eventually got hired with Dean Witter, and the rest was history.
I started picking people’s brains. We had a guy in the office, who was only a broker to manage his own family and friends money, because in the 80s, that would have been the most efficient to do it. Well, this guy made a lot of money. He looked like the shaggy-haired professor, he had the messy desk much like I have today, and I bugged him relentlessly to teach me, talk to me, and tell me how to do this. And he finally (I think to make me away) gave me a copy of the Intelligent Investor and Marty Whitman’s Aggressive Conservative Investor.
So that was the start. I was really sold on value investing, and have been most on my career. I’ve tried some forays into commodity trading and a few other things along the way. And, by the early 1990s, I was committed forever as a deep value investor. Mainly because, I don’t want say that those things don’t work for other people, but I will say I was no good at them, whatsoever. But following strict value criteria – I could do that.
And it’s been reasonably successful for me, and I haven’t deviated from it much at all, since the early 90s. You try to perfect yourself and learn new things all the time. But, I basically stayed with the deep value approach since the very early 1990s.
What does your typical day look like from beginning to end?
It is a very relaxed day since I left the brokerage industry in early 2008. My day is structured around my writing. I do have one morning deadline for RealMoney, but everything else is pretty much under control, as far as the Marketfy and Benzinga content is concerned. I get up, I have my coffee, walk the dog, and I go for my first walk of the day. I come back in, and the first thing I do every day is go to sec.gov, and I check the 13d and 13g insider filings from the day before. I’m looking for any stocks that I already own, and I want to know if anybody’s filing or buying.
For instance, I recently saw that Barrington Capital Group had filed a 13D on Eastern Corporation (EML). That’s interesting to me because Barrington is a really successful activist investor. If I see that PL Capital, Clover Partners, Basswood Capital, FJ Capital, Joseph Stillwell, or Lawrence Seidman file a 13D on a bank. I now know I need to go look at this bank. I want to see what their seeing because these are really smart and successful activist investors. What’s going on in community banks is so real and so powerful, and the best part – no one cares.
So if one of those funds or individuals files a 13D or 13G, I still have plenty of time to investigate the bank, and still buy at a healthy discount to book value. So I want to see those SEC filings, then I’m going to collect my thoughts, and I’m going to run my screens and hope that they can provoke a really good idea for the RealMoney article (if I don’t have something already lined up). Then I’m going to write that article, get it in to the editors. At this point it’s around 10:30 – 11:00am. Then I’m going to answer emails, and any freelance stuff I want to do that day for Investor Place or Benzinga and I’m going to get that done.
“Investing is NOT complicated — It’s just hard.”
At this point it’s around lunch time and that’s when I start reading the 10Qs, 10Ks, articles, newspapers, and portfolios news. This is my news collection period of the day once all the writing is done. Wednesdays I do a portfolio update video usually for my international portfolio. Towards the end of the day I check some closing prices and news. I may run some more screens too. I have a few that I run every day and some that I just run once a week or so. For screeners I use screener.co.
There is a caveat to using screeners though: you cannot depend 100% on the numbers. As a rule of thumb you should never depend 100% on any of the numbers at any point in time. Screening is a starting point only. If you buy a stock off the screen without reading the Qs and the Ks, then you deserve what happens to you.
What’s a little known secret about you that no one knows, but should?
I take a nap everyday. But I think everybody’s figured that out by now. Not going to college surprises folks sometimes, but I’m pretty open about it. I don’t really care where I did or didn’t go to school 30-something years ago. But I guess the one thing I could say that sets me apart from other people in the market,