Lisa Rapuano's Presentation on Markel & Bed Bath and Beyond: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Lisa Rapuano of Lane Five Capital Management who pitched Markel (MKL) as well as Bed Bath and Beyond (BBBY).


Lisa Rapuano's Presentation at Value Investing Congress Las Vegas

•    Probabilities, know how much to bet and how to react – can you handle it psychologically. •    Think about what can go right- the probability – how much can we make? How much money can we lose, and what’s the probability – think of scenarios ahead of time.
•    Process leads to three outcomes – compounders, contrarian investments (what Lane Five is known for) and finally getting involved as an activist or being proactive. They have become more aggressive in this act.

•    Compounders – good ROIC, strong balance sheet, moats and strong capital allocation. Infrequent. Temperament requires to invest in these businesses” Generally boring, underperform in up markets – require patience to acquire when the price drops and patience to keep in it as it under performs.

•    Contrarians – priced very cheap, higher expected returns – lots of ways to make money, yet much greater variations between these outcomes. Can be less correlated to the market. Always some management team screwing something up. Have to be selective in turnarounds – see if the peers have a good business model and margins. 
•    Look for shareholder turnover, new low lists. Look for sell-side to give up on the name. Could be difficult to hedge. Patience for the turnaround, patience for entry and exit. Need to be resourceful as people don’t like to talk about these names and finally, you need to have humility. 
•    In regards to timing in contrarians – COCO example. Has been on the new low list for four years! Bought it at the first deep dip, triple downed two years and still sitting at the same price. Much longer and much worse. Time is killing the IRR.
•    One investment – waited for the new management team to come in and understood the business and incentive plan – patience for entry.

•    Activist engaged investments – generally talks with them tries to be collaborative, sometimes they need a push. This can work on the compounding side. This takes a lot of money for lawyers, you can become illiquid and it is a fairly large time commitment. Generally once you are on the board – generally worse than you think!
•    Why does Lane Five pursue several paths? Likes the way the portfolio comes together. If you are wrong about one – doesn’t sink you, further time cycles are different.


•    Compounder idea – Markel (MKL) the biggest position. Specialty insurer with an investment portfolio ran by Tom Gayner. Disciplined underwriter. Excess capital reinvested into equities at high rate of return. Bonus system – paid in 5 year trailing BV growth, in excess of 11%. Valued at an insurance multiple. Made an acquisition of Alterra – which significantly increased investable assets. Markel ventures is another growth leg – able to invest capital in private businesses.

•    Contrarian idea – Bed Bath and Beyond (BBBY) – a  home goods retailer – people think internet will outdate BBBY – their variant view is that BBBY is similar to home depot or goods, where people want to see the item in person, further they have strong pricing – and continue to be competitive vis a vis online competitors. Fabulous capital allocation – share repurchases and useful CapEx measures. Four other concepts which have good economics. BBBY trades lower on all multiples versus peers – even while having better returns than most. Unlevered FCF $1B used to repurchase shares. They don’t talk to the street – non-promotional mgmt. team. 

Be sure to check out the rest of the Value Investing Congress presentations.

Notes From CSIMA 2013: Columbia Investment Management Conference

Below are some notes from the recent 2013 Columbia Student Investment Management Association Conference (CSIMA).  The following is a guest post from CapitalObserver. 


Notes From CSIMA 2013: Columbia Investment Management Conference

(MarketFolly note: rules from the event prevent direct attribution to a specific speaker's comments.  However, we found the list of speakers on Columbia's website so you at least know who was presenting at the event.  Even though the comments are not attributed, we still thought there would be value in posting these notes given the quality of speakers.)

Seth Klarman (Baupost Group)
Bruce Berkowitz (Fairholme Capital) 
Jeremy Grantham (GMO)
Timothy Hartch (Brown Brothers Harriman)
Thomas Russo (Gardner Russo & Gardner)
Jane Siebels (Green Cay Asset Management)
Mark Cooper (PIMCO)
Jean-Marie Eveillard (First Eagle Investment Management)
John Spears (Tweedy Browne)
Jennifer Wallace (Summit Street Capital Management)
Bill Miller (Legg Mason)
Mason Hawkins (Southeastern Asset Management)
Christopher Davis (Davis Advisors)
Robert Koenigsberger (Gramercy)



Presenter A: Natural Resources 

Buy good resources in the ground, farmland & forestry. Natural resources are finite. Global warming is real. Oil is running out. Much more expensive to find new oil. Even the cheapest shale oil costs $60 to take out of the ground. Higher oil prices are a paradigm shift. It is different this time.


Presenter B: Universal Display (PANL)

OLED market (organic light emitting diodes). Smartphones & TVs are moving to OLED. Lighting will likely move to OLED. 25% of market cap short. Cheaper to manufacture, better & more efficient. Trades at 16 times 2014 estimates. Holds key patents in OLED market. Patents are where the hidden value is. Replacement value calculation is $24. Paying a 15% premium  to replacement cost for the best company in a growth market. The Qualcomm of the OLED market. $240 million in net cash + value of patents+ value of R&D + PP&E . Growth stock in value category trading close to replacement value.


Presenter C: Nestle (NSRGY)

Compounded at 15% total return since 1991 and can continue. Strong brands now affordable to quickly growing developing world.  Don’t like selling companies and incurring taxes. Prefer to own stocks that never need to be sold. There are numerous members of management that speak 5 different languages. Truly global company. Go find somebody at Kraft management that speaks 5 different languages. Were willing to lose money on R&D for years on Nespresso and are now making billions on it. Willing to make long term investments even if there is no immediate payoff.


Presenter D: Bed Bath & Beyond (BBBY)

Greater than 25% ROE. Reduced share count by 25% over past decade. Leading home furnishing retailer. The store to go to for middle & upper class families when moving into a new house/ getting married. Entrepeneurial culture.  Declining margins & threat from Amazon are legitimate concerns. Margins were unsustainably high  after Linens –N- Things, their primary competitor, went bankrupt. They are spending a lot on technology & opening  many new Buy Buy Baby stores.  Same prices as Amazon. People prefer to touch & feel these types of items before buying. 12 times FCF after net cash. 75% of conservative intrinsic value. No near term catalyst. 5 year holding.


Presenter E: Vishay Precision Group (VPG)

Vishay Precision Group (VPG) is an internationally recognized designer, manufacturer and marketer of: components based on its resistive foil technology; sensors; and sensor-based systems specializing in the growing markets of stress, force, weight, pressure, and current measurements. VPG is a market leader of Foil Technology Products, providing ongoing technology innovations in precision foil resistors and foil strain gages, which are the foundation of the Company's Force Sensors Products and its Weighing and Control Systems. The product portfolio consists of a variety of well-established brand names recognized for precision and quality in the marketplace.  Less than 5 times EBITDA to EV. Great list of customers. No near term catalyst. 5 year holding.


Presenter F: Investing Advice

·         Get away from the game of trying to figure out where the market is going to go. Buy value and companies you can hold for years. Buy companies that you can own even if a depression is around the corner

·         Government involvement is masking what companies could really earn without the training wheels. 2008 only emboldened regulators to get more involved. Treacherous investment conditions. Interventions are causing distortions & future disasters are being set up.

·         How firm is run: Learn from failures. Senior partners at firm work with new employees. Flat structure. Always allow new opinions and change.

·         Ridiculous short term orientation aided by investment committees & consultants. Ridiculous pressure to keep up with the market in the short run. Pressure of industry makes it hard to be a true long term investor. Clients who could redeem put tremendous pressure on a manager to perform short term.

·         The ability to take a long term view gives one an edge.

·         Fairly priced to expensive market for the better part of the last thirty years. Have been better bargains in distressed debt, distressed real estate. There have been chances to buy stocks but there were more opportunities elsewhere.

·         Get the right clients. It is better to have less clients that are more patient.

·         Act in clients best interest but ignore everything they say. The most terrible sounding investments that would scare the hell out of your clients is likely a great investment. When the news is worst about an investment it is likely the best opportunity.

·         Investing should be absolute, not relative. If there are no bargains then hold cash.

·         There will be a once in a hundred year storm every 3 to 5 years because of the amount of distortions by government.

·         You don’t need the entire market to be cheap to find bargains. Look hard. Be patient. Right now not many bargains in public markets.

·         Hard to analyze, highly complex situations offer opportunity.

·         Most of our investments stand on their own and we don’t hedge. Don’t care about market fluctuations. Not afraid of market risk. Sometimes hedge currency or interest rates.

·         Not expert in technology but after 2001 bought tech stocks trading under cash and doubled our money. Bought HPQ but should have just put it in the too hard pile.

·         Sometimes they speak to management with a cheap stock and ask them why they aren’t repurchasing stock at these cheap levels. Management answers that they bought higher & it didn’t work. Ridiculously annoying when management thinks like that.

·         The importance of having great clients. Investors called and wanted to put in more money because of the amount of bargains.

·         Intellectual honesty. Admit mistakes. Admit when you were lucky rather than smart. I make a lot of mistakes.