Hidden Advantages to Hybrid Public-Family Businesses

The “game” of business is an infinite game and sacrificing value for short-term market appeasement is a losing strategy. Long-term value is predicated on endurance and firms that use growth merely as a vehicle to sustain or appreciate the share price, will not survive.

A Quick Survey of Some of Our Top Holdings

Don’t bet against America. Though improvident and rash, tariffs, trade wars, and ballooning budget deficits shall not imperil that which survived civil war, reconstruction, world wars, assassinations, multiple recessions, and the Great Depression.

Hate for Cable, Change of Heart for DISCA?

Investor fear over a changing landscape has created opportunities in the media/telecom sector. Our largest positions are in cable systems: Liberty Global, Charter via Liberty Broadband / GCI, Liberty Latin America, and DISCA.

The Power of Low Costs

A competitive advantage can come in many different flavors, but my favorite might be a low-cost advantage. I don’t think it’s necessarily better than others, but for me it’s easier to understand.

On Competitive Advantage — and Why Harley Davidson Has It

Michael Porter identifies two ways a company can create a competitive advantage: lower cost or differentiation. The presence of one or both of these factors is the key to the company earning excess returns on capital and creating value.

What’s Your Investment Edge?

The world is flattening. Information ricochets around the globe in nanoseconds. Sophisticated investment algorithms are increasingly replacing human analysis, instinct and temperament. Indeed, the world has changed. The internet has commoditized information.

Market Overview: High Valuations Reflect High Expectations

Valuation is a proxy for investor expectations: high valuation = high expectations of business performance. With many technology company valuations already implying great expectations, there is risk if analyst forecasts fall short.

Macro Commentary: The More Things Change…

We are certainly not advocating that investors sport rose-colored glasses and blindly buy stocks. But, as we have stated in past letters, one of the few certainties of the investing process is constant economic uncertainty.

Update on Selected Building Products Companies

Armstrong (AWI) is performing well and should soon provide some clarity on its capital allocation plans. As noted in January, Armstrong has agreed to sell its international assets to German building products company Knauf.

Selected Portfolio Sales

This article is excerpted from a letter by Alain Robitaille, head of Le Groupe Robitaille at Desjardins Securities, based in Quebec, Canada.

Losing Our Marbles — Why We Have a Concentrated Portfolio

I want to spend some time discussing why we do not diversify as much as other investment funds; I believe this is an important aspect of our investment strategy.

Investment Update on the Airline Industry

H1 2018 in the airline sector was solid from an operating perspective. Robust demand and efficient operations offset some much cost inflation, but the spiking price of oil combined with worries about trade wars and cyclicality to push down the market prices of many airlines.

Selected Portfolio Purchases

We’ve been keeping an eye on Prestige Brands for a number of years. It specializes in non-prescription drugs sold in pharmacies, such as eye drops, lozenges or ointments. It also has a household products division with lesser known brands.

Three Metrics by Which We Measure Ourselves

We have partnered with investors whose value systems, mindsets toward wealth, and philosophy toward long-term investing align with our own. We are conscientiously focused on three key metrics in how we measure ourselves.

Update on Community Banks and Wells Fargo

The overall banking environment remains favorable, and most banks have excellent credit profiles backed by ample reserves, liquidity, and capital. The U.S. banking industry is better capitalized and safer overall than at any other point in its modern history.

Intellectual Dishonesty and Two Clients Who Ask THE Question

It made me feel really old to hear these women half my age ask such compelling questions. Regarding Vinh’s comments, they asked me how I explain our results if the markets are essentially unbeatable.

The Roles of Skill and Chance

I have had a book of the famous Feynman Lectures on Physics on my nightstand for a long time. It is wonderful reading, although I must admit many things in the lectures are too difficult for me. One of the lighter lectures is entitled Probability…

Induced Demand within the Energy Complex

In the latter stages of a bull market, when valuations are generally rich, deep domain expertise can be especially critical in helping an investor recognize misunderstood pockets of the markets where mispriced assets present attractive long-term opportunities.

A Tougher Game, and Perhaps Even a New Game

Lengthy bull markets, especially when they have spread far and wide, tend to create challenges for our investing approach. For one, it usually becomes increasingly difficult to find new investments selling for prices that I find attractive.

Untapped Pricing Power in a Global Low-Cost Producer

Just like we search for undervalued or mispriced stocks, we should also be on the lookout for undervalued or mispriced products or services which have “untapped” pricing power, as both situations eventually tend to correct themselves.

Media/Telecom: Usual Suspects Still Hated… But CHTR Now a Special Guest

Investment banking and real estate are the proverbial “cool kids” compared with this ostracized loser in the minds of investors. While we sound like a broken record, we think the following discussion is warranted, given our substantial exposure to this most hated of areas.

The Biggest Question of Them All: Why Now?

When John asked me about my takeaways from Berkshire Hathaway’s meeting, my first thought was that I usually care more about what I didn’t hear rather than about what I heard. Somehow that quality has helped me tremendously in my equity research all these years.

Role of Currency Hedging Within Portfolio of International Equities

What follows is a brief review of how we at Massif Capital understand currencies and manage our currency exposure within a multi-currency portfolio. This paper arose out of conversations and questions asked by current investors regarding our lack of currency hedges.

Kennedy-Wilson: Reluctant Repurchasers No More?

We discussed the investment rationale for Kennedy-Wilson (KW) in our past two quarterly letters. We believed that KW’s asset value was meaningfully higher than its current share price but expressed frustration on the company’s compensation program…

Why We Initiated a Position in Shire

With Shire plc, we believe that we’ve found an attractive investment opportunity in a high quality company suffering under a few short term clouds that should dissipate over time and unlock value.

Leucadia: Strategic Transactions Highlight Value

As we have discussed in past letters, we followed Leucadia for years from a distance. While we were greatly impressed with value legends Joe Steinberg and Ian Cumming, we did not own the name until after the company purchased Jefferies and subsequently became deeply unpopular…

Why We Invested in Disney

This article by Francisco Olivera is excerpted from a letter of Arevilo Capital Management, based in San Juan, Puerto Rico. Francisco was…

Why We Invested in Smart Sand

Smart Sand is one of only five publicly traded pure play frac sand producers (in aggregate, representing ~50% of industry capacity). The company has one producing mine in Oakdale, WI adjacent to the Canadian Pacific railroad, well situated…

Resisting the Macro Urge

…even if one somehow gets the forecast correct, the prognosticator would then have to correctly anticipate the market’s reaction to such an event – getting one part right is tough enough, while nailing both is nearly impossible on a consistent basis.

Honoring Deep-Value Investing Legend Marty Whitman

Marty’s demeanor was once aptly described as a mix of Art Carney and Marlon Brando. He was a working-class Jewish kid who grew up in the Bronx, served in the Pacific during WWII, and afterwards went to Syracuse University on the G.I. Bill.

Update on Selected Companies in Our Portfolio

This article by Matthew Haynes is excerpted from a letter of 1949 Value Advisors, an absolute return-oriented global value investment firm based…

Leaf Group: Undervalued Online Digital Media Company

This article by John Lewis is excerpted from a letter of Osmium Partners. Leaf Group Ltd. (LFGR; $7.00)1, is an online digital…

Rosetta Stone: Transforming to a Far More Valuable Business Model

This article by John Lewis is excerpted from a letter of Osmium Partners. Rosetta Stone Inc. (RST; $13.20)1, together with its subsidiaries,…

Tucows: Low-Cost Leader with Experienced “Outsider” CEO

This article by John Lewis is excerpted from a letter of Osmium Partners. Tucows (TCX; $56.40)1, an ICANN accredited registrar, provides domain…

Franklin Covey: Strong Growth in Recurring Revenue

This article by John Lewis is excerpted from a letter of Osmium Partners. Franklin Covey Co. (FC; $26.35)1 provides training and consulting…

The Two Things We Look for in a Management Team

Imagine you went back to 2007 and told investors that within the next ten years, GE would cut its dividend twice. You’d have been mocked and ridiculed. At the time, GE was one of five U.S. industrial companies with AAA-rated credit and had just increased its dividend by 11%.

Redbubble: Long Growth Runway and Exceptional Management

Last week, we spent time separately with the Chairman of the Board as well as the CEO, COO, and CFO of Redbubble. The management team is exceptional. We believe RBL will be a long time organic revenue growth story in the +30 to +40% range…

A Case Study of R1 RCM

R1 RCM is a resilient, non-cyclical, high-quality business undergoing a value-unlocking transformation since we initiated our position in late 2016. R1 is a leading provider of revenue cycle management services to hospital networks.

Don’t Get Your Teeth Kicked In

At Pender, we sometimes say that there are only two kinds of companies: Companies that are having problems and those that are going to have problems. The same is also true for the broader indices…

A Snail’s View on Investing

In 1986, my grandfather, Koichiro Yasu wrote a book about the origins of my family and Jyujiya Securities Co. our family brokerage firm, which was originally started by my great grandfather.

The Impact of Technological Change on the Firm Boundary

The transaction cost that caused the emergence of a firm in the industry value chain can be reduced or eliminated by technology. When this happens, the “entrepreneur-coordinator” or capital allocator of the firm must act to re-position the firm in the new context.

The Death of (Many) Brands, Part II

The Death of Brands does not imply the death of great products. It implies the death of top brands that do not in fact represent an outstanding product at a fair price.

Volatility: Fear Thou Not

Is it correct to assess riskiness of a security without ascribing to its intrinsic value? I never understood beta. I memorized its formula for when I appeared for an exam in financial management and forgot it the moment I stepped outside the examination hall.

A New Phase: Transitioning to Portfolio Manager

While we were entirely content managing our own capital through perpetuity, a combination of factors have nudged us in the direction of setting up a separately managed accounts platform (commonly referred to as a portfolio management service).

Investing at Market Peaks

This article is authored by MOI Global instructor Amey Kulkarni, founder of Candor Investing, based in Pune, India. Amey is an instructor…

Making Gold “Productive”

Gold has been called an unproductive asset and a barbaric relic. The reality is that gold produces no cash flows of its own and hence its price depends on what others are prepared to pay for it.

Idea Preview: Karur Vysya Bank

Karur Vysya Bank is a regional bank that started its journey in 1916 in Karur, a textile town in Tamil Nadu, India. KVB started as an SME bank and continues to position itself as a comprehensive player to cater to the needs of SME customers.

A Big Macro Call on India?

Ideaweek was an opportunity to share thoughts on the nuances of investing in listed Indian equities and to learn from other investors. I was on the receiving end of thought-provoking questions that helped me isolate the “source-code” of some of my opinions.

Three Ways to Win

When Leonardo da Vinci was sketching out his design for one of the earliest parachutes in the year 1483, he no doubt understood the consequences of such a device failing.

Darwin’s Power and Porter’s Missing Force – A Framework for Global Returns

This article is authored by MOI Global instructor George Kurian, portfolio manager at RARE Infrastructure in Sydney, Australia. George is an instructor…

An Update on Value Investing in Korea

Investing is a marathon, and each year can be thought of as just one kilometer marker along the route. What really matters to us is whether or not our investors will see their capital grow manifold after a long period of time.

An Investor’s Approach to ESG

The investment management industry is awash with ESG – Environmental, Social and Governance, initiatives. Dedicated funds are being launched and awareness of these factors in a portfolio context is being highlighted by several of our counterparties.

Key Learnings of 2017

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…”

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

We continue to find value amongst the discarded, disdained and misunderstood. We established a significant position in AIG warrants in Q4.

Business as Usual

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…

How to Spot Risky Dividend Stocks: A Focus on Fundamentals

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 five-year study of 359 U.S. stocks.

Intelligent Cloning: The Winter 2017/2018 Edition

There are some great investment minds out there. Don’t even think about trying to beat these guys. Just copy and profit from them. These ideas made it through the exhaustive due diligence process of one of the best investors on the planet.

Portfolio Commentary

This article by Matthew Haynes is excerpted from a letter of 1949 Value Advisors, an absolute return-oriented global value investment firm based in Mahwah, New Jersey. Matt is a valued contributor to The Zurich Project.

The Steamroller

This article by John Heldman is excerpted from a recent issue of The Triad Perspective. What do certain actors, movie producers, directors,…

Preview of McCarthy & Stone: Largest UK Retirement Homebuilder

Our ownership of the shares of McCarthy and Stone (MCS) is consistent with our focus on downside protection. MCS is the largest retirement housebuilder in the UK. MCS buys land, secures planning consent, builds, sells and manages housing developments specifically designed for retirees.

The Evolution and Revolution of the Electric Grid

The basic model for the electric grid has gone largely unchanged over the past 100 years. Large generators would send electricity out to consumers who would pay bills with no input to costs. The more consumers, the more money a grid owner/operator would make.

Widen the Lens But Narrow the Focus, and Deepen the Learning

In Michael Lewis’ book “The Undoing Project,” he writes, based on the extensive research done by the two psychologists and behavioral economists Daniel Kahneman and Amos Tversky, that we take too little information and draw too big of conclusions.

The Story Behind India’s Valuation Premium

We recall very few investor meetings this year where the issue of India’s ‘expensive’ valuations didn’t come up. In a world where the vast majority of investors take a top-down approach while allocating capital.

Auctions and Power

It’s a great time to discuss the distribution of power in auctions. Not only is this highly relevant for all users of Google paid search and our investment in TripAdvisor, but Leonardo da Vinci’s Salvator Mundi recently broke a record for the highest price paid for art at auction, clearing for $450 million.

Why a Risk-Averse Value Investor Believes Today Is the Most Important Time in Our Investment Lives

As early as my first job interview in the investment field, I was focused on avoiding risk. In that encounter I wasn’t very curious about my future boss’s all-time best investments; I wanted to know about the decisions he had made before the biggest market crashes.

How “Quantamental” Combines the Best of Value And Quant Strategies

To most investment industry observers, quant investing and value investing stand at odds with each other. Quant-oriented strategies are known to leverage technology to capture many small spreads before human analysts would have the time to parse through the data.

Selected Investment Ideas in Eastern Europe

In Eastern Europe and the U.S., we look for companies with superior cash generation and a strong record of investing capital in high-return projects. By concentrating on cash and analyzing a company’s positioning through Porter’s “five forces” framework, we are finding companies that consistently generate mid-teens returns.

The Death of (Many) Brands

…while brands might seem a natural part of the economic order, they are a relatively new invention. 150 years ago, canned food companies learned that by building a trusted brand, consumers would pay a premium price in exchange for avoiding the spoiled food common in canned food.

Underwriting Value and Handicapping Returns

In my mind, the classical value investor is someone who looks for businesses trading at low multiples to book value or free cash flows while the classical growth investor is someone who looks for businesses with high current and future rates of growth, often with little regard to valuation multiples.

The Crowd

After years of watching value managers lose ground to more popular investment strategies, including passive ETFs, as well as the growth and momentum styles, we believe it seems likely that the overall number of value investors populating the market has ebbed over this time-period.

Robotti & Company Annual Meeting Highlights

“Thirty four years ago, a handful of us here in the room started a business with the concept that by doing fundamental bottom-up stock research, we could identify companies that would outperform the market. That is what we have done and it has always been the mandate of the business.”

The “Next Big Thing” Just Might Be Hiding in Plain Sight

Maybe a better approach to investing in the “next big thing” is to invert the question: What is not going to change over the next ten years and which company will benefit? Even though uncertainty has not been completely eliminated, this is a much easier question to answer.

Nathaniel’s Beautiful Mind

My partners, Tim and Dan, like to tell prospects and clients that they can meet with me anytime and ask any questions that they may have or simply see what I’ve been thinking about lately. In the same breath, they then caution the listener to carefully consider whether or not they want to go down that rabbit hole.

Why Bother With Deep Research in Investing?

This is a lesson I learned the hard way, certainly paying too much for it. However, as an optimistic slow learner, I hope that this investment in myself will become very profitable in the future, and that it will at least benefit some MOI Global members.

Operating in the Grey Area

Value investors tend to be an odd lot. On the one hand, they may find themselves attracted to assets that are out-of-favor, whether a company, industry, geography or asset class. Many of these potential opportunities may appear to be fraught with risk, perhaps justifying their low market valuations.

The Four Questions of an Investment Candidate

Each question is open-ended and meant to encourage careful analysis, not quick answers. This process leads to better-than-average companies, with better-than-average managements, that we buy at better-than-average prices, that will do better-than-average when the economy hits a rough patch.

What Compels Us to Invest

At the core of every investment is the capability of the people who are going to execute the plan. Great managers make average situations great and poor managers make great situations poor. The definition of “great” can be backward-looking and hard to evaluate prior to a manager doing “great things.”

Value Investing Has Never Been More Relevant

Value investing offers us a tried-and-tested system – rich in heritage and logic – to navigate and profit from the potential upheaval and change. As you all know, true value investors assume the markets are unpredictable – in good times and in bad times. We are not disturbed when the environment changes.

The Key Pillars of Our Investment Framework

To successfully invest in businesses, we approach investing as private business owners would. For us, assessing the quality of a business is our most important job. If we are to invest in a business for five to ten years, why would we invest in a bad business?

What We Learned From Not Investing in Amazon

One of our biggest mistakes was not investing in Amazon shortly after reading Josh Tarasoff’s 2012 presentation, instantly recognizing the appeal and dismissing a potential purchase on account of the stock being “too expensive.”We will forever hold ourselves accountable for this mistake, while simultaneously self-reflecting on what we can do to avoid this mistake in the future.

Hunting for Value in Singapore

Among SGX listed firms, roughly 60% can be described as family firms. These businesses have historically outperformed those of non-family owned companies on the SGX with a return on assets of 3.7% vs. 0.9%. Roughly a third of these firms are still run by the first generation of the family, and 54% are run by the second generation.

Preview: A Value Investor’s Approach to Natural Resources

Investing in natural resources is often excluded from the investment mandate of value investors due to the inherent volatility and need to forecast macro factors. I am a value investor at heart, however my professional investment mandate at Pala focuses largely on investments within the metals and mining sector.

Focus on Good Businesses with Low Expectations

…our investments generally have valuations which are low and this helps reduce risk. The market does not expect much from the business in the future or is worried about current earnings or free cash flow sharply declining. These may also be situations where a business is simply misunderstood or undiscovered.

Preview of Cambria Automobiles: Owner-Operated UK Auto Dealer

Cambria Automobiles is a UK based auto dealership group that was founded by current CEO Mark Lavery in 2006 to pursue a dealership roll up strategy. Lavery owns 40% of the outstanding shares and from a starting capital base of only £10.8 million has built Cambria into a business with operating earnings of £11.8m in 2017.

Preview of Varex Imaging: Moaty Spinoff in Oligopolistic Market

Typical for a spin-off Varex Imaging converted stock options for the management based on the average share price of the stock in the first five trading days after spin-off. This incentivized management to make very conservative forecasts and lead investors to underestimate how attractive the business is.

The Most Valuable Thing: Value vs. Value Trap

Experience is often the best teacher, and through close review of both our winning and losing investments over the years, we have identified several factors which continue to play a valuable role in our investment approach and which we believe can help other investors avoid value traps and find truly valuable investment opportunities in an uncertain market.

Asset-Based Investing in an Earnings-Focused World

In striving to buy as cheaply as possible, we estimate intrinsic value using conservative estimates that weigh a company’s balance sheet and what is known today much more heavily than projections of future earnings and cash flow, which may (or may not) materialize. Our asset-based investment approach stands in contrast to the approach of those who focus more heavily on earnings and cash flows.

SiteOne: Formerly Trapped Within John Deere, Now Free to Excel

SITE is the leading US distributor for landscape supplies. The company was trapped inside John Deere and under-invested for most of its corporate history. It was carved out of Deere by private equity in 2013, hired a new management team in 2014, IPO’d in 2016 and is now free to spread its wings.

Previewing PRGX Global for Best Ideas 2018

We have tracked PRGX Global (PRGX) for over five years and have spent time with previous and current PRGX management. As we all come out of private equity, we are constantly speaking with relationships there and exploring potential take private opportunities across our portfolio.

True Small-Cap Investing: An Institutional Blind Spot?

We’ve found that many of these companies are often profitable, conservatively capitalized, and self-financing, so they are often ignored by sell-side analysts who have no incentive to offer research coverage. As a result, these companies are less well-known and their shares may trade less frequently.

When Is It Appropriate to Re-Underwrite an Investment Thesis

Some of the steps involved in a full re-underwriting process: seeking out or creating the strongest possible opposing thesis; building a model from scratch rather than incrementally updating an existing model; re-assessing the quality ratings to make sure the situation has not changed materially; creating a list of all the forces/facts that are making this a structurally better business…

Index Investing and the Assumption of Order

Index funds present a set of challenges, where money flow and inclusion in an index creates individual buy/sell decisions. Those who invest in them may want to consider this final point: risk is investing without forming an idea of expected value, investing without adequate knowledge, and investing without an edge.

Thoughts on Portfolio Management

This article is authored by MOI Global instructor Amil Bera, founder and chief investment officer of Advaya Investment Management. Amil is an instructor at Best Ideas 2018. “Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.” –Hyman Minsky

On Management Incentives

This article excerpted from a letter by MOI Global instructor Peter Rabover, principal and portfolio manager of Artko Capital. Peter is an…

Transcript of Peterson Capital Management Annual Meeting

A transcript of the Peterson Capital Management annual meeting, held in August 2017, has been provided by MOI Global instructor Matthew Peterson, managing partner of Peterson Capital Management. Matthew is an instructor at Best Ideas 2018, the fully online conference featuring more than one hundred expert instructors from the MOI Global membership community.

Tales from the Crypt-ocurrency

This article is authored by MOI Global instructor John Heldman, portfolio manager of Triad Investment Management. John is an instructor at Best…

Digging Beyond Profit Margins

Projects that produce returns above capital costs are hard to come by. Realizing this, the largest companies in the world have zeroed in on cost cuts and diverted cash to share buybacks to prop up bottom line results. For the S&P 500, EPS grew an annualized 6% from 2003-2016 while ROIC declined from 7.8% to 7.2%. Ultimately, the chickens must come home to roost.

Rights Offerings: The Case of Redknee Solutions

We have often talked about finding value in the hidden corners of the market: microcap stocks, low priced stocks, stocks that don’t screen well, stocks that trade in less efficient markets, stocks that have recently gone through some sort of drastic change.

The Importance of Process

Our investment process entails identifying companies that pass a four-part framework before we ever consider the fifth piece, which is price. Each question is deliberately open-ended, and meant to encourage careful analysis and deep thought, not quick answers.

Value Investing and Hunting in the Backcountry

Our strategy is largely based on buying good businesses during moments of weakness, and giving our skilled management partners the time they need to work through their problems. Focusing on price is extremely important during the buy process…

Comments on Selected Investments

EZCorp has moved past the stock price weakness caused by the convertible bond offering which I detailed in our 1H’17 letter. More importantly, the company recently announced a major acquisition in the form of 112 Latin American stores.

The Considerably Challenged

This article is excerpted from a letter to partners of Boyles Asset Management. Having already discussed our Mastermyne exit in relation to…

Why We Invested in Redknee Solutions

Redknee Solutions (RKN.TO) is a vertical market software company focused on selling billing software to telecom companies, that entered our portfolio as a top five position.

Classifying, Cataloguing, Collecting… and the Capital Cycle

Warren Buffett has compared the investing process to investigative journalism, and it is that process of learning, collecting facts (and opinions), and trying to tie a story together into a theory about a business and its valuation that makes the effort an enjoyable one for us.

Why We Invested in Franklin Covey

I have been following Franklin Covey (FC) off and on since 2014 when I first met the management team, and it recently entered our portfolio as a smaller position. FC is in the business of performance improvement.

Portfolio Commentary

The Fund generated an attractive absolute return for investors in the third quarter while underperforming the small- and large-cap indices. The Fund ended the quarter with 18 companies in the portfolio. The largest position was 15% of the portfolio and the top five positions represented 50% of the portfolio.

Why We Invested in IES Holdings

What makes an investment in IESC interesting is that it is almost 60% controlled by Jeffrey Gendell, an excellent capital allocator. The company has ~$400 million in NOLs, meaning that Gendell will be able to allocate IESC’s earnings under a tax shield, which should drive considerable shareholder value.

Economic and Financial Market Commentary

During the quarter, the Federal Reserve announced its plan for reducing its $4.5 trillion balance sheet. Rather than selling any assets, the Fed elected to only reinvest a portion of the principal that matures each month from its fixed income portfolio.

Start with the Customer

The customers are the ones actually paying the bills, and customers pay based on the value they receive from the company. Customer value (the problems the company solves for them, how much their lives are improved) is what leads to economic value (the revenue, profits, and returns that we care about as investors).

The Twinkie Conspiracy

Field trips. We’ve all done them. My favorite from long ago-third grade I think-was a trip to Los Angeles. We visited the Continental Baking factory. Sound boring? Not for this third-grader. Continental was the home of an all-star lineup of kid’s favorites…

Balance Sheet to Income Statement Investing

People who don’t understand value investing often say that in order to make a higher return, you must take on more risk. No risk; no reward. We know that those people are wrong, of course. The challenge is finding and investing in the opportunities where risk is low and the possibility of gains is high.

What We Mean by Opportunistic, Absolute Return Investing

We define opportunistic investing as a willingness to do nothing in the absence of a compelling investment idea. With a cash balance of roughly 40% of assets under management, it is worth digging a little deeper into this central investment issue.

Yogi Berra and Competing with the Right People

Common sense dictates that changing how an investment is “classified” should not change the value of the investment, just as cutting a pizza in four pieces rather than six doesn’t change how much pizza there is. However, common sense is not very common on Wall Street.

Our Mistake in Lending Club

It is useful to expose a bad investment process even if we have a good outcome. We ended up passing on online peer to peer lender Lending Club because we believed the business model was too difficult to predict but liked the CEO who passed most of the filters we use to determine who to partner with.

S&P Global: A Collection of Great Businesses

Like many of the businesses we are attracted to, S&P Global has significant future earnings growth in subsidiaries that are underappreciated by the market. Perhaps most promising is the company’s 68% share of India’s leading credit rating agency, CRISIL.

Intelligent Cloning

During The Zurich Project 2017 I introduced the idea of Intelligent Cloning. It’s all about combining the Ben Graham thinking on risk aversion with the Charlie Munger rule nr. 1 on how to become a successful investor: carefully look at what other great investors have done.

Some Thoughts After Five Years of Discretionary Management

Buffett and managers who follow his principles have proven over the long term that discipline and working in very small teams can produce great results. Generally, “superinvestors” act alone, without a team of analysts and without an investment committee, they think for themselves and make investments for the very long term.

When We Say Earnings

Non-GAAP earnings reported by US companies in recent years have been fully 22% higher than their earnings calculated pursuant to GAAP. That is an immense difference. For individual companies, the differences are often even much greater. Every investor who wants to value publicly traded companies must know about this problem and know how to deal with it.

Dividends on Demand

Many investors restrict cash flow from their investments to the periodic dividends they receive. They are content to let the company’s board of directors decide the payout ratio, and trust the remainder to be reinvested in the business. There is another way, and Warren Buffett has weighed in on the topic.

Phil Ordway on Performance Assessment, Sources of Edge

In January 2017, Phil Ordway, managing principal of Anabatic Investment Partners, penned an annual letter that included a three-year review of Anabatic Fund. The review was filled with timeless investment wisdom. We are pleased to share highlights.

Who’s Got the Time?

Everywhere I go I hear the same message from friends, relatives and business acquaintances. I’m too busy. I don’t have enough time for this. Let me get back to you on that. Hey, maybe it’s me they don’t have time for! In my observation, the world is full of a bunch of very busy folks.

Two Components of “Edge” in Investing

I’ve always felt that Jim Rogers, who helped build the foundation for one of the greatest investment track records in history, perfectly encapsulates a main pillar of my investment approach: do nothing until there is something really obvious to do.

Tools We Use to Forecast the Future Prospects of a Business

We introduce tools to forecast the prospects of a business and to determine whether a leadership team is building a competitive advantage. We start with choosing business models that have characteristics that help us make predictions about their future cash flows.

The Most Important Moat

The best way to build an enduring competitive advantage is to ensure the customer feels like the product or service that you’re selling is a good deal. If not, you will no longer be able to rest on the laurels of barriers to entry, high distribution costs, or incumbent advantages.

The Wisdom of Crowds

We are all familiar with peer pressure and have at some point succumbed to it. Our primordial brains have been hardwired to seek out the protection of the pack as a survival mechanism; distancing yourself from the collective is not only dangerous but socially alienating.

Why Purpose Matters

Think about the businesses you interact with on a day-to-day basis where you feel the employees actually care about you, and then think about those businesses where you know the employees do not care about you. Which is more likely to survive and grow? Purpose matters.

Cooks in the Kitchen

We are often asked about the impact of operating an investment program with multiple decision makers. Buffett and Munger have questioned the efficacy of investment committees. We’d hesitate to put co-managers in the same category, but it is an important topic.

Software Feedback Loops Enable Winner-Take-All Markets

The dominance of Facebook and Google is astonishing. Together, the two companies have 64% share of the digital ad market with Facebook at 33% and Google at 31%. Both companies continue to grow their reach.

Embrace Big, “Inevitable” Trends

Bezos said, “these big trends are not that hard to spot” – and the growth in China’s online shopping industry is certainly not hard to spot. But just as large-cap stocks can occasionally become sizeably mispriced despite their wide following, the usefulness of an insight does not necessarily correlate to how original it is.

Good Different and Bad Different

When Ikea came along, they broke several rules of furniture retailing. Ikea doesn’t promise the furniture will last forever. They position it as a durable good with a life of a few years, greatly lowering the anxiety of the purchaser. Ikea was different in that it subtracted service, delivery, choice, and durability.

How Bad Mistakes Arise: A Good Idea Taken to the Extreme

Warren Buffett often observes that “bad mistakes” on Wall Street and in business are more often likely to arise from “good ideas” taken to an extreme than from bad ideas from the outset. Bad ideas suffer from early mortality.

How Do We Know We Are Right

A first-level answer I heard early in my career from some portfolio managers was, “If the market price of the security that you bought goes up more than the index, then you were right, if it doesn’t, then you were wrong.” This is a naïve and flawed view.

No Fear of Missing Out

It means that in some periods we may sit on cash patiently instead of making investments that do not meet our criteria. When others are making money betting on the latest trend or fad, we smile and move on. We must genuinely have no “FOMO”.

Mental Models: Leaking Balloon or Coiled Spring?

One of the most astute Wall Street professionals I have had the pleasure of spending time with over the years is Raphael Bernstein. He asked me whether I thought the investment prospects for the company under review seemed to be more like “a coiled spring or a leaking balloon.”

Preparing for a Market Downturn

Providing guidance or meaningful commentary on the current market is a bit like forecasting the weather in Palm Desert, California during August. Each day is very similar to the previous one until one day it isn’t.

On Deep Work

One of the things I love about business and investing is they have something very much in common with other things I like, such as athletics, music, and chess – and that common denominator with all of those endeavors is there is always room for improvement. These are examples of crafts – and the way you improve your craft is by practicing.

Snapshot of Our Top Five Positions

There is ample evidence of pro-cyclical behavior by corporations and complacency on the part of investors that, experience tells me, I should resist and is the inspiration for the Buffett quote at the outset of this letter. Fortunately, I do not equate “portfolio activity” with progress and I prefer the “risk” of lost opportunity to that of lost capital.

Fashionable Stocks and the World of Investment

Warren Buffett is another fashionable subject when it comes to the stock market. Recently, a client transferred to us a portfolio that he had with a competitor who claimed to invest according to the principles of this great investor. However, this manager made 87 trades in nine months, in addition to buying on margin…

What Has Changed in (Value) Investing

Much has changed in the past 28 years. Warren Buffett is virtually the patron saint of capitalism; fund management has employed increasingly sophisticated techniques to analyse risk and returns, passive investing (a huge boon to investors) now dominates the investment landscape, while a digital revolution makes financial data virtually free.

Why Culture Matters

How does a business attract and retain exceptional employees? Some companies attempt to do this by throwing vast sums of money at their employees. Truly outstanding organizations build deeply passionate cultures; these cultures exert more powerful forces when it comes to attracting and retaining talent than financial compensation alone.

Thoughts on Index Funds

While active portfolio management has come under heavy criticism for good reasons, it is equally foolish to condemn it altogether. I strongly believe it is possible to beat the market over time and that the meteoric rise of index funds actually leads to more misallocations and hence more opportunities for active managers.

Indices and Index Investing

This post by Daniel Gladis is excerpted from a letter of Vltava Fund. Daniel, based in the Czech Republic, is a global value…

Copper Mining: Articulating a Contrarian Thesis

This post has been excerpted from a letter by Matthew Fine, Lead Portfolio Manager of the Third Avenue International Value Fund. Simply…

Finding Plenty to Do

This post has been excerpted from a letter by Chip Rewey, Lead Portfolio Manager of the Third Avenue Small-Cap Value Fund. In…

Positioning the Third Avenue Real Estate Value Fund

This post has been excerpted from a letter by Michael Winer, Jason Wolf, and Ryan Dobratz, Lead Portfolio Managers of the Third…

What We Mean by “Resource Conversion”

This post has been excerpted from a letter by Michael Winer, Jason Wolf, and Ryan Dobratz, Lead Portfolio Managers of the Third…

Does Thematic Investing Have a Place in Value Investing?

This post has been excerpted from a letter by Chip Rewey, Lead Portfolio Manager of the Third Avenue Value Fund. One of…

Deep Value Investing vs. “Great Company” Investing

Buffett’s shareholder meeting, often referred to as “Capitalism’s Woodstock,” is a cult of sorts for investors in search of “great companies.” In fact, most investors, even ones with an overall value orientation, are in search of great companies. I often feel like the odd man out at these events. It’s worth reflecting on why Roumell Asset Management does not pursue great companies but rather focuses on finding significantly undervalued securities.

Portfolio Concentrated in Deep Value Micro-Caps

Maui Land & Pineapple (MLP) was the Fund’s top performer, with Precision Auto Care (PACI) and Scott’s Liquid Gold (SLGD) also contributing…

Flawed Relative Value Analysis in U.S. Financial Markets

In June, the Federal Reserve raised the federal funds rate 25 basis points to a range of 1.00-1.25%. The Fed also unveiled…

Cockroaches, Margins of Safety, and Knowing Thyself

“In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches.” –Financial…

The Quality-Return Continuum

Reflecting on our portfolio, and in the spirit of always continuing to refine our approach, we developed a mental model that we…

The Price is Right?

Like many people today, I buy stuff online. And while price is important, sometimes convenience trumps price. Time is money, right? Or,…

Market Fixation with Growth Stocks Continues

“Markets can remain irrational longer than you can remain solvent” –John Maynard Keynes The investment environment continues to be challenging.  I hauled out…

Opportunities in U.S. Community Banks

This article is authored by MOI Global instructor Phil Ordway, managing principal of Anabatic Investment Partners. As regulatory frameworks, the yield curve, technology,…

Stable Patient Capital Allows Pursuit of Invisible Companies

The lack of market volatility and low risk-free rates of return, as evidenced by negative yielding government bonds, has created a tricky environment to invest in. For me, the most attractive companies to invest in are those with high free cash flow yields and sustainably growing businesses.