Graham & Doddsville newsletter for the month of November 2016.
Welcome to Graham & Doddsville
We are pleased to bring you the 28th edition of Graham & Doddsville. This student-led investment publication of Columbia Business School (CBS) is cosponsored by the Heilbrunn Center for Graham & Dodd Investing and the Columbia Student Investment Management Association (CSIMA).
Since our Spring 2016 issue, the Heilbrunn Center hosted the seventh annual “From Graham to Buffett and Beyond” Omaha Dinner. This event is held on the eve of the Berkshire Hathaway shareholder meeting and features a panel of renowned speakers. Additionally, Professor Bruce Greenwald was honored with a Lifetime Achievement Award.
[drizzle]In this issue, we were fortunate to speak with four investors from three firms who provide a range of perspectives and investment approaches. Despite differing strategies and processes, all see unique benefits from deep research and having an extended time horizon for investments.
Alex Seaver and Brad Kent of Stadium Capital Management discuss their concentrated, value-oriented approach to small-cap investing. The two partners detail their transition from private equity investing to the public markets in order to find more attractive opportunities. The team discusses the evolution of Stadium’s strategy, the methodical research and valuation process, as well as the
firm’s reluctant, but ultimately successful activist campaigns.
Neal Nathani of Totem Point Management shares his perspective on utilizing industry trends and rigorous research to find value and growth investment opportunities. Neal discusses what he learned in evaluating business quality from witnessing the dot-com bubble and in building complementary teams from watching Wayne Gretzky. Neal also shares an investment idea, Analog Devices (ADI), a semiconductor company that is at reduced cyclical risk and is not commoditized.
Chris Weldon ’12 of Stamina Capital discusses the launch of his fund, the evolution of his investment strategy, and the transition in skills and temperament needed to go from an analyst to a portfolio manager. Chris shares his experience investing in compounders, identifying quality transitions, and how Stamina will benefit from both by utilizing an extended investment horizon.
Lastly, we continue to bring you pitches from current students at CBS. CSIMA’s Investment Ideas Club provides CBS students the opportunity to practice crafting and delivering investment pitches. In this issue, we feature ideas from a Women’s Investment Ideas Club event, the 2016 Pershing Square Challenge, and the 2016 Ross Investment Competition. Jocelyn Doman ’17, Maria Muller ’17, William Hinman ’17, Mark Shohet ’17, Kenneth Chan ’18, Anton Korytsko ’18, and Alexander Teixiera ’18 share their ideas for Live Nation Entertainment (LYV), Skyworks Solutions (SWKS), and AMERCO (UHAL).
As always, we thank our interviewees for contributing their time and insights not only to us, but to the investment community as a whole, and we thank you for reading.
- G&Dsville Editors
Stadium Capital Management
Alex began his career at Goldman, Sachs & Co in New York in 1982 in Corporate Finance and Mergers & Acquisitions. Alex subsequently spent 10 years in the private equity and venture capital industry in the Bay Area at Hambrecht & Quist and InterWest Partners. In 1997, Alex co-founded Stadium Capital Management, LLC, where he is a Managing Partner. In 2005 Alex also co-founded Coliseum Capital Management, LLC, where he is remains an owner as well as a member of the firm’s Advisory Committee. Alex is also an investor and/or board member in a variety of earlier-stage private companies, primarily through Gold Bench Capital, LLC, which Alex also co-founded.
Alex graduated from Harvard College cum laude in Economics in 1982, and The Stanford University Graduate School of Business in 1986, where he continues to be a guest lecturer in Investments/Finance as well as in Corporate Governance. Alex is married to Christine Noyer Seaver, also Stanford GSB ’86. Alex and Christine lived in Palo Alto, CA from 1984 until 2001 when they moved back east to Connecticut with their four children.
Mr. Kent is a Managing Member and co-Founder of Stadium Capital Management, LLC. Mr. Kent serves on the Advisory Committee of Coliseum Capital Management, LLC, an investment firm based in Stamford, CT that focuses on special situation and distressed investments in smaller capitalization companies.
Prior to forming Stadium Capital, Mr. Kent was a general partner of InterWest Partners where he focused on non-technology acquisitions, recapitalizations, and late-stage venture capital investments. From 1989 to 1992, Mr. Kent was a Project Manager for William Wilson & Associates, a commercial real estate firm where he was responsible for developing, financing and leasing office development projects. From 1987 to 1989, Mr. Kent was a member of the Morgan Stanley Merchant Banking Group.
Mr. Kent earned a B.A., with distinction, in Economics and a M.S. in Industrial Engineering from Stanford University in 1987 and a M.B.A. from Harvard Business School, with high distinction (Baker Scholar), in 1993.
Graham & Doddsville (G&D): Could you tell us more about your background and how the two of you started working and investing together?
Alex Seaver (AS): When I graduated from undergrad at Harvard in 1982, I went to work in M&A and Corporate Finance at Goldman Sachs, a program that was still a novelty. There were six of us in the program and there were two or three the year before. The program grew exponentially when they realized that slave labor was a valuable resource. It turned out to be a great win-win for everybody. We were knuckleheads out of college, quickly learning the lingo and working on interesting deals. Back then, Goldman was a very small firm; it was a partnership and had a very collegial atmosphere. I had an opportunity to stay there beyond the analyst program to be a “lifer.” As much as I loved the people I worked with there, it wasn’t what I wanted to do, so I applied to business school and decided to attend Stanford.
I attended Stanford GSB in the mid-1980s, so it was a very interesting time for venture capital and technology out there. In spite of what was probably a natural orientation to value investing, I was enamored with the venture capital industry, but I didn’t know how to break into it. As a finance guy in the land of electrical engineers, I thought I had absolutely no qualifications and, at least back then, it felt as though you really did need an engineering background. I made a decision to try to back into venture capital a different way and at the time there were several, very successful, Silicon-Valley-focused merchant banks, with both investment banking and principal investing operations, such as Hambrecht & Quist, Robertson Stevens, and Alex Brown. These merchant banks catered to the emerging growth companies of Silicon Valley, but they also took advantage of the proximity and relationships to deploy capital. H&Q in particular had a pretty big venture operation, with over $500mm of capital. Back then that was a lot of money, especially in venture capital. I went to Hambrecht & Quist and made a deal to spend some time in investment banking, because I had some training at Goldman Sachs, before ultimately moving into the venture investing business there. I also made the best decision of my life in 1986 and married my classmate and love of my life for thirty years, Christine. I’m not