Business

NYSSA Ben Graham Annual Conference In-Depth Notes: Richard Pzena

The NYSSA Ben Graham annual conference which took place yesterday on Wed June 27th 2018 in New York stay tuned for much more. Right now we have about 30 pages of notes from the full day conference featuring Rich Pzena, Murray Stahl,Thomas A. Russo, Jason KarpChristopher C. Davis, Jim Grant and many others.

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Richard Pzena
Image source: CNBC

We would like to thank the conference for partnering with us and we were happy to be their marketing sponsors.

Ben Graham Conference - Richard Pzena and Sam Suzuki

  • Dedication to research
  • Systematic way of figuring what is cheap and expensive
  • Risk control à implemented in ways that don’t make sense
  • Risk as tracking error, volatility doesn’t make sense
  • Risk à probability and magnitude of loss
  • How do you succeed as a value investor in a disruptive world?
  • Disruption is creating the gap in valuation
  • People focus on disruptors
  • Figure out the ones being targeted as disrupted and see if they have a business to withstand and has a good business
  • Deep value à lots of uncertainty
  • The existing franchises that are being targeted and valued at 100 percent of not making it through the disruption à but it is very difficult to destroy the existing franchise
  • The new tech is being sold to bolster existing franchises rather than try to oust them
  • Amazon entering prescription à but the distribution market is highly efficient and high barriers to entry
  • Not that easy for amazon to get into it, but most importantly the ones being disrupted priced at levels showing they will decline in growth
  • Expose yourself to skewed outcomes, you don’t lose much or make a lot
  • What are the biggest risks
  • To get good returns, you have to take risks
  • Holy grail à buy a good company at low price (never found one)
  • We define it the same way
  • Good businesses don’t sell at low price, must accept one or a few risks to buy at low price
  • How do you avoid a value trap
  • The mere act of trying to avoid a value trap prevents from being a value investor because you just don’t know what a value trap is
  • Very difficult to accept that you will be wrong 60% of time
  • What really creates risk
  • The biggest risk that you shouldn’t take à excessively levered balance sheet
  • Messes arithmetic of skewed outcome
  • Quant investing, use of AI
  • Your thoughts
  • Value is not a factor
  • Low price to book is a factor, low P/E
  • Value is a philosophy
  • Common sense is required
  • Is it difficult to add alpha
  • No
  • Market infatuated, permeates thinking
  • Hard to achieve because market conditions
  • Your thoughts on culture, for running your investment company
  • When your value and you go to work, it is more fun
  • If you want people to like work, listen to them
  • PM, and computers don’t really add value
  • The ones doing the analysis add value, listen to what they say
  • The one who has info and knowledge is where the value is
  • When you look to hire, what do you look for
  • Just analysts, look for pure analytical ability (test for)
  • Analytical is innate
  • 2nd need to have a lot of curiosity, want to know why it works
  • Other skills: ability to get people to talk to you and ability to get information (rare to get analytical and get people to talk)
  • No to cryptoassets
  • Money and monetary policy is hard to understand
  • I don’t know but I have a skewed outcome, difficult to distinguish
  • Approach to building positions
  • Deterioration in business, never a good idea to buy
  • But if business turns around, miss the boat
  • Rare for business to turn around
  • No earnings visibility, I don’t know what is going to happen
  • Buy when it is uncertain but no sign of deterioration

Read the full article here.