market folly

The Winter 2013 issue of Columbia Business School's Graham & Doddsville is out and it features interviews with JANA Partners' Barry Rosenstein and Scott Ostfeld, where they talked about their investment style.

Also featured in the newsletter:

Daniel Krueger of Owl Creek gives an intriguing interview on investment process and pitches Leap Wireless (LEAP).

Frank Martin of Martin Capital Management on his top-down approach and the importance of limiting losses.  He also has two books, Speculative Contagion and A Decade of Delusions. 

Russell Glass of RDG Capital on his private equity oriented style and the influence of Carl Icahn.

Jon Friedland of Amici Capital on how he finds investment ideas.



Highlights From JANA Partners' Interview

On important lessons Rosenstein's learned:  "But from Asher (Edelman), I probably learned more important skills.  These had more to do with taking risks while not blinking and remaining fearless.  I give him a lot of credit.  He wasn't the most technically savvy guy, but he had great instincts and he never showed fear, even if he felt it at times.  That was important lesson."

After experience in private equity, Rosenstein founded his hedge fund and his first investor was Lee Cooperman (of Omega Advisors).  JANA started with $17 million and by 2007 it had over $8 billion under management.


On how activist investing impacts portfolio construction:  "Our highest conviction ideas are the ideas where we have the most impact on the outcome. Those are our activist ideas which tend to be our largest and highest returning posi- tions in the portfolio. You’re also, frankly, doing a lot of work on these posi- tions, so you want to bene- fit from that work by mak- ing it a large position. So our portfolio can be a bit more concentrated."


On JANA's approach:  "In our approach, we're extremely disciplined. I don't want to be only an activist because then you force things and the quality of your ideas is diluted. We don't ever have to be an activist here. We can just invest in event-driven situa- tions. For something to be an activist play, all of the criteria have to be present for us. We came up with this rubric we call V-cubed, which is Value, Votes, and Variety of ways to win. Basically, we have to be comfortable buying in at a valuation that provides us with a margin of safety, irre- spective of any activism we will attempt to initiate and that may be unsuccessful. We have to be comfortable that if it really came down to a vote that we would have shareholder support. And variety of ways to win – you want to make sure that there's more than one lever you can pull in case circumstances change.  In my experience, if you have all three of those checked off, you're guaranteed victory.  If you're missing one of them, there's a good chance you're going to lose.  We're extremely judicious."


On mistakes Rosenstein's learned from: "I’ve made so many mistakes I can't even think about it. I'll give you one thing that's not an investing concept, but something that I've come to realize that might be helpful. Being po- lite to people and treating people with respect is good business. It's not just a good thing to do, it actually inures to your benefit as well."


Advice from Ostfeld:  "A hypothetical 'A' in the investing world, the point at which you are performing at the highest level, only requires being right more than half the time. The truth is investing can be very frustrating, diffi- cult, unpredictable, and gru- eling. So you should only pursue the career if you have the passion, if you’re intellectually curious, and if you’re committed to it, be- cause at every turn, you can be very quickly humbled. That’s the nature of the business."


Embedded below is the Winter 2013 issue of Columbia Business School's Graham & Doddsville newsletter:




For past worthwhile interviews from the newsletter, we posted up Joel Greenblatt's interview in Graham & Doddsville as well as interviews with Jim Chanos and Julian Robertson.