Notes From Great Investors Best Ideas Conference (GIBI) Dallas 2017: Ackman, Einhorn & More

The 11th annual Great Investors Best Ideas (GIBI) Dallas Investment Symposium just took place where managers shared investment ideas to benefit The Michael J. Fox Foundation for Parkinson's Research and Vickery Meadow Youth Development Foundation.  Below are some brief notes on the event:


Notes From GIBI Dallas Conference 2017

David Einhorn, Greenlight Capital

Still owns a huge position in General Motors (GM) but has been trimming it since it's grown too large (risk management, position sizing, etc).  Still his largest position by a longshot though.  Still thinks it's very cheap and points to an opportunity for a new shareholder base to get into shares.  Likes they've gotten rid of its riskiest international business and is investing in autonomous cars and electric vehicles: the future.

He also likes Tempur Sealy (TPX).  Thinks estimates are way too low (notes that management's incentives are way higher).  The company had a dispute with Mattress Firm and stopped selling its mattresses there.  Despite that, customers still actively sought out the TempurPedic brand, so the co is replacing its lost Mattress Firm sales elsewhere at higher margins.  Thinks there's also a reasonable chance MF comes back to them since MF has lost sales.

Einhorn said that his 'bubble basket' of shorts in highflying tech stocks like Amazon and Tesla are valued like profits don't matter ... ever.  He says eventually people will wake up and profits will matter and their stocks will crater.  He also pointed to somewhat of a cult following status that is attached to Tesla's stock with all the hype that Elon Musk continuously builds with various projects.  There's around 30 stocks in Einhorn's bubble basket.   He noted he owns a Tesla, but also points out that the company probably lost $20-30k selling it.  Says company hasn't figured out how to make cars profitable on a unit basis.  You can also read Greenlight Capital's Q2 letter here.


Bill Ackman, Pershing Square Capital

Pitched his newest long: Automatic Data Processing (ADP).  Has an activist position.  Thinks it's a quality business: simple, not capital intensive, secular tailwinds (sees lots of growth ahead).  Automating employees.  Ackman thinks the stock's a double.  We've posted Ackman's presentation on ADP previously.

Also mentioned the GSEs he's involved with: Fannie Mae & Freddie Mac.  Still owns and thinks there's huge upside there.  He originally pitched these plays three years ago at the same conference.  Thinks they will eventually trade multiples higher of where they are now.

He's still short Herbalife (HLF) and has lost millions on the bet as the stocks' up around 40% from his average short price.  Said that of the risk factors considered for the position, Carl Icahn coming in and buying 20+% of the company wasn't one he considered.

Noted he still owns Howard Hughes (HHC) and while he doesn't see any immediate catalysts, thinks it's a long-term play as a high quality business.

Says average investor can be plenty concentrated with 10-15 holdings.  Biggest mistake of his career?  Not selling when new information emerged that didn't jive with his investment thesis.  You can read Pershing Square's Q2 letter here.



Tom Russo. Gardner Russo Gardner

Spoke about global brands and various companies still controlled by the founding families.  His best idea was the company hit with a scandal and PR crisis: Wells Fargo (WFC).  Previously he had noted how his WFC stake has remain unchanged (around 6% of his assets) and that he thought the company simply became too fixated singly on one variable (cross-selling) which lead to a bunch of accounts being opened in customers names.  The company now suffers from poor optics but on a risk level, direct financial harm has been modest and he has faith in the legal process.



Andrew Wellington, Lyrical Asset Management

A couple of picks:  Flex Ltd (FLEX), co is seeing double digit growth in its bottom line and 50% of FCF going to shareholders.  Trading around 12x earnings.

Affiliated Managers Group (AMG): asset management play, owns equity stakes in boutique management firms.  Says they own really good managers.  Trading around 12x NTM earnings.



Van Hoisington, Wasatch-Hoisington US Treasury Fund

He concluded that we're heading to a recession as the Fed has restrictive policies already in effect and money and credit are slowing noticeably.  Structural impediments to growth are over-indebtedness globally as well as adverse demographics.  Thinks rates will stay lower. 



Jeanie Wyatt, South Texas Money Management

A few ideas: Citigroup (C) as a value play.  Thinks it could re-rate from almost 1x book value to closer to 1.4x.  Since the crisis the company has a better situation and less subprime.

KAR Auction Services (KAR):  notes 20% EPS growth, end markets that are accelerating as well.  Trading just over 22x next year's earnings but with a big opportunity ahead as various leases will be coming to term.

Electronic Arts (EA): video game stock that's benefited from going over the top (OTT) as it leads to higher margins than the typical video game distribution model of physical games, etc.  Accelerating sales growth.  Also sees new potential upside in e-sports. 

Vodafone (VOD): Stock has traded sideways but the company has improved in end markets.  Thinks it offers good downside protection as sales growth has accelerated.


For more stock picks from recent investment conferences, we posted up notes from the Sohn San Francisco Conference yesterday.

Berkshire Hathaway Symposium Panel Videos

The Museum of American Finance has posted videos of the Berkshire Hathaway Symposium Panel.  It features Jason Zweig moderating a discussion between Tom Russo (Gardner Russo Gardner), Paul Lountzis (Lountzis Asset Management), and Whitney Tilson (Kase Capital).

The panel examines topics such as: what's the best advice you received from Warren Buffett?  What are the flaws in the Berkshire model?  Why did you buy Berkshire Hathaway stock? What aspects of Berkshire Hathaway can be emulated?  And then audience Q&A.

Embedded below are the videos from the Berkshire Hathaway Symposium Panel:

What's the best advice you received from Warren Buffett?




What are the flaws in the Berkshire model?




Why did you buy Berkshire Hathaway stock?




What aspects of Berkshire Hathaway can be emulated?




Audience Q&A.

Notes From Berkshire Hathaway 50th Anniversary Symposium: Klarman, Ackman & More

The Berkshire Hathaway 50th Anniversary symposium just took place and featured conversations with the likes of Seth Klarman, Bill Ackman, Tom Gayner, Byron Trott, Carol Loomis, Roger Lowenstein, Tom Russo, John Phelan, and Whitney Tilson.  The notes were compiled by Jacques Romano, MD.


Notes From Berkshire Hathaway 50th Anniversary Symposium

Carol Loomis (CL) and Byron Trott's (BT) Conversation

Warren Buffett (WB) was invited but he graciously declined explaining his presence would change the nature of the discussions. BT met WB because the GS partner that had handled his account, Tom Murphy, Jr., had retired.  Hank Paulsen told Warren that BT was the only guy for him.  Initial one hour meeting lasted about three hours.  This was in early 2002.

WB created through GS a negative coupon convertible bond of about $300 million called SQUARZ in April 2002, whereby he was paid to borrow money and the institutional holder of the security was able to purchase Berkshire Hathaway (BRK) stock in the future at a higher price.  Charlie didn’t like the idea.

BT represented Pritzker in the Marmon deal and was involved with MacLeans and Pampered Chef transactions.  BT also involved in Wrigley and Mars deal.

BT describes WB as a perfect ten times two.  He has an incredible mind and able to do math in his head and his discipline is incredible.  On the human side, he is humble and has the best sense of humor.  He is someone you want to be with and is always positive about anyone.

Regarding discipline, he cited some KKR transaction that WB could have done for 10-15% more in price while having a cheaper cost of capital but WB felt he could use that cash more effectively at another time.  He waits for his pitch.  “You should see the stuff he turns down over the years”.

WB looks at cash on cash returns and doesn’t factor in leverage.  He looks for durable long lasting cash flow stream businesses.  He realizes that sometimes to get great businesses you have to reach but he is incredibly disciplined and completely unemotional.

WB told BT that CL started as a reporter but is great in accounting and finance and is a stickler for details.  She’s from Missouri.  CL expanded on a vignette about her dating Ty Cobb.  She had come to NYC in 1950s and was on the quiz show Tic Tac Dough where she did well and was subsequently contacted by Ty’s nephew for an invite by Ty to the 21 Club.  “How could a baseball fan turn that down?”  She was his subsequent “date” to Yankee Stadium during an Old Timer’s Game where she was presented with a Mantle, Maris, Whitey Ford autographed baseball.  That’s about where it went.  She was in her late 20s and he was in his late 60s.

In 2008, Goldman Sachs was experiencing a small but daily run on the bank and wanted to raise capital.  BT said it was about a 20 minute negotiation with WB.  In addition to making his BRK investment, WB wanted to make a big statement about being confident in that investing climate.  He subsequently made his GE investment and wrote his Oct. 2008 NY Times op-ed.  One of his points was that markets go up first and that there is reasonable cause to regain confidence.

WB is an American icon.  The world doesn’t understand how important WB was to the solutions during the financial crisis of 2008.  I would describe him as a “pragmatic optimist grounded in reality”.  

Hank Paulson told BT that during a late night phone call, it was Warren’s idea to make TARP capital attractive to banks and for it not to be stigmatized so all the banks should receive it and none look particularly weak or strong.  But he also wanted to make it more expensive for the banks if they kept this capital for a longer period.  

WB was doing this to help the country.  Some may be cynical about this because he owned Wells but Hank knew and everyone else who knows WB knew that he was creatively playing a constructive role.

Warren is disciplined, opportunistic and long term.   Charlie is not my number two; he is my equal and has kept us on the straight and narrow. Warren doesn’t want to do small deals but will do minority deals as long as it is big.

Warren’s the greatest, nicest and most accessible person.  He’s a great teacher and a great student of investing and business.  He provides a safe home for business owners that want liquidity and still passionately want to run their businesses. Warren is one of a kind and will be the best investor of all time and his record will not be beaten. 

He thinks very long term and Berkshire will still be intact a century from now. “Warren, you can’t control things from below the ground.” “Maybe not, but I can try.” The term “investor” is not quite expansive enough to describe Warren.  He’s also a great acquirer, manager and owner of businesses. Matt Rose of Burlington Northern told me that Warren knows more about the railroad now than I do.  And he can interconnect it to everything else.  He makes the complex seem simple.  When I talk to Warren, I feel like I’m 2 steps behind him.

They discussed how Andrew Carnegie is known more now as a philanthropist than as a businessman and Warren may have similar impact and be known more expansively.


Seth Klarman (SK), Bill Ackman (BA), and Roger Lowenstein's (RL) Conversation

Bill went to Larry Cunningham’s Cardoza symposium in 1996 and fortuitously sat next to Suzzie Buffett who invited him to sit next to Warren at lunch!  When he went to HBS, there were not any classes in investing although there were classes in investment management.  There were no investment clubs at that time either.  He read Graham’s Intelligent Investor and then Warren’s annual reports.

Seth Klarman took a job at Mutual Shares after college and “Warren” was common parlance once I got into the business.  He thought Warren’s Superinvestor article was very logical.  SK feels that there must be some type of gene that makes people have an affinity for value and value investing.  He told a story about a friend of his whom enthusiastically tried value investing full time but three months later ended up quitting:  “It doesn’t work”.  

BA says some of the things he tries to emulate are Buffett’s focus on quality, durability and concentration.  Although given “my” experience in Valeant, perhaps I should change one of his aphorisms to “be fearful when others are fearful”.  

Making good investments is not about performing discounted cash flow analyses or reading footnotes but more about assessing the moat in our dynamic world. Many of Buffett’s investments in the 1970s like encyclopedias and newspapers did not hold their advantages.  You can’t “just buy and hold”.  The world has changed rapidly.

The difficulty is the qualitative assessment and the implementation. Railroads now seem to pass the 100 year test but how many businesses can pass that test? Lowenstein made the point that Wall Street loves those 99:1 bets but not WB.

SK said that the maxim of “don’t lose money” does not mean at every time and in every instance but to the extent that it puts you out of business.  Sometimes you can bet or invest in favorable expected value situations where you lose the bet.  This is similar to an insurance operation.  Some investments in a portfolio will lose but you don’t put the operation at risk.  

SK: In the 1980s you could actually buy quality inexpensively; you didn’t have to pay up.  I remember Nabisco selling for 7 times after tax earnings.   You can’t just kneel at the temple of Graham and Dodd, you and the world will change.  We will evolve and ought to evolve because the world requires us to.  WB teaches us how to make our own map.

I don’t know WB well enough to know how he feels, but I suspect that he feels that him being held as an investing demigod is a bit silly.  WB isn’t about that. WB is not about giving you a formula.  “Business is hard.  Everything is overlaid with judgment”. WB has been fortuitous to invest at a time when you could get quality inexpensively.  He has built on certain advantages.  No one else gets the calls that he gets. Some people are overly focused on him as opposed to understanding how he thinks.

BA: Buffett has made more people rich than anyone else in history.  And he gives it all away.  He’s one of the great educators. I believe in response to a questioner, BA went into a diatribe about Coca Cola (KO).  It does enormous damage to society and people consume too much sugar contributing to obesity and diabetes.  He wouldn’t be against supermarkets that sell coke.  And he owns Mondelez: all things in moderation.  But Coke doesn’t seem to have had a bad effect on Buffett.  I believe he has said WB hasn’t had water since the 1950s!  He thinks Coke has great distribution and marketing but it is not good for children to get too much sugar water.

There was some discussion that the BRK model with insurance, concentrated positions and possible illiquidity may have problems in future.  You need to be a fortress and inspire confidence and trust with regulators.  Will that survive Buffett? Conglomerates do not have a great history.

Buffett is a fabulous communicator.  He has stayed on the right side of politics and has avoided becoming a target of Washington.  It is not automatic that the next CEO will be able to tell the story of the company as well. SK said he stole the idea of writing meaningful partner letters from WB.  And he feels that the overall quality of fund letters in general has improved because of Buffett’s lead.  Consistency, reassurance, and transparency give shareholders comfort.

BRK can be a Warren centric model.  He is uninvolved in the management of the businesses and there may be an opportunity for “optimization”.  With 3G he is “outsourcing” the less attractive aspects of the business. Catastrophic risks can destroy enormous amounts of value.

SK: excessively raising prices on drugs may not be illegal but there are social costs.  Capitalism may face a more constrained environment as a result of bad behavior. WB has conducted himself generally beyond reproach.  He has not become a target.  The next CEO may not get a pass so easily. Value investing is nuanced but we will always have it.  “Human nature will not yield”.  Greed, fear and lack of intellectual honesty will result in bargains from time to time. There is always going to be a share of the investment business that is following the crowd.  There are those watching over their shoulder and who have misalignment of goals.  They may be forced to do things they may not want to do for human reasons.

Someone asked SK if he wanted to be an investment manager at BRK or if he had any discussions about this with WB.  He said he was never a candidate and loves his job. He said he was surprised on the upside with WB’s decisions about investment managers.  It was hard to do and it has gone incredibly well.  


Berkshire Shareholder Panel: Tom Russo, Paul Lountzis, Whitney Tilson

“Only WB can fill a room without even being in it”.

Whitney Tilson has been adding to his BRK position.  It is safe, cheap and with decent growth.  He puts fair value about $267,000 give or take 10%.  You can find his slide presentation on the Internet (there were no slides at this conference).

Tom Russo said there are no agency costs and an extraordinary alignment of interests.  WB owns 30% of the stock and makes $100,000 for managing. The corporate form allows for tax efficiency with respect to capital allocation.   He has the willingness to do anything if it makes sense and the capacity to do absolutely nothing if conditions warrant.  Great businesses can find a home at BRK where they will be protected.

Paul Lountzis tries to understand BRK broadly and deeply.  There is embedded optionality in BRK.  Regarding Berkshire, he is reminded of the Ralph Waldo Emerson quote: “Every institution is the length and shadow of one man.”  We try to understand it now and in the future. He mentioned that Geico is on the books for $2-3B but is worth 10-15 times that.

WT told WB that he is his role model in Jan. 1999 and he tries to emulate how he runs the business.  Given how WB communicates, BRK is the opposite of a black box.  He has incredible humility and even looks for ways to self-flagellate.

PL:  WB is a wonderful human being and exemplifies consistency and loyalty to a high degree.  He focuses on permanence over the long term and looks out 10-20 years. His example impacts everything you do both personally and professionally.  BRK values permeate seamlessly and consistently throughout its business. Despite the fact that BRK has gone down by 50% several times it has still been extraordinarily rewarding.

Few businesses have great reinvestment opportunities.  If you can defer taxes on unrealized gains, this is a great advantage. The problem with many public companies is their inability to take advantage of some of their potential opportunities, unlike family controlled companies.  Public companies may need to make earnings estimates as opposed to investing in opportunities that may penalize current earnings.  They may worry about activists.

BRK is a unique public marriage between private and public investments.  BRK gets $1.5B month in free cash.  It is effectively a source of permanent capital and a robust re-investment engine. During times of stunning market drops, WB was never forced to sell. Permanent capital is very valuable. The ability to do nothing is valuable in the investment business. Operationally, they can turn down the noise of Wall St. Buffett has the flexibility to do nothing.  He is unique and special and combines analytical strengths with strong people skills to a degree that is very rare. He has unique qualitative insights. You don’t see the 99% of opportunities he says “no” to.  

Buffett plays a very important cheerleading role.  Many company CEOs are rich and old and feel personally loyal to Buffett.  Are they going to be as loyal to the next CEO? There is somewhat limited corporate governance but Buffett holds it all together.  

What is the next BRK? The best BRK is BRK. One interesting point that was made: investors that held the S&P 500 going into the financial crisis more than likely sold when everyone was running for the hills.  But given their understanding of and loyalty toward BRK, shareholders were much more likely to garner the full return of the company and not otherwise sell low and buy high.  This is a point that can be missed when one compares BRK returns to the index.  The index’s returns are more likely illusory and less likely realized. Other companies “wave people in at the peak”. 


Partnership Session With Markel's Tom Gayner and John Phelan

John Phelan.  We don’t take 1% or more positions without visiting the company. Should you locate far from Wall St?  Mindset trumps location.   We think we have semi-permanent capital.  There is always a balance between the short term and long term. Our benchmark is not the S&P 500.  Our benchmark is to make money.  The risk free rate is your benchmark. We have the luxury of not being invested all the time. Simplicity is a virtue and we have fewer problems that way. If you hire someone that is not from a top school, they are less likely to think, “You’re lucky to get me”.  Some of our best hires are from the military.  They know how to get things done. We currently have 18% cash which is on the high side. We are company focused and not market focused.

Tom Gayner: “Good meat priced right is better than poor meat priced cheap”. JP worries about the credit markets.  Now a $250M 10 year Treasury trade moves the market whereas before $1B wouldn’t make it blink. We are defensively positioned but not bearish on the US economy.  We are seeing wage pressure in our companies.   The best hedge is a great attractively priced business. Paying up for a business is counter-intuitive.  It costs more but may be worth a lot more.

Lawrence Cunningham: Buffett’s presence here would steal the stage and by electing not to come, he is letting us have the conversation. LC organized a conference at Cardoza Law School in 1996.  One questioner asked what happens to the shareholders when Buffett dies.  Buffett said, “it won’t be as bad for you as it will for me!” BRK looks a lot different today than it did then but the core values have stayed the same.  He has created an institution that goes beyond him in the quality of the people, businesses and values and that is the best succession plan possible.

BRK gets funds from internal generation and insurance float versus the cost of borrowing to make acquisitions.  The float is currently $85B with no due dates, covenants or banker negotiations.

The Board is not there to monitor management but to partner with it.  They have no options, liability insurance and bought stock with their own cash. Company CEOs have clear and simple mandates.  Called out Bruce Whitman, CEO of Flight Safety who was at the conference. He has never sold a subsidiary and sometimes business sellers accept a discount compared with offers from other business buyers. We would rather bear the visible costs of a few bad decisions than suffer under stifling bureaucracy.

GenRe would have gone bankrupt after 9/11 without BRK! Dexter Shoe was another “mistake”. BRK sometimes is a juicy target for journalists-recently Clayton Homes and National Indemnity.

He spoke about a recent acquisition called Detlev Louis from Germany that sells motorcycle gear.  Similar to See’s being a small deal but defining the future of the company, he sees this company as a possible harbinger of future deals in Europe.  He points out that it only has about $40M in earnings which is less than WB’s minimum size but he made an exception to get a toehold in Germany and Europe.

He made mention that Pampered Chef’s sales have considerably decreased and that there is some turmoil in the capital intensive business of NetJets.

Don’t focus on beating the market but in finding the greatest discrepancy between price and value.

Tom Russo's Interview on Wealthtrack

Global value investor Tom Russo of Gardner Russo & Gardner recently appeared on Consuelo Mack's WealthTrack.  Russo mainly focuses on consumer products companies with a global presence and has a long-term holding period.

Embedded below is the video of Russo's interview:



For more from this show, head to Joel Greenblatt's interview as well as Bruce Berkowitz's chat.

Great Investors' Best Ideas Dallas 2014 Notes: Ackman, Einhorn, Perry & More

The 2014 edition of Great Investors Best Ideas Dallas took place this week benefiting the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.


2014 GIBI Dallas Notes



Bill Ackman (Pershing Square):  He was positive on Fannie Mae and Freddie Mac (FNMA & FMCC), which have obviously seen volatility as of late.  They own 10% of each and are quite bullish.  They've been buying both and say private property can't be taken by the government.  Pershing owns common versus the preferred and think it's just as good of an investment.  Thinks there's an opportunity for settlement.


David Einhorn (Greenlight Capital):  He continues to like Micron (MU) and Apple (AAPL), and also really likes Greek banks.  AAPL/MU his 2 largest stakes.  Says DRAM has been a bad business for a while and should make $4 per share as the industry is only 3 players now after consolidation.  Likes Greek banks as they're at or below book value.  Also likes shorting French government bonds: Marine Le Pen wants to leave the Euro and bonds yield around 1%.


Richard Perry (Perry Capital):  Based on his pitch that was circulated a few months ago, Perry likes the idea of containerboard sponsored MLPs (they've owned International Paper (IP), KapStone Paper (KS), and Rock-Tenn (RKT)).  He also likes tax loss candidates of AIG (AIG) and Ally Financial (ALLY).  ALLY = Trading below book value but should trade 1x at least.  Government still owns 15%, last sold some @ $25, trades $22.50 now, should finish selling at year-end.  Also says Perry is appealing the Fannie/Freddie ruling and that this particular judge has been overturned a bunch.


T. Boone Pickens (BP Capital): He was positive on Marathon Oil (MRO) and Clean Energy (CLNE) again.  2 of his picks last year were up (FANG and BAS), except for CLNE which is down big.  He owns 20m shares, could be biased "pride of ownership".  Says he thinks we drill too much and US is only place that's growing production.  Likes MRO because it's cheaper on EV/EBITDA than peers like XOM and OXY.  Says we won't see $10 natural gas in his lifetime.


Michael Price (MFP Investors): 2 ideas (1 old, 1 new): Still likes Dolby (DLB, old idea).  55% of the company is owned by kids of the company.  PC sales dropped but have recovered.  Company can see new growth in India/China.  Undervalued stock, attractive to private equity and Apple.  Also likes FMC Corp (FMC), new idea.  Stock whacked on overreaction that company won't be splitting into two parts.  Thinks it trades $120 or so in next few years.


Tom Russo (Gardner Russo & Gardner): They like family controlled businesses.  Look for 50 cent dollars.  Focuses on global consumer stocks.  He was positive on Cie Financiere Richemont SA.


Paul Isaac (Arbiter Partners):  He likes Credit Agricole Regional Banks.  CMO, CRTO, CCN, CAF, CIV, CRSU.  40% price to tangible book value.  Well capitalized and inexpensive on relative basis.  Shorted French 10 yr bonds to hedge as there is euro risk.  Also pitched Japanese General Trading Companies.  8001.JP, 8002.JP, 8031.JP, etc.  Some 70% tangible book value, trading 6x PE.


Bill Miller (LMM): Buy the homebuilders as he likes the sector in general.  Specifically mentioned KB Homes (KBH), Lennar (LEN) and Pulte (PHM).  Market at new highs yet builders aren't even though they've got a nice clean path for earnings growth.  Says employment is the key and housing starts are improving.  He also said he likes Intrexon (XON).   This is a bet on management, who owns a huge chunk of the company.  Big upside but also could lose half your investment.


Ray Nixon (Barrow Hanley Mewhinney & Strauss):  He's positive on Q4 tax loss candidates, noting that many mutual funds end fiscally in October so there's various pressures that month, not to mention that it's one of the worst months historically.  Recommends buying across October, November and into December.  Buy a basket of tax loss names.  Pitched Mattel (MAT):  Stock's down over 30%, losing Disney license in 2016, losing shelf space, missed the past 3 quarters.  He says toy industry is growing 5%, likes the dividend yield, and points to $1b in cash on balance sheet.  They've started buying shares.

Thomas Russo's Presentation at 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 Thomas Russo of Gardner Russo Gardner who talked about global value investing.


Tom Russo's Value Investing Congress Presentation

•    Core principles – fifty cent dollar bill, capacity to reinvest and capacity to suffer.


•    Capacity to reinvest is one of the most exciting factors. In the past sold some domestic names which couldn’t reinvest in the long term (focus on international brands, especially consumer products).
•    Has long owned spirits companies, owns four of them currently. Entering the China spirits market – hasn’t deeply penetrated the market yet. Over-time should develop. Over half a billion cases in the Chinese market – plus express a desire for these beverages (i.e. cognac).
•    The mainland Chinese consumers are on the move – over 100 million will travel around the world and experience products such as Johnny Walker/Hennessy and will be natural brand ambassadors. That is just the Chinese market alone.
•    Indian market is another huge potential market, only 1% of whiskey is from Scotland.
•    Need to invest the right amount of money to grow the business – will lose money at the start (upfront costs like distribution, marketing, etc.).  Very expensive early on. It burdens income in the beginning. The right way to enter? Managements need to have the capacity to suffer, being able to take a hit to earnings in order to invest in new investments. I.e. – don’t be short termed.
•    Companies who have been able to invest in growth in a smart amount, generally are family-controlled companies, for which the street and activists cannot interfere.
•    60% of portfolio is family-controlled businesses.
•    General Mills won over decades the yogurt war, relished the $300MM earnings contribution from yogurts at the peak and some point along the way they missed the greek yogurt trend. Didn’t devote money to protect the segment – believed they didn’t have flexibility. Greek yogurt was allowed to grow, to the point it is untouchable. General Mills had the capacity to reinvest in that category and missed it. Now Chobani will garner a $5B valuation (est.).


•    Capacity to suffer example – BRK’s equity index put options a prime example, Warren got premiums to invest for 15 years, while taking a couple years of reported earnings hit (the end sum from premiums invested is what needs to be viewed instead).
•    Mastercard and Nestle are examples of companies which reinvested into their business and temporary depressed earnings for LT growth.
•    Also like businesses who are tax conscious.
•    1999 was Tom’s best year ever – he was down 2%, but the setup presented was amazing (i.e. buying opportunities).
•    Why aren’t these principles followed? Wall Street is focused on short term results. Culture had changed to chasing quarterly results.
•    One of Wall Street’s mistaken emphasis – focus on R&D as a percentage of sales.
•    Reckitt Benckiser vs. Nestle – The Streets mistake on working capital as a percentage of sales. Talks on how analysts commented on a few CPO companies’ working capital practices, Nestle for instance. They saw Reckitt release working capital and questioned others as to why they are not doing the same. As Nestle grows into a higher mix in developing markets – they need to have working capital to keep product stock as distribution costs and stocking costs are higher. As they grow in these markets, need to grow working capital.
•    Cash Flow conversion ratio – another street mistaken emphasis.  Tom wants companies that can reinvest their cash – while the street wants a majority of cash to be distributed.
•    Percent of business from new products (within 3 years) – another mistaken concept.
•    Avoid family controlled company – another Wall Street mistaken concept. Talked about the differences between Comcast and Adelphia (went bankrupt). As investors we can gauge the caliber of people running the business.
•    No ONE variable is the answer, you need to look at all the factors to stay aloft.
•    To summarize – find businesses with a longer term horizon.


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

Great Investors' Best Ideas Conference Notes 2013: Price, Akre, Gabelli, Pickens, Russo & More

Below are some brief notes from the 7th annual Great Investors' Best Ideas Conference in Dallas benefiting the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.


Notes From Great Investors' Best Ideas Conference


Michael Price (MFP Investors): He pitched three ideas:  long Hospira (HSP), long Songbird Estates (SBD.LN) and long Dolby Labs (DLB).  HSP has seen value guys buying it, transitioning away from growth investors as the investor base changes.  The company has good free cash flow and he thinks the stock can hit $60.  His thesis on Songbird is a discount to NAV story (around 30%).  Dolby (DLB) has a ton of cash and no debt with huge royalty streams (80% of revenue).  As tablets and PCs continue to grow, they'll make money.


Chuck Akre (Akre Capital Management):  His picks were Moody's (MCO) which he likes due to its oligopoly position, solid return on equity and pricing power,  as well as O'Reilly (ORLY), the auto parts supplier which recently bought CSK Auto and the integration has gone well and now they're buying back shares.  His presentation also focused on how you should stick with your circle of competence and acknowledge when you're unsure of things. Focus on 3 things in a business:  growth of capital (high ROIC), good management, and solid reinvestment (how they used past FCF).  The price you pay is very important.


T. Boone Pickens (BP Capital):  He pitched Diamondback Energy (FANG) which he likes for its growth potential, no debt and a lot of cash.  He also likes Basic Energy Services (BAS) as excess capacity has been taken out.  He also touched on his picks from last year: National Oilwell Varco (NOV) which he still likes, as well as Pioneer Resources (PXD), almost a double and he likes the Permian basin acres (continues to like this stock as well).


Karen Finerman (Metropolitan Capital Advisors):  She pitched North Atlantic Drilling (NADL.NS) traded in Norway which was a spin-off from Seadrill (SDRL).  The spread between non-Norway rates and Norway rates is very big and many contracts already locked in.  She likes the cheap valuation, big dividend (potential for it to grow), says there's limited downside due to the backlog. There's also a catalyst with an IPO coming for a US listing and it won't be too dilutive. 


Tom Russo (Gardner, Russo & Garnder):  He pitched Nestle (NSRGY) and Berkshire Hathaway (BRK.A/B).  It seems like Russo always pitches Nestle when he speaks somewhere.  He's a global value investor and is looking for companies like See's Candies and invests for the long-term.  They have a lot of European companies in their portfolio and like market volatility as it provides opportunities to long-term investors.  The last major portfolio buys they made were AB Imbev (BUD) and Mastercard (MA) 3 years ago.


Mario Gabelli (Gabelli Funds):  He presented Cablevision (CVC) as a potential buyout candidate with John Malone (and Charter Communications) active and pushing for consolidation.  Will the Dolans sell CVC?  Argues that the company is worth up to $23 in a buyout, versus current levels of around $16.


Caroline Cooley (Crestline Investors):  She's focused on event-driven plays.  She specifically mentioned Macquarie Infrastructure (MIC) which is involved with infrastructure building, has a nice yield and could see it head higher.  It's undervalued because it cut the dividend in '09 and has limited sell-side following. says this story is probably in the middle innings.


Tom Gayner (Markel):  He pitched General Electric (GE).  He pitched the same stock at GIBI in 2007 when it was $40 and now the stock's at $25.  They still own shares and now have a $23 cost basis.


For more conference notes, we also posted up notes from Invest For Kids Chicago (Lasry, Eisman, Cooperman).

Interviews with Julian Robertson & Jim Chanos: Columbia Business School Newsletter

We wanted to highlight the latest version of Columbia Business School's newsletter: Graham & Doddsville.  In their latest edition, they publish interviews with Tiger Management's Julian Robertson and Kynikos Associates' Jim Chanos,


Below are some excerpts we found insightful from the Tiger Management founder:

Julian Robertson on his investment philosophy: "I believe that the best way to manage money is to go long and short stocks.  My theory is that if the 50 best stocks you can come up with don't outperform the 50 worst stocks you can come up with, you should be in another business ... For my shorts, I look for a bad management team, and a wildly overvalued company in an industry that is declining or misunderstood."

Robertson on evaluating an initial idea: "The first thing is, is the management decent and honest?  A lot of people don't really care about that.  The way to look into that is to do some diligence."

On qualities he looks for in seeding funds: "Competitiveness.  Is he a competitor?"  He references that he often likes athletes due to their will.

Robertson's favorite plays (aside from Google and Apple): "I love WuXi (WX) which is a Chinese-based employment agency for PHDs, primarily in the drug industry ... the company's earnings are certainly increasing beautifully at about 20% a year and it still sells at 10x earnings."



Good insight from the interview with the Kynikos founder:

Jim Chanos on his early experiences in investing and lessons learned: "I recommended a short position in Baldwin-United at $24 ... the stock promptly doubled on me.  This was a good introduction to the fact that in investing, you can be really right but temporarily quite wrong."  (He started Kynikos with $16 million, $1 million of which was his own money.)

Chanos on long versus short: "I've learned there's a big difference between a long-focused value investor and a good short-seller.  That difference is psychological and I think it falls into the realm of behavioral finance ... if you're a short-seller, that's a cacophony of negative reinforcement.  You're basically told that you're wrong in every way imaginable every day.  It takes a certain type of individual to drown that noise and negative reinforcement out and to remind oneself that their work is accurate and what they're hearing is not."

On skills essential to succeed: "Start first with the SEC filings, then go to press releases, then go to earnings calls and other research. Work your way out.  Most people work their way in."

Chanos' current positions: Short natural gas industry in the US, betting against the coal industry.  He also thinks for-profit education business is flawed.  In his Opportunity Fund, he's currently short Chinese property companies and long Macau casinos.  We've also posted some of his other short positions.



The newsletter also features write-ups from MBA students on Avon Products (AVP), Ingersoll-Rand (IR), Legg Mason (LM), and H&R Block (HRB) as well as interviews with Tom Russo and Alexander Roepers.

Embedded below is the full Graham & Doddsville Spring 2012 issue:




For more on these particular investors, we've posted up:

- Jim Chanos on short selling: the power of negative thinking

- Charlie Rose's 1998 interview with Julian Robertson

Notes & Presentations From the Value Investing Congress Omaha 2012

We've posted up notes from both days of the Value Investing Congress in Omaha.  Please follow the links below to read about each speaker's investment ideas.  All links have been updated with the actual slideshow presentations as well:


- Doug Kass on the end of the bond bull market

- Aaron Edelheit's presentation on the housing market

- Chuck Akre on judgment in investing and bull case for MasterCard

- Isaac Schwartz's three investment ideas

- Whitney Tilson's presentation on AIG

- Doug Grey's presentation on the cost of money

- Bob Robotti's presentation on Enterflex

- Bestinver's European idea

- GoodHaven Capital on White Mountains Insurance & Alleghany

- David Nierenberg on Superior Energy Services

- Tom Russo on global value equity investing

- Chan Lee on Korea as a goldmine for value investors

- Bruce Zessar and Matt Swaim on Vail Resorts

Tom Russo's Presentation on Global Equities: Value Investing Congress Omaha

Today we're posting up notes from day 1 of the Value Investing Congress.  Below is the presentation from Tom Russo of Gardner, Russo & Gardner on global equities.  The following notes are courtesy of Kyle Mowery from GrizzlyRock Capital.

Capacity To Suffer - Global Value Equity Investing

•    SAB Miller, Pernot Ricard, Nestle, Berkshire: Total 4 above 28% of his portfolio. (total 70% international)
 •    High agency cost risk in public markets
•    Used to speak of Weetabix (cereal company with family control) compound of 21%. Was worth £150MM then sold to Hicks use for £600 pounds
•    Nestle saying Chinese companies are becoming players on the international front.  Sure enough – food firm from China just bought this cereal company for £2,000MM
•    Europe is where they are looking now
•    Culture of Nestle has culture of centuries old Japanese temple – take the time to do it right: Nestle has 35 year planning horizon.
•    Buying brands around the world that are strong and stable – Russo investing in companies’ which are investing across the emerging globe building brands and product lines.
•    Holds positions a very long time to take advantage of attributes compounding returns without taxation
•    Berkshire:  GEICO has $30mm advertising budget in 1996 to $1,000mm over period of owning GEICO.  Reason was $250 loss per new sub but BRK changed - but NPV of sub is $1,500.  So short term profits down with significant growth of subs.  Equity Put Options: $37bn of insurance sold for $5bn. At peak, BRK has $15b of losses on the income statement. $3bn charge for multiple.
•    Pernot Ricard (Credit Default Swap mayhem): Invested in China in early 2000’s, Absolute 2009, India now,  Family controlled – so can take the losses
•    SAB Miller investing aggressively in Africa – huge opportunity over time.
•    300MM bottles of homemade beer – will shift to bottled beer over time in Africa.
•    Just bought Fosters – will do well over time.


Question & Answer Session: ABInBev managers 2nd best in the world only to Buffett and Munger. Mentioned Brazilian railway with a 40% ROE.


Embedded below is Tom Russo's slideshow presentation:




Be sure to click here for other presentations from the Value Investing Congress.

Thomas Russo: Investment Opportunities Abroad & Nestle (Invest For Kids Chicago Notes)

At Invest For Kids Chicago yesterday, Thomas Russo of Gardner Russo Gardner gave a presentation on investment opportunities abroad and going long Nestle (NSRGY).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Find Better Opportunities Abroad

Russo has 70% non-US exposure and he's been looking at European ideas that generate revenue outside of Europe. He lists the benefits of investing globally:

1. Capacity to continue to reinvest in pursuit of corporate wide ROICS
2. Freedom from dividend burdens
3. Corporate ethics / culture knowledgeable
4. Corporate governance
5. Global talent pool
6. Global best practices
7. Lower valuation available (Euro companies loathed)
8. Reduce translation risk

Nestle (NSRGY): He likes that they're focused on better foods. The secure global parent company is much cheaper than underlying national divisions.

Russo focused on how companies must have a chance to reinvest (strength in brands). He alluded to Kraft Foods and its domestic history where the core business lacked ability to effectively expand overseas. He says you must have long tail to expand abroad.

Pernod Ricard: They went to China with large capacity to grow and invest. 15% of profits are in China and it's family controlled. India is a huge opportunity for spirits.

SAB Miller: The company just purchased Fosters and local brewed beer is a big opportunity. Their sales are rising but EBITDA margin is down and.

He says that market volatility is a friend of the long-term investor. It permits more efficient capital reinvestment, offers M&A opportunity, and enhances share repurchase opportunities. He also says that investment managers have to have the capacity to suffer, in 1999 he was down 2% while the market was up significantly.

At the Leaders in Investing Summit earlier this year, Russo said he likes SAB Miller as well.


You can view full notes from Invest For Kids Chicago here.

Notes From Leaders In Investing Summit: Leon Cooperman, Larry Robbins, Bill Ackman, Howard Marks & More

The CIO/CEO Leaders in Investing Summit took place on Tuesday at The Metropolitan Club of New York and featured presentations from numerous high-profile hedge fund managers.

The summit is a peer-only event only open to those investing third party capital. We're pleased to present notes from the event concerning specific investment ideas and/or commentary on the economy:


Leon Cooperman (Omega Advisors): The legendary hedge fund manager's talk centered on equities as the best house in the financial asset neighborhood. He argued that you need to believe four issues in order to have a positive view on today's market:

1. The U.S. is not another Japan and will not suffer a lost decade.
2. The European Central Bank (ECB) will act to stabilize Europe.
3. President Obama will move to the center.
4. The Middle East's turmoil leads to democracy and oil stays below $135.

Cooperman continued to voice his concern over employment. He also pointed out that the yield curve is quite steep and that the Federal Reserve is trying to inflate the country out of debt. Cooperman says inflation is not bad for stocks (see the best investments during inflation).

He argues that stocks are cheap trading at 13.6x relative to bonds and history. The Omega Advisors founder also thinks that bonds are 'screaming' to be shorted. Other hedge fund managers have also advocated shorting bonds. Don't forget that you can also hear Cooperman's latest investment ideas at the Value Investing Congress in October (click here for a discount).



Larry Robbins (Glenview Capital): Formerly of Cooperman's Omega Advisors, Robbins founded Glenview Capital. His presentation yet again focused on Life Technologies (LIFE). The company trades at a 11x P/E and is likely to grow EPS 20% over the next few years as they were able to grow EPS throughout the slowdown and 95% of their business grows with research spending.

Robbins highlighted free cashflow is 91% of EPS and that the company will have 80% market share versus competitor Illumina (ILMN). One could postulate that he's short ILMN as a hedge but when asked about it he said that he's "only here to discuss my longs."

And speaking of longs, he said some of his top holdings are Expedia (EXPE), Flextronics (FLEX), Xerox (XRX), and BMC Software (BMC) in technology. We've detailed the in-depth investment thesis on EXPE in the latest issue of our Hedge Fund Wisdom newsletter.

In general, Glenview looks for good businesses, low valuations, excess capital, a business that can succeed regardless of economic environment, and pricing power. Currently, Robbins thinks the economy will grow slowly and with heightened volatility due to excess government intervention.



Tom Russo (Gardner Russo & Gardner): The long-only manager is still bullish on China and pitched Nestle (NSRGY) at the event. His idea is simply to buy prominent international players and hold through the ups and downs. In the past, he's talked about how Nestle can invest large amounts of money in emerging markets and see high rates of return.

He is also still holding SAB Miller (LON: SAB) despite declining EBITDA margins as the company is now making acquisitions to make up for the lack of growth. Russo did not seem to like the Foster bid.



Howard Marks (Oaktree Capital): His presentation focused on the keys to success in a low return world. Marks focused on three key questions to ask yourself as an investor today:

1. Should we prepare for prosperity? He argued no because the economic recovery is faltering.

2. Should we worry about losing money or missing opportunity? For now, he says to be mindful of losing money.

3. What holds the key? Capital and nerve? Or discernment, discipline, risk control and selectivity? Marks argues the latter right now, saying that stocks are slightly cheap, but not by much.

Marks says that your choices today are as follows: invest for the long-term, go to cash, take more risk (chase yield), or find niches. Take your pick. Marks also brought up a good point that just because stocks are flat over a ten-year period doesn't mean they are a buy because the P/E was 30x ten years ago.

Oaktree recently filed for an initial public offering and Marks' recently released his new book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor which has received praise from legendary investors Warren Buffett and Seth Klarman.



Paul Singer (Elliott Associates): This hedgie's talk focused on the shape of the next crisis. He mentioned that all major banks are quite opaque and no one can truly analyze them, meaning the next crash could be even faster because the leverage is still there. He doesn't seem to be a fan of Bernanke.

Singer points out that the lesson was "sell first, move assets first, ask questions later." Those that took more time to do so got stuck and that is dangerous. He also believes that Dodd-Frank has made the system more brittle and thinks there should be NO financial institution that is too big to fail.

Lastly, he also mentioned that monetary policy has caused commodity inflation (Howard Marks also thinks this is the case).



Bill Ackman (Pershing Square Capital): Speaking on activist investing, Ackman said that you have to work *with* management. He cited his investment in J.C. Penney (JCP) as an example as the company has a new CEO who redesigned Target (TGT) then most recently headed Apple's (AAPL) wildly successful retail operation. He also says that the company has a big advantage by owning its own real estate and not paying rent. We've covered Ackman's JCP thesis here in-depth for more.

Concerning his recent investment in Family Dollar (FDO), Ackman said that Nelson Peltz's Trian Fund is driving the effort. The company has a bid on the table and is a prime leveraged buyout candidate. The vote is in January and management has to fix the company or sell it. We've also posted Ackman's presentation on FDO.

Ackman also talked about lessons he learned from his mistakes. He said that liquidity is very valuable and lack of it is a big opportunity cost. Also, he pointed out that as you get older, you further understand the opportunity cost of time. He likes to measure whether the potential return justifies the time and risk.

Citing his past failed investment in Borders (BGPIQ), Ackman said he underestimated the risk of technological change. He would rather invest in a good business than just good management. He said the limitation of his approach is that although the stocks he invests in are liquid, his concentrated stakes are not (Ackman also mentioned 27% of his fund was redeemed during the crisis).



Ron Gutfleish (Elm Ridge Capital): Gutfleish likes the defense sector and in particular, Lockheed Martin (LMT). He argues the company doesn't make bad acquisitions, pays a good dividend and does smart buybacks. While he admits to being "usually too early," the hedgie thinks that these stocks are very cheap no matter what you think about the defense sector.

The bear case there is very obvious, he notes, pointing to a budget under pressure. However, he argues that these companies generate huge cash flow during down cycles and deploy it in shareholder friendly ways.



Joel Greenblatt (Gotham Capital): Greenblatt's presentation focused on the 'big secret for value investors.' He was, of course, referring to his new value-weighted indexing method which is detailed in his new book, The Big Secret for the Small Investor: A New Route to Long-Term Investment Success.

He argues that indexes have the flaw of market cap weighting. Evenly weighted, the SPX outperforms by 3% per year over the last 20 years. A value weighted index of 800 stocks beats the SPX by 7% a year.

Right now, Greenblatt says his statistics point to stocks being at about average valuations. Some of the stocks on his list right now include: Gamestop (GME), Wellpoint (WLP), and Intel (INTC). He says that these companies are trading at bargain prices either due to uncertainty or because they are troubled.




That sums up notes from the summit. Keep in mind that many of these hedge fund managers will be presenting investment ideas at the upcoming Value Investing Congress in October and Market Folly readers can receive a discount to the event by clicking here.