Professor Max Otte on Finding Value in Europe

Professor Max Otte, Ph.D. is one of the most prominent academics in the field of value investing. Having received his doctorate degree from Princeton University, he became professor of corporate finance at Fachhochschule Worms in Germany. He is also founder of an independent financial advisory firm and a center for value investing in Germany, as well as author of the German bestseller Der Crash kommt. The latter was published in 1996 and predicted the financial tsunami caused by the implosion of the U.S. subprime sector.

MOI Global:: Tell us a bit about your path to becoming an investor. How did your academic pursuits shape the kind of investor you have become?

Professor Max Otte: I can’t say that I have been an investor from early on. I probably would have studied history and philosophy. To have something more practical and a more convertible currency, I studied business and economics for my master’s degree. I dabbled in stocks during my college years from 1984-86, but lost interest. Michael Kelleher, a financial practitioner, taught security analysis in my MBA class as an exchange student at American University. I found the subject highly fascinating and came out with a top grade, but then wrote a master’s thesis on international currency coordination. My doctoral degree from Princeton University is in political economy and theory. In 1990, I withstood the temptations of the dark side (Wall Street) and rejected an offer from Salomon Brothers to finish my degree.

Value investing grew slowly on me. First, though I’m not particularly interested in money, it’s nice to have a bit more than a professor’s salary. Second, security and the distribution of power were prominent interests in my political studies. Money is security and power — and value investing an interesting and unique non-conformist and non-confrontational way to acquire it. Third, couple that with interest in the international economy, industrial dynamics and corporate strategy, and you have a powerful mixture.

I have taught management classes, international economics and corporate finance. I do also have an entrepreneurial side and did start various businesses. In late 1998, I discovered The Motley Fool and thought that Germany should have something similar. To make a long story short; now I run a stock letter in Germany, a wealth management firm, and a hedge fund.

Still, if you are not born with the gene, you need about two business cycles to acquire the necessary discipline and tools. As Warren Buffett said, it’s not so much your IQ and knowledge, but the discipline that is important. I am now way into my third cycle, and the skills are paying off handsomely. And I think that success — since it was acquired the hard way — rests on a solid foundation and is here to stay.

MOI: You teach Bruce Greenwald´s Columbia University seminar on value investing in Europe. Are there examples of value investing theory that have to be “adjusted” in the context of investing in European stock markets? More specifically, are there any accounting or other pitfalls non-European investors should especially look out for?

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