Graham & Doddsville New Issue: Interviews With MSD Capital, Meritage Group & More

The Spring 2016 issue of the Graham & Doddsville newsletter has been released by Columbia Business School.  In it, they have some great interviews with John Phelan of MSD Capital, Alex Magaro of Meritage Group, Adam Wyden of ADW Capital, and short-seller Marc Cohodes.

The issue also features the stock pitches from students from the 9th annual Pershing Square challenge.  Long Alimentation Couche-Tarde (TSE:ATD.B) won first place.  Next, second place went to a long pitch on Charles Schwab (SCHW).  Finalists also included a long pitch on Advance Auto Parts (AAP), a long of Alcoa (AA), and a long of Alliance Data Systems (ADS).

Embedded below is the latest Graham & Doddsville issue:



You can download a .pdf copy here.

Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jeff Smith from Starboard Value.  The activist investor revealed a new long of Advance Auto Parts (AAP).

Jeff Smith's Capitalize For Kids Presentation

-    Long Advance Auto Parts (AAP)
-    They look for value, plan, path
-    See stock going from $171.40 to >$350
-    Specialty retailer of aftermarket automotive parts
-    Have two divisions retail stores to buy parts and commercial distribution business for garages to buy parts
-    They are seeing consolidation in the industry
-    Cars are getting older and more complicated, seeing consumers taking cars to auto shops to fix their cars versus self-fix due to this.
-    SSS growth in all markets over last few years, yet AAP has underperformed by 295% vs peers
-    Peers have more retail which is known as higher margin business but this may be misunderstood
-    AAP does have a margin problem but not a revenue problem
-    There is a 800bp gap between margins in EBITDA to competitors (or as he put it best in class margins)
-    It is trading at 10x, 6.3x proforma, peers at 12x
-    Thesis: 600-740bp margin improvement, fix NWC. Grow SKU count to provide better service and get first calls from customers. Increase leverage from 1.1x to 2.5x. Consolidation and returning cash for further returns.

We already posted up Smith's slideshow presentation on AAP as well.


Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.

Starboard Value's Presentation on Advance Auto Parts

Jeff Smith's activist investment firm Starboard Value today released a presentation on their newest holding, Advance Auto Parts (AAP).  They now own 3.7% of the company.

AAP currently trades around $190 and Starboard thinks shares could be worth over $350 with some of their changes implemented.  They like the favorable industry dynamics and think that AAP has underperformed peers long-term. 

Starboard seeks to increase shareholder value via four ways:

- Improve margins through operational efficencies
- Unlock value for Worldpac (underappreciated asset)
- Return capital to shareholders (dividend and/or buyback)
- Pursue industry consolidation

Embedded below is Starboard's presentation on AAP:



You can download a .pdf copy here.

For more from this investor, head to Jeff Smith's recent interview on activist investing.

Sequoia Fund's Investor Day Transcript: Valeant Pharmaceuticals, Google, Sirona Dental Systems & More

Ruane Cunniff Goldfarb's Sequoia Fund had its investor day earlier this summer and they finally released a transcript of the event. 

In it, they talk about their big position in Valeant Pharmaceuticals (VRX) numerous times.  Just keep in mind that since their investor day, Valeant has acquired Bausch & Lomb. 

Sequoia Fund managers also talked about their investment thesis on World Fuel Services (INT), Ritchie Brothers (RBA), Sirona Dental Systems (SIRO), Google (GOOG), Rolls-Royce, Advance Auto Parts (AAP), O'Reilly (ORLY) and many other stocks.

Additionally, the portfolio managers talked about their investment process and how they value companies.

Embedded below is Sequoia Fund's annual investor day transcript.  It's an in-depth read that we highly recommend:




You can download a .pdf copy here.

Graham & Doddsville Newsletter: Interview With Li Lu (Columbia Business School)

Columbia Business School is out with its Graham & Doddsville investment newsletter for Spring 2013.  It features an interview with Li Lu of Himalaya Capital, a man who was dubbed one of Charlie Munger's favorite investment managers.

This interview is really fantastic as he touches on investment process a lot so we'd recommend reading the whole thing below.  But for those pressed for time, here are the takeaways:


Highlights From Li Lu's Interview

On value investing: "There are few people that switch in between or get it gradually.  They either get it right away or they don't get it at all.  I never really tried anything else.  The first time I heard it, it just made sense; and I heard it from the best."

On defining yourself as an investor:  Lu also touched on how you still have to find your own style of investing that matches your personality.  He says, "The game of investing is a process of discovering: who you are, what you're interested in, what you're good at, what you love to do, then magnifying that until you gain a sizable edge over all the other people."  He also added that, "The only way to gain an edge is through long and hard work."

On why he doesn't short anymore:  He listed 3 reasons:  "Three things about shorting make it a miserable business. On the long side, you have 100% downside but unlimited upside. On the short side, you have 100% upside and unlimited down-side. I do not like that math. Second, the best short has some element of fraud. However, a fraud can be perpetrated for a longtime. Of course you borrow to short, so they could really just wear you down. That’s why I could be 100% right and bankrupt at the same time. But, you know what, you go bankrupt first! Lastly, it screws up your mind. Shorts just grab your mind and take away from the concentrated effort that is required to do proper long investing."

On how he finds ideas: "Ideas come to me from all sources, principally from reading and talking."  What's interesting is he doesn't really talk to other investors that much.  He's more keen on chatting with people running businesses.

On the importance of management teams: "(They) always have a big influence on your success, no matter how good or how bad the business is itself.  Management is always part of the equation of making the company successful, so the quality of management always matters.  But to assess that quality is not always easy."

On decision making:  "I think you want to avoid wrong decisions as much or more than you want to get it approximately right.  If you avoid the wrong decisions, you'll probably come out okay over time."


The issue also features pitches from Columbia Business School MBA students on: Motors Liquidation Company (MTLQU), Precision Castparts (PCP), Hertz (HTZ), Advance Auto Parts (AAP), Dollar Tree (DLTR), Stanley Black & Decker (SWK), & Yum Brands (YUM).

Embedded below is the Spring 2013 Graham & Doddsville issue:




You can download a .pdf copy here.

Ruane Cunniff Goldfarb: Sequoia Fund Annual Letter 2012

Catching up on a few more notable 2012 annual letters, we turn next to the Sequoia Fund run by Ruane Cunniff & Goldfarb.  An investment of $10,000 at inception in 1970 has grown to over $2.89 million as of the end of 2012.  They returned 15.68% in 2012.


Key Takeaways

- They currently don't see many compelling investment opportunities.  Began 2012 with 21% cash position, ended the year with 16%

- "In the fourth quarter of 2012, we were modest net sellers of equities for the first time since 2008, in response to specific situations at several of our portfolio holdings."  They exited Target (TGT) and Becton Dickinson (BDX).

- "Valuations for stocks are heavily influenced by interest rates, and particularly by the risk-free rate of return on 10-year and 30-year United States Treasury bonds. Relative to the current return on Treasury Bonds, stocks continue to be quite attractive.However, the current risk-free rate of return is not a product of market forces.  Rather, it is an instrument of Federal Reserve policy."


Top Holdings At 2012 Year-End

1. Valeant Pharmaceuticals (VRX): 11.6% of assets
2. Berkshire Hathaway (BRK.A): 10.9%
3. TJX (TJX): 7.5%
4. Fastenal (FAST): 5.6%
5. Mohawk Industries (MHK): 4.0%
6. Idexx Laboratories (IDXX): 3.2%
7. Advance Auto Parts (AAP): 3.1%
8. Precision Castparts (PCP): 3.1%
9. Rolls-Royce (LON:RR): 3.0%


Embedded below is Ruane Cunniff's annual letter from the Sequoia Fund where they go into detail about some of their positions and overall market views:




For more on this fund, late last year we posted up why Ruane Cunniff likes Valeant Pharmaceuticals.