Saj Karsan On Quality Of The Management Team, Buying & Selling Discipline, And His Biggest Investing Mistake… by Lukas Neely, EndlessRise Investor
Saj Karsan launched Karsan Value Funds (KVF) in July 2009, a long-term oriented, value investment fund. The fund takes equity positions in public companies which trade at discounts to their intrinsic values and where downside risk is low compared to upside potential.
The investment horizon of the fund is long-term nature, as it can take many years for such companies to return to trading at their intrinsic values. His value investing process continues to prove itself year after year. In 2013, his fund returned 38% (after taxes). And his fund outperformed the broad index in 2014 with a gain of 16% for the year.
Today, Saj Karsan is finding value in in the small-micro cap space. He’s finding value in such industries as document and marketing solutions, aircraft water systems, and Arcoplate manufacturing.
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How did you get started in the world of investing?
Saj Karsan: Once I started earning real money (to me, anyway) during an internship in university, I wanted to know how to grow my savings. So I started buying mutual funds, but as I read further I recognized that the funds were just marketing machines, not focused on returns. I started reading from Buffett and Graham and it totally changed my outlook.
I used to just look for cheap companies, but over time I’ve migrated towards companies with good/rational managements. It’s so much easier psychologically to be partners rather than adversaries with the stewards of my capital.
What does your typical day look like from beginning to end?
Saj Karsan: I try to start right away in the morning with analyzing companies on my to-do list. This is when I’m the freshest and probably thinking the most clearly. In the afternoon/evening, I’ll deal with the things that don’t require as much clear thinking like e-mail, reading from other investors, reading articles I’ve tagged, writing a post if I have something to say etc.
Who are the people that inspire (or inspired) you the most?
Saj Karsan: Warren Buffett. He got me into the whole value investing program with his folksy yet educational shareholder letters, and he’s been a role model ever since. A few years ago when he graciously agreed to host students from my business school.
What are the top 3 books people don’t talk about, but that you would recommend to an investor?
Three books that I don’t think get enough credit are Competition Demystified by Professor Bruce Greenwald (Columbia University), The Halo Effect by Phil Rosenzweig, and The Goal by Eliyahu M. Goldratt.
What is your philosophy as it relates to investing?
Saj Karsan: We are a long-term oriented, value investment fund. The fund takes equity positions in public companies which trade at discounts to their intrinsic values and where downside risk is low compared to upside potential. Because it can take many years for such companies to return to their intrinsic values, our investment horizon is long-term by nature. Also, I do some screening, and I try to steal ideas from anyone talking their book for high quality investing ideas. I have a checklist approach, where I’m looking for a good price, good management, sustainable earnings, downside protection etc.
Describe your value discipline once you have arrived at an understanding of the Intrinsic Value of the business?
Saj Karsan: I try to buy at around a >40% discount to my estimate of Intrinsic Value. I sell if I would rather invest the money in something else, or I scale out as the price rises towards IV. This is a good psychological hedge for me, because if it rises a lot, at least I still own some at the higher price, whereas if it does a round trip, at least I did sell some!
Does management play a big role in your investing?
Saj Karsan: For me meeting management is not important at all. Not only can I not afford it with the small amount of capital I run, but I don’t consider myself a good judge of character or anything, so I could totally get duped by a management team better at marketing themselves than actually executing. Nevertheless, management does play a big role in my investing, because I’m looking for rational managements that allocate capital effectively and make good decisions with respect to its business.
Are there any investing themes that investors should be aware of over the next 6-12 month and beyond?
Saj Karsan: I try to avoid making macro calls on investing themes. I stick to the micro. That said, if a macro event has already occurred, that can help guide investors to sectors where some cheap companies may be uncovered! For example, I’ve been looking in the oil sector for babies thrown out with the bathwater. I’ve also recently invested in a Canadian exporter to the US. As the Canadian currency has taken a big hit, such companies experience a tailwind that has not yet shown up in the financials.
What was the worst investment you have ever made? What happened, and how did you learn from it?
Saj Karsan: There are too many “worst” investments to count! I got taken by some Chinese frauds, for example. I learnt the importance of sticking to countries where the rule of law is strong, and where corporate governance is valued. I also plan to stay diversified until I have truly convinced myself that I know how to separate a great company from a good/lucky/fake company.