This post by Curtis Jensen, portfolio manager at Robotti & Company, has been excerpted from a letter of the private fund he manages.

“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” –Warren Buffett

Liberty Interactive Ventures Group ($4.7 billion market cap, 6.6% position)

Liberty Ventures Group represents one of two tracking stocks of Liberty Interactive Corporation. Ventures Group’s assets include shares of Charter Communications (Nasdaq: CHTR) and Liberty Broadband (Nasdaq: LBRDK), as well as smaller stakes in other listed and unlisted companies. In April, Liberty Interactive announced its intention to acquire General Communication, Inc., (Nasdaq: GNCMA) and combine it with the assets of Liberty Ventures Group to form GCI Liberty, via a tax-free split-off.

Charter has gained critical mass in the broadband industry through its acquisition of Time Warner and Bright House Networks, and seems likely to have attractive opportunities to build value in the combined enterprise. The formation of GCI Liberty appears value accretive from a Liberty Ventures standpoint and creates another avenue for Liberty Interactive Chairman John Malone and his team to consolidate the broadband industry. Subject to certain conditions, the GCI transaction is expected to be completed by the first quarter of 2018.

Global Logistics Properties, Ltd. ($11.4 billion market cap, 5.7% position)

Singapore-listed GLP owns, operates and invests in logistics assets in China, Japan, the U.S. and Brazil. The company’s operations include modern and strategically-located warehouses and distribution centers that serve a wide range of customers, from auto suppliers to e-commerce retailers. GLP also operates a growing, $39 billion fund management platform that provides a recurring source of revenue. In July, GLP agreed to be acquired by a consortium led by the company’s CEO. The acquisition value appears fair and represents a 67% premium to the Fund’s cost basis. The transaction has the approval of GIC (a 37% GLP shareholder), has limited contingencies and is slated to close in late 2017/early 2018. On many levels, the investment in GLP exemplifies the type of investment that the Fund seeks: i) a business with multi-legged growth prospects; ii) a share price – reflecting temporary or fixable issues – that was deeply discounted to a conservative estimate of the company’s intrinsic value; iii) a strong balance sheet that protects the business and affords management a high degree of flexibility; and iv) the presence of a control shareholder whose interests are aligned with those of the outside, passive shareholders.

White Mountains Insurance Group, Ltd. ($4.0 billion market cap, 5.1% position)

White Mountains is a financial services holding company that has rationally disposed of its interests in various insurance businesses at attractive valuations during the past few years. Most recently the company announced its intent to sell its 76% interest in OneBeacon (NYSE: OB), the last of its property casualty businesses. The sale of OneBeacon will significantly boost White Mountains’ book value per share and will leave the company with relatively small interests in a nascent municipal bond insurer, a portfolio of private, insurance services-related companies and a large, short-duration bond portfolio. Simplistically, pro forma for the OneBeacon sale, White Mountains can be viewed as a closed-end bond fund trading at a modest discount to Net Asset Value. With surplus capital at its disposal, the relatively new management team will have to decide during the next one to two years whether to opportunistically re-build the company or to continue liquidating, potentially delivering extraordinary returns of capital to shareholders. While the upside in an investment with such optionality may be unclear, the downside appears limited and the presence of a high quality, fixed-income portfolio embedded in the Fund’s top holdings may serve as a natural hedge for the Fund against adverse equity market developments.

Belden Inc. ($3.2 billion market cap, 4.8% position)

With roots dating back to 1902, Belden manufactures and markets a large portfolio of signal transmission and data security products used in industrial, corporate and broadcast markets. The company’s products, including cables, connectors and other equipment and software would appear to have attractive demand trends, characterized by growth in factory automation, broadband / network deployments and related need for security. Given the “mission critical” nature of the products, relative to their low cost, Belden (and its peers) generally enjoy attractive and stable margins. Management, led by a former Danaher executive, appears to be laser-focused on cash flow and returns on capital and ought to be able to continue to build the business through both internal development and bolt-on acquisitions. As well, there appear to be opportunities on the capital allocation front: the company recently re-financed a portion of its debt, a move that is expected to add $0.34 per share to 2018 earnings, after-tax (versus an estimated 2017 cash EPS of $4.50 – $5.00). Shares were purchased at a high single-digit, free cash flow yield.

Seitel, Inc. 9.50% Notes due 4/15/19 (Private, 4.5% position)

Founded in 1982, Seitel is a leading provider of onshore seismic data to the North American oil and gas industry. The company boasts an extensive library of three-dimensional databases for licensing, including data on oil, liquids and gas in various unconventional plays. In 2007 ValueAct Capital took Seitel private and the company remains privately held today. Seismic data is a reasonably long-lived asset that generates very high margins but whose sales tend to be unpredictable. Public companies in the seismic industry repeatedly get into trouble by forgetting that the volatility in oil and gas exploration (and related data sales) does not match well with a leveraged balance sheet1. Seitel twice found itself over-levered; it entered bankruptcy back in 2004 and was recapitalized in 2011 by an investment from Centerbridge. The Fund’s investment in the Notes ought to provide an equity-like return over the two years left until maturity, and should be protected by covenants within the bond indenture and cash on the balance sheet (accounting for 25% of the outstanding debt and expected to grow), as well as the value of the company’s library which continues to expand through selective new data acquisitions.

Alternatively, given the attractive spreads presently available in the high yield market, it is plausible that the company could re-finance the Notes, pay down a significant portion of the current issue, extend the maturity profile and dramatically lower its interest expense.

Looking Ahead

On the one hand, the Fund’s early investment results are satisfactory, but progress on “filling out” the portfolio has been slower than expected. The torrents of “blind capital,” e.g., index funds, ETFs and Central Banks rushing into risk assets, along with the market’s euphoric reaction to President Trump’s pro-business rhetoric in recent months, have temporarily re-priced broad swaths of the U.S. stock market. That upward repricing has swept up many of the securities in the Fund’s “inventory,” reducing the margin of safety to unacceptably low levels, in my view. 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.

Fund Management specifically eschews any forecasts about markets or the economy, but it seems difficult to handicap whether any of Trump’s rhetoric will actually translate into coherent legislation and ultimately, favorable business conditions on Main Street. From what I can tell, one would need an advanced degree in abnormal psychology and a virtual reality headset to really understand what is going on in Washington these days!

The Fund’s Approach

The Fund is a concentrated, value-oriented investment fund that employs a fundamentals-based process, grounded in primary research, to identify and invest in securities–primarily in small and mid- cap equities–whose public market prices appear to reflect a significant discount to their intrinsic or economic value. The approach is rooted in a “business owner’s mindset” used to establish a range of intrinsic values, assess prospects for fundamental changes in business economics, analyze balance sheets and identify management incentives as they relate to the interests of the companies’ securities holders. Given significant personal capital invested in the Fund, downside protection is a cornerstone of its philosophy.

I am interested in connecting with like-minded partners, defined as those whose investment time horizon and views of investment risk match my own. I remain firmly of the belief that a cautious, risk- conscious approach to investing like that of the Fund, where idiosyncratic risks are managed selectively, will compare favorably with passive, value-agnostic strategies in the years ahead.

The above letter, dated July 2017 is the update letter of Robotti & Company Advisors, LLC (“Robotti Advisors”) with [XXXX Fund, LLC (“XXX”)] and was sent to partners of [XXX]. This letter should be read in conjunction with the following disclosure information:

This information is for illustration and discussion purposes only and is not intended to be a recommendation, or an offer to sell, or a solicitation of any offer to open a separate account managed by Robotti & Company Advisors, LLC, nor should it be construed or used as investment, tax, ERISA or legal advice. Any such offer or solicitation will be made only by means of delivery of a presentation, prospectus, account agreement, or other information relating to such investment and only to suitable investors in those jurisdictions where permitted by law. Investors in the Fund must be, at minimum, “accredited investors” within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as well as, in some cases depending on the specific fund, “qualified purchasers” as defined under the Investment Company Act of 1940.

Further, the contents of this letter should not be relied upon in substitution of the exercise of independent judgment. The information is furnished as of the date shown, and is subject to change and to updating without notice; no representation is made with respect to its accuracy, completeness or timeliness and may not be relied upon for the purposes of entering into any transaction. The information herein is not intended to be a complete performance presentation or analysis and is subject to change. None of Robotti Advisors, as investment advisor to the accounts or products referred to herein, or any affiliate, manager, member, officer, employee or agent or representative thereof makes any representation or warranty with respect to the information provided herein.

The information contained herein has not been provided in a fiduciary capacity, is not to be considered fiduciary investment advice under the Internal Revenue Code or ERISA or a recommendation, and is not intended to be, and should not be considered, as impartial investment advice.

In addition, certain information has been obtained from third party sources and, although believed to be reliable, the information has not been independently verified and its accuracy or completeness cannot be guaranteed. Any investment is subject to risks that include, among others, the risk of adverse or unanticipated market developments, issuer default, and risk of illiquidity. Past performance is not indicative of future results. If interested, please contact us for additional information about our performance related data.

The attached material was provided to investors in a specific Robotti Advisors vehicle at a specific past point of time, advice that may no longer be current or timely. References to past specific holdings of that specific vehicle and matters of related historic fact must be seen in context (as would have been apparent to investors in that vehicle) and are not intended to refer directly or indirectly to specific past recommendations of Robotti Advisors (other than as an indication of language sometimes found in the newsletters). Any reference to a past specific holding or outcome is not intended as representative. None the less, for individuals actively interested in investing in such vehicle, a list of recommendations made by Robotti Advisors with regard to the vehicle in question will be made available on request.

Note: certain statements on the attached material, including but not limited” to (a) statements of things that “are well known” to be the case, (b) statements with the phrase “every single time”, and (c) certain similar statements, are not intended to represent absolute literal fact, but rather represent certain colloquialisms/mannerisms expressed by select market participants (but not necessarily individuals associated with Robotti Advisors).

Opinions contained in this letter reflect the judgment as of the day and time of the publication and are subject to change without notice and may no longer represent its current opinion or advice due to market fluctuations. Robotti Advisors provides investment advisory services to clients other than [XXX], and results between clients may differ materially. Robotti Advisors believes that such differences are attributable to different investment objectives and strategies between clients.

The information provided herein is confidential and proprietary and is, and will remain at all times, the property of Robotti & Company Advisors, LLC, as investment manager, and/or its affiliates. The information is being provided for informational purposes only. A copy of Robotti & Company Advisors, LLC’s Form ADV, Part 2 is available upon request. Additional information about the Advisor is also available on the SEC’s website at