The Phillips Conversations: Brian Bares

November 27, 2017 in Audio, Full Video, The Phillips Conversations, Transcripts

The following interview is part of The Phillips Conversations, hosted by Scott Phillips of Templeton and Phillips Capital Management.

MOI Global has partnered with Templeton Press to bring you this exclusive series of conversations on investing and the legacy of Sir John Templeton, one of the greatest investors of the 20th century.

Members, log in below to access the restricted content.

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:

About the interviewee:

Brian T. Bares, CFA, is a Research Analyst with Bares Capital Management, Inc. He founded the firm in 2000 with the belief that concentrated portfolios of inefficiently priced small companies could lead to high relative compounding. His firm manages institutional portfolios of small-cap and micro-cap common stocks in long-only, replicated separate accounts. Mr. Bares began his career by working his way up from the bottom. From compliance and operations, to trading and portfolio management, he garnered experience in nearly all aspects of running a boutique small-cap manager before starting his own company. He graduated from the University of Nebraska with a degree in Mathematics. His investment philosophy and strategy have been profiled in Value Investor Insight and The Manual of Ideas. Mr. Bares holds the Chartered Financial Analyst designation and is a member of the CFA Society of Austin. He resides in Austin, Texas, with his wife and two sons.

A.P. Moller-Maersk: Strategic Transformation of Leading Shipper

November 26, 2017 in Audio, Equities, Europe, European Investing Summit, European Investing Summit 2017, Ideas

Stuart Mitchell presented his in-depth investment thesis on A.P. Moller-Maersk (Copenhagen: MAERSK) at European Investing Summit 2017.

A.P. Moller-Maersk is the world-leading Danish container shipping and energy group. The business is split into four key divisions: container shipping (56% revenue), oil and gas (14% revenue), terminals (11% revenue), and drilling (6% revenue). In the wake of the dramatic decline in shipping rates, the group has embarked upon a bold strategic plan to refocus the business on container shipping and improve profitability.

First, management has decided to separate out the energy business through a sale or public listing. A complete sale could raise $12 billion, which would cover both the recent purchase of the container shipping group Hamburg Sud as well as enable $6 billion or so in further acquisitions in the container shipping space. Management is rightly keen to take advantage of the process of consolidation within the industry. The integration of Hamburg Sud, furthermore, could yield roughly $1 billion in cost synergies.

Second, capital expenditure will be more tightly controlled across the company, most notably in the terminal division, where no further expansion is expected. Finally, management aims to increase return on invested capital by 2% over the cycle, through increased terminal utilization, selling more inland services, and cross-selling. After two years of declining freight rates, the outlook for the container market appears to be improving. The recent collapse of Hanjin, which removed 3% of supply from the market, may have marked the turning point. At the same time, scrapping rose to the highest level in 2016, removing a further 3% capacity from the fleet. While deliveries will remain high in 2017, adding some 4% to the world fleet, this should be largely offset by scrapping. The fleet could indeed decline in 2019.

Trading on a trough valuation of 0.8 times EV to invested capital, the shares appear attractively valued considering the depth of the restructuring program and the apparent improvement in the container shipping market.

About the instructor:

Stuart Mitchell is the Managing Partner and CIO of S. W. Mitchell Capital and the Investment Manager of two funds; the S. W. Mitchell European Fund and the SWMC European Fund, as well as a number of managed accounts. Prior to founding SWMC in 2005 Stuart was a Principal, Director and Head of Specialist Equities at JO Hambro Investment Management (JOHIM, now Waverton Investment Management). At JOHIM he set up and managed the Charlemagne Fund, a long/short European fund, and the JOHIM European Fund, a long only European fund. The JOHIM European Fund rose by 133% since inception in December 1998 until March 2005 compared with 8% for the benchmark index and was number 1 rated by Micropal within its sector and three star ranked by S&P.

Upon leaving university in 1987 Stuart joined Morgan Grenfell Asset Management (MGAM) and soon afterwards assumed responsibility for managing the continental European equity assets for MGAM’s British pension fund clients. Stuart was appointed a director of MGAM in 1996. He was then made Head of European Equities and was responsible for $27 billion of equity assets. Whilst at MGAM he managed the Morgan Grenfell European Fund which rose by 123% from January 1990 to June 1996 compared with 85% for the benchmark index and was awarded 1st place by Micropal (5 year awards) in 1996. Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the Owner/President Management programme from the Harvard Business School. Stuart speaks English and French.

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:

BMW: Shareholder-Friendly, Readily Understandable Business with a Moat

November 26, 2017 in Audio, Consumer Discretionary, Equities, Europe, European Investing Summit, European Investing Summit 2017, Ideas, Large Cap, Transcripts, Wide Moat

Daniel Gladis presented his in-depth investment thesis on BMW (Germany: BMW) at European Investing Summit 2017.

BMW is a readily understandable business with a moat, managed in the interest of shareholders and attractively priced. It consists of two complementary businesses: automotive and financial services. The company sold 2.36 million cars and 145,000 motorcycle in 2016, up 72% and 45%, respectively, compared to 2006. Net income, EPS, and bo2ok value per share have grown more strongly over the same period, increasing by 140%, 139%, and 147%, respectively. Meanwhile, the price of the common and preferred stocks rose by 104% and 67%, respectively, from 2006-2016. Strong returns on capital and brand value reflect the moat of the business. On the ownership side, majority ownership of BMW has remained stable for a century. The company has done no overpriced acquisitions, taken no large asset write-downs, displayed no excess in terms of management compensation, and capital allocation has been good. Business risks include “peak auto”, BMW bank, electrification, autonomous driving, and interconnectivity.

Daniel’s sum-of-the-parts valuation suggests that the vehicle production business recently traded at 3.3x earnings and 48% of book value. Daniel bases this conclusion on a value estimate of €27.30 per share for the BMW bank business (€18 billion total value, or 1.6x book value, justified by an ROE of 18%) and €18.20 per share (€12 billion) of excess cash in the automotive segment. Subtracting the combined value of €45.50 per share from the recent equity quotation suggest a market value of €28.50 per share for vehicles production. Another way to look at the sum-of-the-parts valuation considers brand value of €30 billion, which may be added to automotive book value of €37 billion to imply automotive value of €67 billion. However, valuing the automotive business at 8x earnings suggests a value of €44 billion. As a result, Daniel puts the fair value of the auto business at roughly €55 billion. When added to the value of BMW bank and excess cash, the combined intrinsic value of the equity may be €85 billion, or €129 per share.

About the instructor:

Daniel Gladis, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling book Naučte se investovat (Learn to Invest).

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:

Chemical Dependency

November 22, 2017 in Human Misjudgment Revisited

“It always causes moral breakdown if there’s any need, and it always involves massive denial. It aggravates [denial] as in the aviator case, the tendency to distort reality so that it’s endurable.” –Charlie Munger

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

download printable version

There is not much else to say about this topic specifically, which is a true tragedy on many levels and combines or exaggerates many other psychological tendencies. But for anyone who might be under the impression that things have been improving in this regard, the opioid crisis in the U.S. offers stark evidence to the contrary. Drug overdose is the leading cause of accidental death in the U.S. with more than 50,000 total and more than 30,000 of them tied to opioids.[48] It is likely that more people will die in America this year from opioid overdoses this year than from car crashes.

Munger in another talk quoted Johnny Carson, who said he had three ways that were guaranteed to cause misery in your life: 1) Ingesting chemicals in an effort to alter mood or perception; 2) Envy; and 3) Resentment. And Munger of course expanded on the topic, emphasizing inversion as an effective tool for problem solving and adding four prescriptions for misery: be unreliable, avoid learning vicariously, succumb to adversity, and ignore the rustic who said, “I wish I knew where I was going to die, and then I’d never go there.” He ended the speech with the following line: “[M]ay each of you rise high by spending each day of a long life aiming low.”

[48] https://www.asam.org/docs/default-source/advocacy/opioid-addiction-disease-facts-figures.pdf

MOI Global