We are pleased to bring you an exclusive conversation with Michael van Biema, managing principal of van Biema Value Partners, which was established in 2004. The firm, based in New York City, embraces a value-oriented, long-term investment philosophy while seeking to allocate capital to exceptional investment managers. The latter may be less well-known in the investment world, as they typically manage relatively small asset bases and avoid the limelight. Prior to starting van Biema Value Partners, Michael was a faculty member of Columbia Business School from 1992 to 2004, where he taught MBA classes, including a course on value investing.

In the conversation, Michael shares insights into concentrated investing and portfolio construction. He is co-author of a book on the subject. The book profiles eight great investors who have amassed enviable long-term records by managing concentrated investment portfolios.

Here’s my favorite quote from the interview: “If you don’t start out humble, over time the market makes you humble. You learn humility the hard way. It is better to come in with a good dose of humility than to have to lose a lot of money to generate the humility.”

Michael also shares an enlightening anecdote about the dedication required to be one of the best in the investment field. He mentions Chuck Royce, “whose office is in the same building we’re in. I see him leaving his office on Friday afternoon, and he is always carrying two big tote bags full of annual reports, industry journals, 10Ks, 10Qs, and other finance materials. He goes home on the weekend, and his way of relaxing is to have a good glass of wine, sit down, and read these materials.”

Watch Michael talk about how investors get in trouble:

A few more highlights from the conversation:

“We had noticed that many smart, high-quality analysts who were very good at analyzing individual companies didn’t necessarily generate great long-term returns. In fact, there didn’t seem to be much of a correlation between what we thought of a particular investor’s abilities from a pure analyst perspective [and their investment returns].”

“Most people perceive activity as the sign of doing something and accomplishing something. If you talk to many of the great value investors out there, many of them will tell you, what they do is lock themselves in a small room all day long and wait until they find a really good idea. In the meantime, they don’t do any trading and they leave a good percentage of their portfolios in cash.”

“…over 40% of Glenn Greenberg’s portfolio was in cable companies, and he wanted to get Warren Buffett’s opinion. They sat down at breakfast and Glenn immediately launched into his enthusiastic pitch on the cable companies. Warren cut him off and said, ‘Complete waste of time. These companies don’t and never will generate any cash flow.’”

“Keynes says you are better off to concentrate on a few positions because it is immodest to think you can understand a large number of positions at any given time. You are much better off finding a handful of positions you understand really well. Keynes is unique in that he made a full transition from being a short-term commodities trader to a true fundamental bottom-up value investor.”

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