Exclusive Interview With Mark Massey Of AltaRock Partners by Beyond Proxy
Last year we had the pleasure of interviewing Mark Massey who heads AltaRock Partners. Under Mark’s leadership, the AltaRock Fund has compounded capital at a net annual rate of 12% since inception over twelve years ago, more than 500 basis points ahead of the annual performance of the S&P 500 Index.
Q&A with Mark Massey
The Manual of Ideas: How did you get interested in investing?
Mark Massey: Like any son, I was greatly influenced by my Dad. Fortunately for me, one of his real passions in life was investing. He always talked about his stocks around the dinner table and as time went by his enthusiasm stoked a curiosity in me to learn more. During high school and college, I got non-paying “jobs” at the local Merrill Lynch office which gave me some important insights into the ecosystem of Wall Street. By the time I graduated from college in 1986, I had decided that I wanted to be on the “buy side of the street.” Thankfully, with a bit of patience and perseverance, I was able to land a dream job as an equity analyst with Fidelity Investments in Boston.
MOI: Why wide-moat investing as opposed to other value approaches?
Mark Massey: We think it’s a very safe way to generate superior returns over the long term. “Wide-moat investing” is just another way of saying that we try to buy, at a rational price, great businesses whose earnings are almost certain to be much higher in ten and twenty years. Great businesses, by definition, stand the test of time and as a consequence they are always compounding in value — like a savings account, but with a much better yield.
To me, deep value “investing” means buying a less than great business or a pile of assets trapped inside of a corporation at a (hopefully) big discount to some estimate of intrinsic worth. My problem with this approach is that no matter how cheaply you buy, time is working against you. In other words, your risk/return equation is highly dependent upon how quickly you can turn around and sell at a profit. With poor companies and cheap assets, the values can melt away while you are waiting for the market to see things your way. Buffett said it well, “Time is the friend of the wonderful business and the enemy of the mediocre.”
MOI: Absent general calamities such as in 2008-09, what are your favorite sources of mispricings that lead to wide-moat companies being undervalued? How do you then increase your chances of distinguishing between permanent versus temporary impairments of a company’s moat?
Mark Massey: Every situation is different, but mispricings tend to occur due to some innate disregard (recent spin-off, small market cap, etc), or because of some uncertainty, or fear. So you pointed out one of the best times to find them, which is when there is a general panic in financial markets. Other types of uncertainty and fear can be specific to a sector (housing related businesses following the real-estate bubble), or around various characteristics like high debt levels, legal problems, etc. The best mispricings will generally occur when you have a combination of factors working simultaneously. Imagine a 2008 spin-off of a highly leveraged, housing-related business facing new legal problems that are difficult to estimate. That will be a very cheap stock that may be worth spending time on. As far as knowing when an issue is temporary or permanent, I don’t have any shortcuts or rules-of-thumb. Every situation is different and it always comes down to a matter of hard work, experience and healthy dose of common sense. I will say that our success has come almost exclusively from patiently waiting around for things that are obvious to us than from getting involved with difficult and complicated problems.
MOI: How do you generate wide-moat investment ideas?
Mark Massey: It’s all qualitative stuff. We really don’t do screens. In fact, the only screen that I find useful is one that spits out companies that have been buying back a high percentage of shares. This MAY be indicative of a well-aligned management team that has great conviction in the durability of its competitive moat… but it could be the opposite, too… so you always have to do a lot of work to get to the truth.
I really think the key to our success has to do with our love for the game. We absolutely love coming to work every day. I literally spend almost all of my time reading. And while it, no doubt, makes me a bit of an oddball, my greatest pleasure is to be constantly searching for wonderful businesses that, for whatever reason, are mispriced. Having done this for nearly thirty years, I have built up a lot of knowledge and understanding about many different businesses, moats and business models. The result is a long list of companies that we would like to own at the right price. And we know from experience that if we continue to be patient and disciplined, a few mouth-watering opportunities will eventually come our way.
MOI: You refer to your portfolio as a “Conglomerate.” Please elaborate.
Mark Massey: I realize it sounds kind of funny, but we really do refer to our portfolio in-house and in our letters to partners as “The AltaRock Conglomerate.” The reason we do this is to reinforce what we believe is the correct way of thinking about stocks, which after all are ownership positions in real operating businesses. I think many investors can lose sight of this when all they ever see are ticker symbols and flashing prices on a computer screen. To counter this tendency, we think of, and speak of, each business in our portfolio as a subsidiary that we own outright. And we try to acquire each one at a price that reduces our risk of loss to zero, while also guaranteeing that our rewards from long-term ownership will be bountiful. If we truly ran a conglomerate, we would always be exceedingly careful that we understood exactly what we were buying before making any acquisition. And we would never sell or trade one of our subsidiaries unless we were absolutely convinced that we were getting significantly more than we were giving up. The only exception to this would be if someone offered us an insanely inflated price, in which case we would sell and hold the proceeds in cash until we could find something intelligent to do. Just because we deal in marketable securities does not mean that we should behave any differently than we would if we owned entire businesses, so we don’t.
See the full article here.
Mark Massey – Book Recommendation
Mark Massey: For someone starting out I would submerge myself in as much Munger and Buffett as possible and I would certainly subscribe to The Manual of Ideas. Here are some books, etc. that I have found quite interesting and useful:
Praise for Damn Right!
From the author of the bestselling WARREN BUFFETT SPEAKS. . .
“Charlie Munger, whose