Pat Dorsey Interview With Young Investors Society

Pat Dorsey was recently interviewed by Young Investors Society.  He's the founder of Dorsey Asset Management and prior to that worked as the Director of Equity Research for Morningstar. 

He's also the author of two books:  The Little Book That Builds Wealth and then The Five Rules for Successful Stock Investing.  Here's some takeaways from his talk:


- His book talks about moats and competitive advantage.  He wished he put more in his book about the business that is building the moat, versus one that already has one.  A younger biz with a longer runaway and each dollar of incremental cashflow is being invested at an increment ROIC.

- If you've got long-term time horizon, smaller pool of capital, and investors ok with volatility, your returns are probably gonna be superior. 

- For companies, the ability to reinvest is where you really maximize things

- On short selling:  Highlighted the not-so-great risk/reward of only being able to make 100% on your position but the potential to lose an infinite amount (if the short just keeps going up and up).  "Shorting is tough because time is not on your side."

- Short selling is very hard and the few good short sellers he's met never ever ever short because of valuation.  They short because a business is fraudulent or fundamentally flawed.  For shorting candidates, look for businesses that both raises equity and pays a dividend.

- On Snapchat (SNAP): Thinks it could be a smoking hole in the ground after a while.  Mentioned to look at the company's growth rate once Facebook (FB) rolled out its 'stories' copycat feature on its Instagram platform.  Said SNAP needs to find a monetization model over time.

- Said investing in DryShips (DRYS) is kind of like playing poker with Kim Jung Il.

- Make sure it's a business you can understand, don't ignore management.

- On Facebook (FB), which Dorsey owns: seems almost too obvious; has huge topline but still growing at over 50%.  Global advertising market is huge (opportunity).  Advertising grows a little bit more than global GDP but digital ads have grown even faster.  Advertisers follow attention.  2 companies get 80% of incremental ad spend: FB and Alphabet (GOOGL).  But if you had to take the stock and lock it up and not touch it for 10 years, you probably can't do that with FB because the landscape changes too much.  FB is hyper-aware of the risk of declining user engagement.  The current valuation does not assume dominance 10 years from now.  Close to 17-18x EBIT now, growing over 50%.

- "We worry about all our positions.  If you ever have a position you're not worried about, you're probably in trouble."

- Single biggest lesson is to avoid endowment bias.  Just because he owns it doesn't mean he should trust management more.  "My biggest mistakes have definitely come when I've not kept the bar as high as it should be with management quality or business quality."

- You can never have too high of a hurdle rate for businesses you evaluate.  You don't need to own 100 stocks, you're not running a Fidelity mutual fund.  Maybe 10 in your personal account, or 30 if you're running a fund

- Sticky note on his computer: "No FOMO"  or No Fear Of Missing Out.

- Ask yourself: Does it fit your personality?  Does it fit what you're trying to do as an investor?

The publisher disabled the ability to embed the video but you can view it here at the Young Investors Society YouTube channel.

We also recently posted up Mark Cuban's interview with Young Investors Society as well.

Vladimir Jelisavcic on DryShips Convertible Bonds: Value Investing Congress Presentation

At the Value Investing Congress today, Vladimir Jelisavcic of hedge fund Longacre Fund Management gave a presentation entitled "DryShips Convertible Bonds: Dislocation & Deep Value Opportunity".

Be sure to check out all of our notes from the Value Investing Congress.


Vladimir Jelisavcic (Longacre Fund): DryShips (DRYS) Convertible Bonds

Embedded below is his full slideshow presentation:



He gave a presentation on the distressed debt of DryShips (DRYS), saying that the company's drillships are valuable unique vessels and that capital expenditure in deepwater drilling continues to grow.

Dryships: originally a dry bulk vessel company, owns 46 dry bulk ships, 12 tankers, and 9 ultra deep-water rigs (not all completed). The rigs are the driver of the business, as dry bulk shipping business declines. Tight market for the newest ultra-deep drill ships. Booked for next 2 years.

Key point of thesis is demand is high and supply tight for these rigs, and DRYS owns several. Says day rates are expected to rise, which has led some owners to hold off their supply to wait for better deals. $15/share price x 130M is $2B mkt cap, gets to $5B EV. So about $637M value per drilling units, a discount to recent $800M-1B per unit private market value based on recent transactions.

Convertibles also attractive, he didn’t put too much time into the numbers. Showed the converts chart- collapsing. He figures they have 166% asset coverage. He believes that DRYS 5% convertibles are a good investment.

The dry bulk shipping sector has been beatdown lately, but Jelisavcic argues there's fundamental value there. He also pointed out that DRYS owns 75% of Ocean Rig (ORIG). ORIG has a market capitalization of $2 billion and DRYS has a market cap of $1 billion.


Q&A Session:

What happened to corporate bond market? He says hedge funds own 15% of the securities, compared to only 3% of stocks, and they sell out very quickly.


About Vladimir Jelisavcic: He co-founded Longacre Fund Management in 1998 with John Brecker and Steven Weissman. They were previously members of the high-yield group at Bear Stearns. It's worth noting that Longacre recently announced they'd be winding down some of their funds by the end of the year, though they will still manage certain products.


You can view our notes from the Value Investing Congress for the rest of the hedge fund manager presentations.