MOI Global | The Membership Community of Intelligent Investors

Key Learnings of 2017

February 26, 2018 in Asia, Asian Investing Summit, Letters

This article is authored by MOI Global instructor Rajeev Agrawal, chief executive officer and portfolio manager of DoorDarshi Value Advisors. Rajeev is an instructor at Asian Investing Summit 2018, the fully online conference featuring more than thirty expert instructors from the MOI Global membership community.

We approach this [article] with the mindset best elucidated by Charlie Munger’s speech in 2007 to USC Law School, “Wisdom acquisition is a moral duty. It’s not something you do just to advance in life. As a corollary to that proposition which is very important, it means that you are hooked for lifetime learning. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know.”

Below are some of the key lessons that we learnt / re-learnt in 2017.

Importance of Management

Management makes a big difference in how an investment thesis plays out. We have been aware of the importance and have increasingly gravitated towards investing in companies where we are comfortable with management.

Once in a while though, an idea looks compelling enough, industry looks ripe for this new idea and company’s recent business performance makes the narrative compelling. However, there is this nagging feeling about the management. Our (re)learning from 2017 is to not get involved if there is discomfort with management.

The mea culpa we are talking about is Pincon Spirits. If you have not heard about it, don’t worry. We also wish we never heard about it. Company talked about how they are converting unorganized liquor business to organized liquor business, the massive opportunity as newer generation is more comfortable drinking openly and so on. The narrative was perfect. However, there were always open questions about management.

We sold our starter position in the company once it came under the scanner of SEBI as a shell company. Subsequent events have confirmed to us that it was the right decision. The saving grace in this ordeal was that the position was a very small position. We were still doing early research to get comfortable with the idea when we hit the pothole.

Don’t take profits too quickly

There is an adage on Wall street, “You can’t go broke taking small profits.” However, following this strategy could cause one to miss out on big profits. In 2017 we got our first 10X since we started focusing on Indian equity markets.

Stock in question is Chaman Lal Setia Exports (CLSE). We had presented a case study on CLSE in Asian Investing Summit in April 2017. Access the case study. If any of the investors would have an interest, we would be happy to forward the copy of the presentation.

In the case study we outlined that CLSE has a very long runway and on a conservative basis the stock could more than double by June 2020 from its April 2017 price. Since our presentation in April 2017 stock has already gone up by 70%. Thus staying invested when we have conviction and not booking small profits is a key to making good returns.

Attractiveness of an idea should reflect in its allocation

We have been using our proprietary forward return analysis framework to evaluate attractiveness of the various ideas in our portfolio. The more attractive an idea is on a probability adjusted basis, the more of the portfolio we are allocating to the idea.

The result of this strategy has been higher allocation to higher return ideas. While the returns don’t show up on a yearly basis, over a longer period this approach has worked well for us. We used this approach to take the fifth largest position in the portfolio in 2016 and made it the largest position in the portfolio in 2017. In subsequent annual letters we will keep you updated on how this position works out.

Work with the “right” investors / partners

We like to work with investors who demonstrate the following characteristics:

  • Long-term orientation
  • Reasonable expectations
  • Understand our investment approach
  • Recognize that we will make mistakes from time to time

We couldn’t be happier with our investor base. The key demonstration of this came when we reached out to them acknowledging the mea culpa with Pincon Spirits. Everyone who had the position understood why we are changing our stance and appreciated our approach of dealing with it.

Given the happy experience, I am encouraged to re-iterate our investment principles so that we and our investors continue to be aligned.

Investment Principles

Investment principles listed below are the North Star that helps guide our approach to investing. At DoorDarshi we have been heavily influenced by Warren Buffett and Charlie Munger. Naturally we have borrowed heavily from what they have taught us. These principles are also available on our home page at http://doordarshiadvisors.com

1. Partnership

My approach towards my investors is that of a partnership. In the current setup I am the Managing Partner while my investors are the limited partners. However, my key consideration is always to ensure that structure (fees, communication) would be acceptable to me if our roles were to be reversed. This principle borrows heavily from what Warren Buffett has laid out in his Owner’s Manual – “Though our form is corporate our approach is partnership.”

2. Long-Term Orientation

In a world where everyone has all the information, we have to stake out our competitive advantage. The key one that we have is long-term orientation. We primarily invest in companies where the thesis may play out over many years. This reduces the competition and allows us to enjoy our returns over the long-term.

We carry the same approach when we work with our investors/partners. We would rather have one investor for ten years rather than twenty investors for one year. This allows us to take long-term view in our relationship with our investors.

3. Invest in our best ideas

We invest majority of the portfolio in the top 5–10 positions. These positions are chosen based on their attractiveness from a future return perspective. In following this approach we subscribe to Charlie Munger’s dictum in spirit, “A well-diversified portfolio needs just our stocks.” Key advantage of this approach is that it allows us to know our top positions better than most people and take advantage of the decent returns that will come from those positions.

4. Contrarian Bias

We like to buy good stocks when they sell at a discount. This approach, by definition, forces us to go where the crowd is not going – selling things which are going up and buying things which are falling. We are able to have this contrarian bias because we always keep the forward return in mind whenever we invest in any security i.e. what % return we expect from the security from the day of investing to the day the price will match the value.

However, we are not contrarian for sake of being contrarian. We will sell the stock even if it is falling, if we feel that some new information has changed our thesis. This is what led us to sell Pincon even though the price fell.

5. Don’t lose money

We take seriously the dictum that the art of making money is to not lose money. Warren Buffett has expressed the same through his famous rules on investing. There is the simple maths that if we lose 50% of our portfolio we need to make 100% to get even. The more pernicious impact though, is psychological. We start doubting ourselves a little more; we don’t invest in our best ideas to the extent we should and we start looking for social proof.

To guard ourselves we ask for a high Margin of Safety in our position. This has led us to miss many opportunities. However, we will rather miss opportunities than get into sub-par opportunities which could later turn out to be value traps.

6. Management and Business Quality

Most of the mistakes we have made in our investing journey have been where we misjudged management or business quality of the company. Since many of the Indian businesses are owner operated, quality of the management becomes paramount. However, judging the quality of management is very subjective.

The best we have been able to do is to create mosaic of information about management and use that to reach our decision. We continue to increase the weightage of this element as we consider investing in potential ideas.

7. Continuous Learning

To us Value Investing is more than an investment approach; it is a way of life. This approach requires us to keep learning so that we become a better investor; but more importantly, a better human being. In our experience Value investing draws us towards the “right crowd.” This allows us to learn not just from our investment but also from our investors who are a self-selected group of individuals.

download printable version

Ray Dalio on Pursuing Truth in the Global Economy

February 23, 2018 in Curated, Full Video, Interviews

The following conversation between Ray Dalio, founder of Bridgewater Associates, and Larry Summers, professor at Harvard University, took place at the Harvard Kennedy School’s Institute of Politics in February 2018.

About Ray and Larry:

In 1975, Ray Dalio founded an investment firm, Bridgewater Associates, out of his two-bedroom apartment in New York City. Over forty years later, Bridgewater has grown into the fifth most important private company in the United States, according to Fortunemagazine, and Dalio himself has been named to Time magazine’s list of the 100 most influential people in the world. Along the way, Dalio discovered a set of unique principles that have led to Bridgewater’s exceptionally effective culture, which he describes as “an idea meritocracy that strives to achieve meaningful work and meaningful relationships through radical transparency.” It is these principles, and not anything special about Dalio—who grew up an ordinary kid in a middle-class Long Island neighborhood—that he believes are the reason behind his success.

Lawrence H. Summers is President Emeritus of Harvard University. During the past two decades he has served in a series of senior policy positions, including Vice President of development economics and chief economist of the World Bank, Undersecretary of the Treasury for International Affairs, Director of the National Economic Council for the Obama Administration from 2009 to 2011, and Secretary of the Treasury of the United States, from 1999 to 2001. He received a bachelor of science degree from the Massachusetts Institute of Technology in 1975 and was awarded a Ph.D. from Harvard in 1982. In 1983, he became one of the youngest individuals in recent history to be named as a tenured member of the Harvard University faculty. In 1987 Mr. Summers became the first social scientist ever to receive the annual Alan T. Waterman Award of the National Science Foundation (NSF) and in 1993, he was awarded the John Bates Clark Medal, given every two years to the outstanding American economist under the age of 40. He is currently the Charles W. Eliot University Professor at Harvard University and directs the University’s Mossavar-Rahmani Center for Business and Government. He and his wife Elisa New, a professor of English at Harvard, reside in Brookline with their six children.

Impressions from Ideaweek St. Moritz 2018

February 21, 2018 in Diary, Featured, Ideaweek

The following update is shared by John Mihaljevic, chairman of MOI Global, with input from selected Ideaweek 2018 participants.

I just returned from Ideaweek 2018 and would like to share a few impressions while they are fresh in my mind. The gratitude I feel at having spent a week with fellow members and friends is immense. Those who participated in this inaugural Ideaweek would likely agree that the calibre and mindset of fellow participants made the time spent in St. Moritz absolutely priceless.

In the following impressions, I will single out a few participants simply because it would take too long to reflect on everyone and every single interaction. This is inherently unfair, as Ideaweek truly benefited from all participants, and so I hope you’ll forgive me for my brevity.

First, I’d like to thank Bob and Su Robotti for joining the group and contributing their wisdom and zest for life. The various ski and non-ski activities were enriched by their presence and humor.

During one of the dinners, Bob lamented that some consider puns to be the lowest form of humor. Bob and I vociferously disagreed with that view and proceeded to share a few laughs. I don’t remember the specifics, but it was along the lines of, “eBay is so useless. I tried to look up lighters and all they had was 13,749 matches.” You get the idea. (If not, you probably would after a week at Ideaweek.)

A highlight for me — and probably many others — were the couple of hours spent with Bob discussing his path as an investor, his investment philosophy, and his principled way of building a highly successful, market-beating investment firm over a period of decades. See a compendium of Bob’s insights, shared with fellow participants ahead of Ideaweek.

While enjoying afternoon tea and the view at the incomparable Badrutt’s Palace, Ideaweek participants learned about Bob’s approach to identifying compelling investment ideas among cyclicals in general and oil service companies in particular. Bob touched on his investment theses for Subsea 7 (Oslo: SUBC) and SEACOR Marine (NYSE: SMHI), explaining why these two companies remain undervalued, in his view, and why their future value depends more on sustained drilling activity than the absolute level of oil and gas prices.

Bob’s modesty and self-deprecating style belie his incredible long-term success as an investor, but that day at Badrutt’s Palace it was clear to everyone that such wisdom is only available to someone who has had the kinds of experiences Bob has had over the years — and has reflected on them in order to draw lessons for the future.

Highly engaged in the discussion with Bob was fellow superinvestor Guy Spier, CEO of Aquamarine Capital. Guy shared his perspectives on the energy industry and the battle between fossil fuels and alternative energy sources. See a compendium of Guy’s insights.

Another highlight was a group discussion with Daniel Gladis, CEO of Vltava Fund, based in the Czech Republic. See a compendium of Daniel’s insights.

Daniel provided fascinating context to his personal path as an investor, reflecting on growing up in a communist country, founding a brokerage firm after communism fell (Daniel’s firm became the largest in the Czech Republic), meeting value investors like Seth Klarman in the process, and deciding to become an investor himself. In addition to delving into various aspects of his investment philosophy and process, Daniel touched on his investment thesis on BMW (Germany: BMW). The German automaker is a bargain “hiding in plain sight”, as the well-known company’s shares appear to be quoted well below a sum-of-the-parts estimate of value, which includes a substantial net cash position.

Daniel also reflected on the topic of “attracting the right clients” for his investment business. I had the pleasure of delving deep into this topic with Daniel during the following podcast conversation:

Ideaweek participants broadened their horizons during a fascinating discussion with Peter Platzer, founder and CEO of space technology startup Spire, which has launched more than fifty microsatellites into space, collecting highly proprietary data used in shipping, logistics, weather forecasting, and many other applications.

While consumers view weather-related information as widely available and free (thanks to websites like weather.com), highly reliable weather forecasting on a truly global scale is possible almost exclusively through Spire. This is significant, as perfect weather forecasting would increase annual global GDP growth by as much as three percentage points, roughly doubling the current rate of GDP growth.

Especially fascinating to me was the interaction that developed between Peter and fellow participants during the tea-time discussion at Badrutt’s Palace. Peter candidly reflected on the challenges of a business leader who has succeeded in raising some $150 million of venture capital but faces two big challenges: staying ahead of the competition and scaling a high-performing organization. Peter later told me that the insights of fellow participants — including a family office investor whose parents founded and scaled a business to 23,000 employees — opened his mind to new ideas and approaches.

Saahill Desai shared the investment approach of his family office, including his manager selection criteria. Saahill looks for managers who possess a well-defined investment process with a focus that provides them with a clear competitive advantage.

I had the pleasure of recording a conversation with Saahill in advance of Ideaweek:

An interesting side note during the conversation was a point someone made on Facebook (Nasdaq: FB). The latter is perhaps the only large public company that appears to fundamentally misportray the nature of its business. While management insists that Facebook connects the world by connecting people, the core of the business may relate more to collecting personal information in order to sell marketing services to advertisers. In that sense, Facebook users are the product, not the customer. This point is hardly novel, but the fact that management appears to steer clear of it in favor of a more altruistic story — even when addressing investor audiences — bears note.

Participants gained a differentiated perspective into value investing in India thanks to a Q&A session with Soumil Zaveri, partner at his Mumbai-based family investment office, DMZ Partners. Soumil reflected on the evolution of India’s economy and capital markets, touching in particular on the financial sector. Soumil has previously presented on Capital First (NSE: CAPF) and written about compounding machines among financials in India.

I’m grateful to Soumil for leaving me with the following book:

Fellow Ideaweek participant Sanjay Voleti, a private investor from Newport Beach, California, raised the issue of sustainability with the group, proposing Yvon Chouinard’s Patagonia as a model worth studying. Sanjay recommended Yvon’s books The Responsible Company and Let My People Go Surfing.

During a bowling session at the historic alley of Hotel Kronenhof in nearby Pontresina, a fellow participant from Saudi Arabia, Abdulaziz Alsalim, shared a fascinating perspective on recent political and economic developments in Saudi Arabia. That country is undergoing perhaps the most significant change in decades. Having an opportunity to get an “on the ground” take from a trusted source was priceless. I especially enjoyed Aziz’s thoughts on Saudi Aramco, the world’s largest oil and gas company by revenue ($455 billion). Aramco’s pending IPO should create the world’s most valuable public company.

Aziz has shared with me a couple of his impressions from Ideaweek: “I enjoyed learning how different fund managers are establishing an investment process. For example, when [a participant] told me he refused to accept money from outside investors for the first couple of years, I thought it was to build a track record but he said that was not his goal. He wanted to take his time to build a process that will produce consistent returns over a longer time period. I also enjoyed pitching an investment idea to Bob Robotti over dinner and doing a ‘pre-mortem’ analysis.”

Anuj Didwania, head of Mumbai-based Redart Capital Advisors, shares the following conversation: “At the dinner at the Kempinski, [three fellow participants] and I had a very interesting discussion on mentoring. That morning, I reflected on the slopes how one can hire a teacher/mentor to vastly accelerate one’s learning in snowboarding. In fact, in almost all endeavors, at a certain price, a good mentor can be hired to vastly improve one’s skill. We discussed that in investing, sadly, mentors are not available at any price (and if they are, they are probably not worth the money). As the feedback loops in terms of the time it takes to learn from one’s mistakes are so long (sometimes years), learning is a slow process. If only one could have a good mentor, much time and money could be saved by avoiding mistakes. Alas, investing does not allow for accelerated learning — the ‘devil’ must be paid its due in losses, tears, and the painful acceptance of the complexity of reality.”

Informal discussions over breakfast touched on ideas, worldly wisdom, and challenges facing participants in their investment businesses. An interesting debate ensued on the topic of an investment manager’s fee structure. From a client’s perspective, is it optimal for a manager to be compensated exclusively based on performance, or does a management fee make sense as a way of “keeping the lights on” and disincentivizing the manager from “gambling behavior”, especially following a period of underperformance?

Txomin Zaratiegui, portfolio manager at Arlas Advisors, explained his rationale for a Buffett Partnership-style fee structure. Txomin is a highly successful private equity investor who is in the process of launching a public equity investment vehicle based in Geneva.

Isaac Schwartz, portfolio manager at Robotti & Company, and Omar Musa, managing partner of Perea Capital, shared their insights into the economics of food delivery and restaurant takeout businesses such as GrubHub (NYSE: GRUB). Isaac and Omar elaborated on the scalability and margin potential of such businesses, while addressing concerns around their impact on the long-term viability of restaurant business models. I found Isaac and Omar’s research into food delivery businesses in Eastern Europe particularly interesting.

Omar “enjoyed speaking with Daniel Gladis about his use of options. Many value investors deride derivatives by parroting Buffett’s comment that they are ‘weapons of mass destruction,’ while ignoring that Buffett himself has made extensive use of them. Daniel has utilized options to his advantage through the same lens of value investing that he has successfully applied to equities.”

Omar also “enjoyed listening to Christopher Detweiler explain in simple terms the mechanics of cryptocurrencies. While most other people I have spoken to have either offered buzzwords or ideologies, Christopher was able to explain the actual mechanics of how bitcoin works — a result of his extensive research in the field. As a corollary to the discussion, I was reminded of the various approaches to successful investing — from the Buffett approach of avoiding bubbles to the Soros approach of profiting from them (my preference/ability is the former).”

The Ovaverva bath and spa provided an inspiring scene for discussions while unwinding after a morning of skiing or other outdoor activities. I greatly enjoyed my conversations with Abdallah Toutoungi, chief capital allocator of Cordoba Fund, based in Ghana. While living in the U.S., Abdallah was a student of one of Bruce Lee’s best friend, Taky Kimura. This and other experiences have made Abdallah a wonderful influence and source of positive energy. I have learned about cognitive biases from Abdallah, a subject he has studied extensively and teaches in Accra.

Here’s how Abdallah sums up his experience at Ideaweek: “There’s something to be said about the caliber of influencers present in St. Moritz. The organic conversations allow for deep reflection on ideas and intimate discussions about business, life, and wisdom. Essentially, as John put it emulating Munger, ‘We try to operate in a seamless web of deserved trust and be careful whom we trust.’ Although that might be the ultimate goal, MOI Global has been able to ‘carve the mountains’ to create an environment fertile for exceptional people to have candid conversations where you can understand the significance of the Chinese proverb, ‘A single conversation with a wise person is worth a month’s study of books.'”

“Time disappears behind the mountains and the conversation takes its place, breakfasts merge with lunches, and lunches with afternoon talks, and afternoon talks with dinners. Awaiting the morning, the night becomes too long and the morning can’t come fast enough to continue the conversations. These conversations span subjects ranging broad and deep, from specific investments to sharing of best practices to operating a business to personal anecdotes and challenges.” (I could not have said it better!)

Listen to our podcast conversation on Dan Ariely’s behavioral economics:

Value investor Mallika Paulraj from London, author of the wonderful blog Four Minute Investing, shares this assessment: “The informal and non-investing idea pitch format of Ideaweek meant that people immediately relaxed into sharing and chatting. I appreciated that there were several deep thinkers in the group who question the very nature of our investment management industry as well as innovative and courageous entrepreneurs, who are an inspiration to me. The usual hit rate of meeting a very interesting person at an investing conference is 10%. At Ideaweek it was a 100%.”

Adds John Lambert, “One of the strongest impressions for me was the sheer diversity of the group — sitting at dinner with a person from Ghana, India, Spain, and Germany simultaneously! This is quite a melting pot you have created, and always leads to fascinating discussions and ideas.”

Robert Leitz, managing director of Iolite Partners, sums up his impressions: “Beautiful setting, great skiing, plenty of inspiring and humbling conversations with thought leaders in the world of intelligent investing. For me, the tea conversations at Badrutt’s Palace were the highlight of Ideaweek 2018. It was humbling and encouraging to learn first-hand from some incredibly accomplished entrepreneurs and fund managers. Most people are focused on outcome – and fail to see the story behind the story. Ideaweek taught me yet again the importance of hard work, endurance, and of having an open mind.”

Txomin shares the following takeaways (slightly condensed): “One powerful reason to save the date for Ideaweek 2019 [February 4-8] is that on those days I’ll have some of the most interesting casual conversations of the year. Investing is a lonely profession. We spend time reading about industries and companies. I don’t have many occasions on which to meet such a group of outstanding investors and professionals. As a winter sports lover, I can’t think of a better format than Ideaweek.”

“I was continuously surprised by the openness, breath of expertise, and genuine interest of all Ideaweek participants. Amazing conversations happened at unexpected moments, ranging from an early breakfast, a walk to the next event, or just sharing a coffee in the afternoon.”

“I enjoyed speaking to Sanjay Voleti, whose insights into our life choices as investors were a mirror in which each of us could be reflected. He makes conscious choices on what makes him happy and builds his life around habits and people he loves. These insights were personal and sharp bites of condensed wisdom, just as dessert was coming to our table in a contemporary Swiss restaurant.”

“I also enjoyed meeting Edwin de Bruijn. He is a finance professional who worked for Morgan Stanley and now invests in brand-driven companies. His life trajectory is different from mine (aeronautics engineer with a pilot’s license, worked in wealth management at large banks), but we ended up sharing a passion for winter sports, stock picking, and setting the same kind of fund structure (Dutch FGR). It’s good to see how, confronted with similar choices, fellow investors follow similar paths to building a great investment business.”

“And, of course, there was time to discuss investment ideas! Robert Leitz and I had an interesting conversation on lottery businesses in different geographies. Charles Hoeveler shared best practices for shorting stocks. Omar Musa surprised me with insightful comments on Spanish public companies. Isaac Schwartz is just a walking encyclopedia on best practices related to investing in emerging markets.”

Last but certainly not least are the wonderful conversations I had with long-time friend Jeffrey Hamm. Jeff is among the most authentic, generous, caring people I know. He consistently broadens my horizons. Jeff, who serves as co-portfolio manager and senior analyst with van Biema Value Partners, added to a number of informal Ideaweek discussions focused on building a great investment firm, bringing his multi-year experience identifying and assessing fund managers to the table. On a more personal level, Jeff helped me think through some entrepreneurial challenges, for which I am grateful.

My hope for the future of Ideaweek is for similarly strong bonds to develop among fellow participants as I have been fortunate to develop with Jeff.

download printable version

Here’s to a terrific year and to seeing you (hopefully) at Ideaweek 2019!

AIG: World-Class CEO, Accretive Capital Deployment, and Multi-Year ROE Recovery

February 21, 2018 in Deep Value, Equities, Financials, Ideas, Large Cap, Letters, North America, Special Situations

This article by Jake Rosser is excerpted from a letter of Coho Capital Management.

Despite the rise in the markets, we continue to find value amongst the discarded, disdained and misunderstood. We detail one of our most recent purchases below:

We established a significant position in AIG warrants during the fourth quarter. This is the second time we have acquired shares of AIG, having sold our previously held shares in late 2012. We wrote about our decision to dispose of those shares in our 2013 letter:

“We fully exited our position in AIG during the fourth quarter, registering a gain of 28%. As detailed in last year’s annual letter, our thesis on AIG was premised upon the company achieving a double digit return on equity (ROE) through a rationalization of its complex web of assets and more disciplined underwriting. A key component of that thesis was dislodged in November when AIG suspended its guidance for a 10% plus ROE by 2015. AIG’s 10%+ ROE target has been outlined in SEC documents and been a key guidepost in communications with investors since the company’s re-IPO process in 2011. We can only conclude that AIG is no longer confident of achieving its goals.”

Our logic for selling was sound. AIG has continued to log uninspiring returns on equity and report dismal underwriting results. As is often the case at insurance companies with poor underwriting, AIG has been haunted by sins of the past. A cavalier attitude toward risk under former CEO Maurice Greenberg led to serial under-reserving. Investors had hoped the tide would turn when CEO Peter Hancock took over the helm in 2014, but reserve charges have continued. Most troubling was the fact that AIG was releasing reserves on more recent vintages, indicating the company’s risk management practices were no longer just a stain on Mr. Greenburg’s legacy but deficient under Hancock as well.

AIG’s elevated claims costs have been a significant detriment to growth in shareholder value in recent years, but future visibility has improved considerably due to a transaction with Berkshire to take on AIG’s insurance liabilities. Under the terms of the deal, struck last year, AIG paid Berkshire $10.2 billion to absorb 80% of future losses on policies written for accident years through 2015. This is a watershed event for AIG as it allows the company to focus on the future and limits investors from downside scenarios.

Insurance for Your Insurance Investment

Former CEO, Peter Hancock, stepped down in May of last year and was succeeded by industry veteran Brian Duperreault. Mr. Duperreault is a rock-star CEO, known for his turn-around skills and cultivation of an Esprit de Corps culture in the firms he has led. After spending two decades at AIG, Duperreault was tapped to lead ACE Limited (now Chubb), originally a niche insurer with one product. Under Duperreault’s leadership ACE transformed into a best of breed property and casualty operator with industry-leading combined ratios (9 points better than industry peers).

In 2008 Duperreault took over the insurance broker, Marsh & McLennan, after the company’s sales collapsed in the wake of a bid rigging scandal uncovered by former New York Attorney General Eliot Spitzer. Duperreault was able to stabilize the company during regulatory investigations, and despite taking over during the nadir of the credit apocalypse, was able to improve margins by 6% and boost profitability.

Shareholders at both ACE and Marsh & McLennan were handsomely rewarded during Duperreault’s tenure. During his decade at ACE, shareholders realized a more than fivefold return, outperforming the S&P 500 by 270%. Similarly, while presiding over Marsh & McLennan, Duperreault was able to move the company from defense to offense, while outperforming the S&P by 22%.

While Hancock failed to reverse AIG’s record of poor underwriting, he did manage to shrink the firm to a more profitable base, taking out $1.5 billion in annual expenses. In addition, he made highly accretive stock repurchases (since the stock was trading well below book value). From 2016 until the third quarter of 2017, AIG purchased $18.1 billion worth of its stock, equivalent to 31% of its current market cap. The pared down cost structure and reduced share count should magnify any operational improvements made by Duperreault in ensuing years.

The Path Forward

Hancock’s cost cutting moves have reduced corporate bloat but perhaps went too far, sparking a wave of attrition in recent years and a lingering morale problem. We suspect the talent drain, along with a rudderless culture, were primary inputs into undisciplined underwriting. We expect a cultural reset under Duperreault will bolster morale and enhance recruitment of industry talent. On that note, we are happy to report AIG is now poaching talent from Berkshire rather than the other way around, having recently hired 25-year Berkshire veteran Tom Bolt as its Chief Underwriting Officer. With Mr. Bolt in charge of underwriting, we expect a stewardship approach to pricing insurance risk and a firm pivot to placing profits ahead of growth.

Duperreault’s tenure at Marsh & McLennan, provides a useful template on how he might approach rebuilding AIG’s competitiveness. Just as he did at Marsh & McLennan, we expect Duperreault to first capitalize on AIG’s areas of strength. While AIG does not possess a moat, it does maintain some advantages over competitors. For example, the company’s global reach and multi-product line portfolio make it one of the few firms capable of servicing large corporate clients. Duperreault has been vocal about his desire to fully leverage AIG’s multi-line capabilities to spur organic growth. Duperreault is well-versed on AIG’s strengths having spent 22 years at the firm and at one time having been considered the heir apparent to Hank Greenberg.

Unlike Hancock, who tried to shrink AIG to prosperity, Duperreault is focused on growth. Mr. Duperreault compiled a savvy track record for capital allocation at ACE and Marsh & McLennan and has indicated that acquisitions would be a core component of his strategy at AIG as well. As of the drafting of this letter, AIG announced its first major acquisition under Duperreault, acquiring Validus Re, a Bermuda based reinsurer, for $5.6 billion. The acquisition will complement AIG’s product suite by adding reinsurance, as well as distribution on the Lloyd’s of London platform. In addition, the deal is expected to be immediately accretive to EPS and ROE. Most important, Validus is known for its sophisticated risk modeling capabilities as evidenced by its average combined ratio of 87% during the last decade. Such skills will no doubt prove useful in helping AIG better price risk in its underwriting efforts.

A more diverse franchise should lead to higher ROE than AIG’s current heavy reliance on property and casualty insurance. We suspect asset-management, life insurance and international operations will be key areas of focus for AIG’s acquisition pipeline. The company still has plenty of dry power with $7 billion of cash on hand, $6 billion in annual earnings, and approximately $9 billion in debt capacity.

Valuation

AIG warrants have a current strike price of $44.00 and mature in January 2021, giving us three years in which to realize value. Unlike a long-dated call option, AIG’s warrants benefit from anti-dilutive properties, by adjusting the strike price downward for dividends and providing a slight bump in the number of shares receivable. The math is variable but current projections suggest a strike price just under $43.00 at warrant maturity.

With AIG currently trading at $64.68, the warrants, at $22.76, are well in the money and only trade at a 10% premium to the shares despite a three-year horizon for which to realize value. However, if you take into consideration a lower warrant strike price in the future, due to the anti-dilutive provisions, then the premium paid for the warrants drops to 5%.

AIG’s current book value per share, excluding Accumulated Other Comprehensive Income (AOCI), is $74.00. The company should be able to grow its book value in-line with its earnings growth. Prior to suspending financial guidance last year, AIG had guided to a year-end ROE of 9.5%. However, to be conservative, let’s assume AIG only earns a ROE of 7% this year, 8% in 2019, and 9% in 2020.

After adjusting for dividend payouts, this results in a price per share of $89.03. If we assume the market gives AIG no credit for improving ROE and shares still trade at the same discount to tangible book value of .87, then shares should fetch $77.45 by the end of 2020. At warrant expiration, the strike price should be approximately $43.00, yielding a return on the warrants of 51%. Of course, anything can happen, but current pricing affords a comfortable measure of downside support.

In a more optimistic scenario, the return profile is asymmetric. If AIG achieves an 8% ROE in 2018, a 10% ROE in 2019 and 2020, then book value per share grows to $92.47 after adjusting for dividends. If we assume the market is willing to value AIG at the current average P/B value of 1.4X for property and casualty insurers, then AIG’s price per share should reach $129.46. Such a scenario provides a nearly fourfold return on AIG warrants.

Summary

We don’t believe AIG’s issues are structural in nature. The company has retreated from insurance lines where it was not competitive, rightsized its cost structure, and bought back a boatload of shares. The reinsurance deal with Berkshire removes the reserve overhang and future underwriting should be aided by the stewardship of Mr. Duperreault. We expect the combination of a world-class CEO, attractive valuation, accretive capital deployment, and multi-year ROE recovery to translate into substantial gains for holders of AIG warrants. Mr. Duperreault is one of the most accomplished and widely respected CEOs in insurance. We think AIG will be his swan song.

download printable version

Commentary by Jason Zweig

February 21, 2018 in Human Misjudgment Revisited

This article is part of a multi-part series on human misjudgment by Phil Ordway, managing principal of Anabatic Investment Partners.

download printable version

Jason Zweig has been one of the giants of the investment universe for several decades. He was chosen as the editor of the revised edition of Ben Graham’s The Intelligent Investor, and he spent two years working with Danny Kahneman on his book Thinking, Fast and Slow. Zweig is also the author of a long-running column in The Wall Street Journal and he has published in numerous other publications. The archives on his website are a treasure trove of good reading. Even his Twitter feed is a rare harbor of intellectual honesty in the hurricane of noise that defines social media.

Presented below are the comments that Jason was gracious enough to share when I reached out for his help with this project. As I was thinking through this material he naturally came to mind as the obvious source of expertise on the subject, and I’m extremely grateful for his contribution. I can’t improve upon them so everything is presented as he wrote it.

In the spirit of his avoidance of confirmation bias, I actually stopped reading his comments after his third sentence until I was done with my own work on this project.

Please note that Jason included the following warning: “the best researchers in the field would find all kinds of errors and misinterpretations in what I said…To get these things strictly correct, I’d have to re-read all the papers and talk to the authors.”

From: Zweig, Jason [mailto: ]

Sent: Monday, March 27, 2017 2:16 PM

To: Philip C. Ordway <pordway@anabaticllc.com>

Subject: Re: project to update “Psychology of Human Misjudgment”

Phil,

What an interesting idea.

I’m going to reply without reading any of the details in what you sent or re-reading Charlie’s original. It’s best, in this kind of exercise, not to have references handy (to avoid confirmation bias!). So some of what I set down here for you may be redundant or repetitive, but it’s what feels top-of-mind. It will also be unstructured and a bit stream-of-consciousness, although I hope that won’t bother you for this sort of purpose. The numbers are arbitrary and for my convenience, not to imply any sort of ordinal structure; in fact, most of these thoughts are so interrelated that it’s hard to separate the threads from each other.

I like this idea so much that I’m going to write a lot. Whatever you don’t use, I will. Everything is grist for the mill, and this is a fun exercise.

1) People love stories. Danny Kahneman loves to say “Stories trump statistics.” As I’m sure you know, Yuval Noah Harari argues in Sapiens that storytelling is, above all, what makes us human. We not only love stories, we love perceiving stories that might not even be there. In our minds, objects and events acquire propensities, or apparent tendencies from which we believe we can extrapolate the next outcomes. Once you see an animal in a Rorschach blot, you can’t unsee it; the story you instantaneously told yourself is off and running inside your head. Or think of the classic Fritz Heider experiments, in which geometric shapes start to “behave.” Then think of traders saying that a stock “isn’t acting right,” or attributing intentional behavior to an entire market. What, then, turns a bull market into a bear market, or vice versa? The emergence of a new narrative, as Bob Shiller has often pointed out. Part of what makes market timing so difficult is that these narrative shifts can be so swift…

2) … which leads to a related point, that markets seem to behave somewhat like physical systems in a state of self-organized criticality. Piles of sand can grow breathtakingly high and appear to defy all physical logic, until one last grain of sand is added and the whole dune collapses. Physicists don’t yet seem to understand this process fully; likewise, we know very little about the self-organized criticality of emotion. Following along with the crowd feels safer and safer and safer until the whole pile collapses, at which point following along feels terrifying. What determines critical mass in the social psychology of markets? I don’t think we know. Until we do, we all need to recognize that investing with the herd is almost irresistible, offers an illusion of safety, and tends to end in a smash that astounds almost everyone.

3) The halo effect is ubiquitous. Evaluating one aspect of a person, a product, an event, a company, an industry or an idea will inevitably bias your subsequent evaluations of its other aspects. If I rate a CEO’s physical attractiveness, declaring him a 9 out of 10 on the handsomeness scale will prime me to rate him higher, also, on competency, persistence, leadership, financial sophistication, general ability and so forth. By the same token, focusing on a company’s high stock price will lead me to take a rosier view of the underlying business. The human mind likes to iron out inconsistencies. We will intuitively believe that a more handsome CEO is also more competent and that a higher-priced stock signals a better-run company. Here, Danny Kahneman’s idea of structured evaluation, in which a decision-maker assesses each distinctive attribute separately on the same numerical scale, can be very helpful.

4) Positive illusions about ourselves are beneficial for us as people but toxic for us as investors. Overconfidence, unrealistic optimism, the illusion of control — without these qualities, most of us would probably (and quite logically!) spend our lives curled up in a ball in the dark. It’s misunderstanding of or blindness to the laws of probability that gets us through daily life. Given the high rates of failure, who would ever get married or start a business without a kick in the pants from a positive illusion? Without positive illusions, capitalism itself would clank to a halt. But with them, financial capitalism becomes more dangerous as they drive markets to extremes. We are so accustomed to being successfully guided by positive illusions in many aspects of daily life that it is fiendishly difficult to recognize how dangerous they are in investing. One of Peter Bernstein’s wisest aphorisms is, “The most dangerous moment is when you are right.”

5) Perhaps the most pernicious of all cognitive biases is the bias blind spot. I say: “Phil is overconfident; I, however, am well-calibrated. Phil is loss-averse; I am a rational Bayesian. Phil falls prey to the law of small numbers; I rely only on base rates.” Meanwhile, you are thinking exactly the same thing, in reverse. Studying cognitive biases seems to make it much easier to see them in other people, but barely any easier at all to find them in ourselves. It’s been known for more than 40 years that people find it extraordinarily hard to apply research findings to their own behavior; each of us believes we are the exception. Checklists can help here, but you would be blind to the bias blind spot if you thought you could ever cure it completely.

6) Self-serving attributions of success and failure are cognitively corrupting. Tom Gilovich has shown that I will attribute my success to overcoming obstacles, rather than to the many advantages of (for example) living in a liberal democracy — while I will attribute yours to a beneficial environment. My failures are the result of fierce headwinds, while yours came from your inability to rise to the occasion. The old adage that success has many fathers while failures is an orphan seems to be slightly wrong: My success has only one father — me — while yours has many. And my failure has many fathers, while yours has only one: you. Thus we witness portfolio managers blaming their underperformance on unnaturally high correlations or the unfair advantage of index funds. When (as it surely will) their performance turns, they will declare that their alpha came from security selection. Being honest about this requires almost superhuman strength of character.

7) Agency problems are still underrated as a cause of destabilizing behavior among professional investors. Paul Woolley and Dimitri Vayanos have demonstrated that once investors start pulling money from actively managed funds, it is rational for the active managers to chase overvalued stocks. Most clients still don’t understand that their definition of risk and their managers’ definition of risk are drastically different. It’s impossible to quantify how much of Berkshire’s success is attributable to its structure, which effectively minimizes agency conflicts. But Munger and Buffett both think it played a major role. In my opinion, portfolio managers who don’t design their companies, from Day One and the ground up, to minimize agency conflicts are hamstringing their own results before they even invest a dollar.

8) People are terrible affective forecasters. Dan Gilbert and Tim Wilson have written brilliantly about this. We underestimate how long we will feel good about a positive event or outcome. And we overestimate how long we will feel bad about a negative result. We get our predictions of intensity wrong, too. What Gilbert calls “the psychological immune system” seems to work so well because we are generally so unaware we even have one. When our lover jilts us and we say “I’ll never fall in love again,” we mean every word of it — just as the investor who bails at the bottom means it when he says he’ll never buy stocks again. When we do fall in love again or buy stocks again, we can do so only by pretending that we knew we would all along. Fibbing to ourselves about our own past seems to be the natural way to navigate the present. These emotional habits also seem to train us not to be honest in our intellectual life as well. Put another way, our preferences are constructed, not innate. We have a surprisingly poor grasp on what did make us happy, what does make us happy and what will make us happy. So the idea of individuals as rational utility maximizers is silly. As a result, many of the tools that investors rely on — focus groups, survey data and so on — may be unreliable. And the unreliability of affective forecasting helps explain why bear markets so often seem to end in a startling vertical leap: It’s as if investors everywhere suddenly realize they aren’t going to feel as bad as they expected to for as long as they worried they would. And then, it’s off to the races.

9) Much of what keeps us busy all day long is the attempt to minimize cognitive dissonance. Human beings will do almost anything to avert the collision of empirical evidence against their own cherished beliefs. We will tell stories to ourselves and others. We will hold positive illusions. We will overweight confirming evidence, no matter how weak, and ignore disconfirming evidence, no matter how strong. Danny Kahneman calls the human mind a machine for jumping to conclusions. But it is also, I think, a machine for reducing dissonance by keeping stories simple. And one of the simplest and most appealing of all stories is “That Doesn’t Apply to Me…Because I’m Special.”

Add all of this up, and it seems clear to me that I’ve been wrong for many years in saying that the single greatest challenge for investors is to develop self-control. In fact, the single greatest challenge investors face is to see ourselves as we actually are. What makes Warren Buffett and, perhaps even more, Charlie Munger so remarkable is how honest they are about themselves with themselves.

The rest of us can aspire to only a fraction of their level of self-honesty.

*****

“A frequently asked question is, how do you learn to be a great investor? First of all, you have to understand your own nature, said Munger. Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable-and some losses are inevitable-you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy I can give you.” – Charlie Munger[73]

series start series overview

[73] Damn Right! by Janet Lowe

Our Value Investing Course on Udemy

February 19, 2018 in Diary

A few years ago, we put together a quick course on value investing, featuring the wisdom of six great investors of our time — Guy Spier, Mohnish Pabrai, Rupal Bhansali, Howard Marks, Arnold Van Den Berg, and Tom Russo.

The online course website Udemy is having a sale on the course. If you haven’t enrolled yet, check it out!

Merlin Properties: Largest Spanish REIT Equivalent with Large Margin of Safety

February 16, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Deep Value, Equities, Europe, Ideas, Mid Cap, Real Estate, Transcripts

Luis García Alvarez of MAPFRE AM presented his in-depth investment thesis on Merlin Properties (Spain: MRL) at Best Ideas 2018.

Merlin Properties is the largest Spanish SOCIMI, the equivalent of an American REIT, with gross asset value of EUR 10.5 billion. The company has a solid and stable cash flow generation profile, due in part to its size and business line diversification. Stable cash flow should be augmented by operating improvements resulting from “offensive capex”, which should help increase occupancy levels of various assets. The company also benefits from improved management of a portfolio acquired a year ago from Metrovacesa. Luis views the valuation as attractive, offering a significant margin of safety from the recent market price, especially considering the nature of the real estate business and the conservative assumptions embedded in Luis’s numbers.

About the instructor:

Luis García joined MAPFRE AM as an Equity Portfolio Manager in 2015. He had previously worked at Banco Santander as a Market Risk Analyst from 2009 to 2013 and also at BBVA as an Equity Research Analyst from 2013 to 2015. He holds a Bachelor’s degree in Economics from the Francisco de Vitoria University (2002-2007), a Master’s degree in Economics and Finance from CEMFI (2007-2009) and the Value Investing Diploma awarded by the Ben Graham Chair at Richard Ivey School of Business (2016). In 2013, he received the CFA Charterholder designation. Luis is an Associate Professor for the MBA program at Ostelea Business School. Also on the academic side, he has co-authored several papers on the field of finance which he has presented at workshops held at the University of Warsaw, University of Munich, Humboldt University of Berlin, the European Central Bank and the Spanish Finance Association (AEFIN).

Members, log in below to access the full session.

Not a member?

Thank you for your interest.  Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:

Business as Usual

February 16, 2018 in Letters

This post is excerpted from a letter by Jim Roumell, partner and portfolio manager of Roumell Asset Management.

Our 2017 composite returns were accomplished with an average of roughly 40% in cash and cash equivalents. The Roumell Opportunistic Value Fund, RAMSX, returned 18.32% in 2017, building upon the 18.02% gained in 2016. The Fund’s past two years’ returns were also accomplished with an average of about 40% cash and cash equivalents, indicating the strength and meaningful portfolio weightings of our individual security selections. Separately managed account clients should contact us about transferring their accounts into RAMSX given the fund’s generally higher portfolio weightings and its access to certain foreign markets.

We cannot recall a time when we were asked the following question more often, “Why does the market keep going up?” Specifically, we’re often asked why the market doesn’t seem more concerned about the following: a possible nuclear war with North Korea, possible trade wars, the dramatic increase in Federal debt estimated by the CBO as a result of the recently passed tax cut (60% of publicly held US debt matures within the next four years), and the potential implications of the Russian investigation? Add to those concerns an overall stock market level that is quite high by any rational measuring stick. For example, Crescat Capital, using Bloomberg data, recently put together a presentation noting that the following S&P 500 market ratios are now at all-time highs—Median Price to Sales, Median Price to Book Value, Median Debt to Total Assets, Enterprise Value to EBITDA and Enterprise Value to Free Cash Flow.

Many investors point to the potential positive effects of the recent tax cuts passed by Congress and signed by the President. The ultimate effects of the tax cuts will be known over the next several years. Will the tax cuts unleash growth (which would go a long way in financing them) through massive investment by the private sector that wouldn’t otherwise happen? Or, will the reinvestment in productive assets be minimal while our country is left with another $1.5 trillion in debt at a time when financing costs are rising, thus making it more difficult for our government to finance needed infrastructure, research and safety net expenditures? Independent research firm Moody’s believes the tax cuts will have a limited effect on the economy. According to Moody’s analysts, led by Rebecca Karnovitz, “We do not expect a meaningful boost to business investment because U.S. nonfinancial companies will likely prioritize share buybacks, M&A and paying down existing debt. Much of the tax cut for individuals will go to high earners, who are less likely to spend it on current consumption.” We’ll see.

Regardless of how the economy performs over the next several years, we always come back to valuation, valuation, and valuation. We concur with Howard Marks, who recently noted in a letter to his shareholders that in relation to the general market, not specific securities, “Most valuation parameters are either the richest ever…or among the highest in history…thus a decision to invest today has to rely on the belief that ‘it’s different this time.’”

Market bulls seem buoyed by some version of Jana hedge fund manager Barry Rosenstein’s recent remark, “The economy is growing. Earnings are growing. Rates are at all-time lows. It just seems like the market [rally] is going to continue for a while.” Rosenstein goes onto to say, “In fact, we are more invested today than we’ve ever been.”

Highlighting causality between economic data and market returns is a curious view, in our minds, because there are so many instances where the two events decidedly diverge. For example, in January 2001, economic data was strong: the economy’s growth rate was about 3%, the unemployment rate was below 4% and the country had its first budget surplus in decades. And, it was a terrible time to invest in the stock market—the S&P 500 dropped 31% over the following 24 months. Conversely, in January 2009, economic data was weak: the economy’s growth rate was -2%, the unemployment rate hit 10% and the nation’s deficit soared to 10% of GDP (above $1 trillion). And, it was a fabulous time to invest—the S&P 500 rose by 25% in the following 24 months. The point is that valuation (what you’re paying to own something) is ultimately more important than general overall economic data points. Investing is not economic forecasting; which is underscored by the fact that there are few wealthy economists.

Nonetheless, investors like Rosenstein, and many others, muse about economic data as if it’s predictive of market returns and evidently provides them some measure of comfort. Predicting GDP growth rates (U.S. and or worldwide), the strength and direction of interest rates changes, or commodity prices is simply not what we do. We try to be modest in any attempted forecasting. We choose to rest our investment theses in deeply undervalued securities not overly dependent on the expectation that a rising tide will lift all boats.

What we do is bottom-up fundamental security analysis; despite living in an age that seems increasingly drawn to passive and/or algorithmic investment styles. We will continue to focus our efforts in finding significantly mispriced securities that are conservatively financed, independent of the weather “out there.” We will continue to spend little time trying to predict macro events, and for good reason: it can’t really be done with sufficient regularity to be bankable. This fact was underscored recently when Barron’s reported the results from its 2017 forecasting challenge with over 3,000 entries (a group comprised of highly-educated professional investors and do-it-yourselfers). When asked, “What will the Dow Jones Industrials return in 2017, including dividends?” a mere 3% selected the right answer even after being given four choices from which to choose. Predicting interest rates turned out to be just as hard. Only 6% of respondents correctly chose the box (out of four) indicating that the US 30-year Treasury yield will end the year under 3%. It’s a good thing we’re not prognosticators because we also would have missed the right answers by a long shot.

Thus, it’s business as usual for us, answering the question: Would we take this company private in a heartbeat? The three securities highlighted below, two pieces of debt and one common stock, perfectly underscore RAM’s investment approach.

download printable version

The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients, and the reader should not assume that investments in the securities identified and discussed were or will be profitable. The top three securities purchased in the quarter are based on the largest absolute dollar purchases made in the quarter.

How to Spot Risky Dividend Stocks: A Focus on Fundamentals

February 16, 2018 in Audio, Equities, Interviews, Letters, North America, Podcast

We recently spoke with Jeremy Deal, managing partner of JDP Capital Management, about the research he has done into dividend-paying stocks. John Mihaljevic spoke with Jeremy about the results of his study.

Here is how Jeremy summarizes his research:

Five-year study results: As of October 2012 there were 359 stocks in the U.S. market with a 4% or greater yield (“yield-oriented stocks”), over $100 million market cap, all industries, no funds.

How did these stocks perform over the next five years (through October 2017) in an ultra-low interest rate environment?

  • 25% outperformed the S&P total return by serving only Master #1
  • 5% outperformed the S&P total return serving Master #1 and #2
  • 1% outperformed the S&P total return serving Master #1, #2, and #3
  • 75% of the underperformers served all three Masters

Can’t have your cake and eat it too: Serving the “Dividend Masters” greatly increased the odds of underperforming over time.

Master #1: Management commitment to paying a dividend as the primary use for excess capital. Generally large mature C corps, variety of industries.

Master #2: Structurally committed to “manufactured yield” which relies on capital markets to fund growth and sustainability while using cash flow + depreciation to fund the dividend. This is accomplished by continuously selling stock or/or high-risk short-term debt to fund business needs. Typically found in LP/GP structures in a variety of industries.

Master #3: Commitment to a highly capital-intensive business and sell “safety” to investors. Capital-intensive businesses require re-deploying profits back into the business to maintain them, while growth is financed with long-term, low cost debt. Serving this “Master #3” is fine if you are not also serving Master #1 and Master #2.

Study Results

A combination of all three Masters was the most common trait of failed dividend stocks. Investors often blame sector downturns, or movements in interest rates for losses. However most losers in the study were victims of risky financial engineering and management incentivized to grow the dividend at all costs (IDRs, management fees, etc.). This avoidable structural risk is often masked by the ownership of high quality, predictable infrastructure-like assets that, if not bastardized, are in fact low risk.

download printable version
MOI Global