Bernard Horn: Traveling the World to Uncover Value: Finding the Best Values in the World … Anywhere

Bernard Horn photo

Note to readers: I am writing all these posts very informally. I have found that readers like this the best, and it enables me to take the most notes possible and get them up in real time. I will be updating the presentations in real time, and tweeting, so make sure to check back frequently or on TwitterFacebook or Feedburner. Also you can check out this website announcement Value Investing Congress Website Announcement.

All notes are the speakers, except words in the brackets which are mine.

Bernard R. Horn Jr. is president and founder of Polaris Capital Management, LLC, a $4 billion Boston-based investment firm. Mr. Horn developed the firm’s global value philosophy and process nearly three decades ago. Polaris follows a disciplined investment process using a combination of proprietary investment technology and traditional fundamental research to identify the most undervalued companies worldwide. Mr. Horn’s 27-year track record exceeds most current competitors and has produced admirable risk-adjusted returns since 1984. An industry forerunner, he is frequently profiled in nationally-recognized media outlets. Mr. Horn is a graduate of Northeastern University (1978) with a B.S. in business administration and holds a master’s of science degree in management from the Alfred P. Sloan School of Management at M.I.T.

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Polaris is a global equity firm, we managed full fund not SMAs, and I have almost all my personal assets invested in the company. We run some mfs, but our flagship fund is Polaris.

Our investment process is about 115 slides. But here are the main points:

Cash is best metics especially since we invest all over the world. We use DCF models on companies.

We want three things in value stocks:

Base return-6% real historic return on equities

We want 2% return over the base rate.

But we also have FX risk. We now have over 100 countries to invest in. We cant forecast exchange rates in 100 countries. Fixed income markets are very efficient. So we take 10 yr Govt. bond yield of country and add that to our discount rate. Brazil has about 5.5% real return. So there should be about a 5% devaluation when converting, so its not worth looking for that type of return.

We are completely agnostic about which specific countries, which we invest in.

We have a global universe of 32,000 companies.

We first look at OCF-maintenance capex, a few other metrics such as market cap above 50m. We are left with 1,900 companies, the last time we had so many companies on our screen was in 2008 after the crash.

The screener mostly reveals companies in Japan and America.

We want to beat the market with a lower than market risk. We look at beta for our risk management.

Here are some of our defensive companies:

I first want to say that the markets we are in is normal, with 22% standard deviation. The period from 94-2007 was abnormal where the market had a massive boom.

We have emerging countries pushing up the price of goods, but in the developed world countries are having a hard time pushing up prices. Over time the emerging world is going to catch up. Our standard of living might actually decline to help reach equilibrium.

My first company is Nichirei (the 6th biggest food manufacturer in the world).

Wall Street often mistakes real returns with nominal returns.

So we look at pricing power and whether companies can raise prices above inflation. In Japan every year the prices of goods are going down. So you need to be increasing volume to compensate.  I ask CEOs how will you manage your company if there are years of deflation? They look at me like I am crazy.

Nichirei has doubled net income over the past nine years. Debt has been reduced by 25%, and total assets have risen. This company is battling deflation, but have a dominant share, and have a lot of frozen and refrigerated goods, since Japan has very little arable land.

There are a lot of risks, such as overcapacity. They are building new facilities when others dont have the cash to due it.

Aging demographics is a concern, as their diets will change.


Is a methanol producer. We are very conservative with our financial models.

Trevi is an Italian company. They produce machines, which they sell. They also use the machines to do some specialized construction like in areas with a lot of water. they have done some work on the World Trade Center. They have a FCF yield of 15%. They trade like they do residential construction even though their business is unrelated.

They also do some work with oil rigs. They drill faster and longer. They are selling out of all their equipment for drilling.

Smurfit Kappa- makes some packing materials. They have been able to put through some price increases. All their machines are Green, but China is in need for materials, so their prices for raw material (“green goods”) has gone up. But there is a lag in terms of price increases versus raw material costs. cost versus They also have some leverage, although net debt is not high compared to total assets.


They are premier builder of housing in russia, also lots of construction in Finland. 13x FCF yield, new growing business in America.

Ameris Bancorp

We like community banks. This is in the weak South Georgia housing market.  It has lower FDIC premiums.

P/TBV is 0.94%. Risks are lower loan growth.

Brazil? We have some companies in Brazil, there is tremendous growth. Our discount rate is 13-14% due to the 5.5% bond discount mentioned earlier. So that has limited our exposure. But we think the economy is growing and Petrobras’ spending should help companies involved with their growth.

South East Asia? We have been focusing on Japan mostly. But we see some companies in Taiwan, and South Korea.

Are you still bullish on Carters? It is more of a defensive name. If you look at their margins, it is remarkably stable.

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