market folly

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.