Andrew Wellington & Dan Kaskawits - Finding the Gems Amid the Junk
Value Investing with Legends
How to Measure Intangibles in the Financial Statements?
There's a movement in accounting about reconsideration of how to treat intangibles. We flirted with the idea of adjusting some of the R&D expenses that companies are doing and amortizing over time. But one of the big conclusions that we came to over and over again is that when you boil that down, you still don't get a margin of safety.
“Right next to the really cheap junk, there are some really cheap gems."
Welcome to a new season of the Value Investing with Legends podcast!
We're delighted to welcome our first guests for the season, Andrew Wellington and Dan Kaskawits from Lyrical Asset Management. In 2008, Andrew started the firm with three core pillars of investing: value, quality, and analyzability. That approach leads them to focus on building concentrated portfolios that generate great returns through the core principles of value investing with a long-term time horizon.
Andrew Wellington is the Chief Investment Officer of Lyrical and has more than two decades of experience in the asset management industry. After spending five years in management consulting, in 1996, Andrew joined Pzena Investment Management as a founding member and its first research analyst. Five years later, after honing his skills as an equity analyst and value investor, Andrew joined Neuberger Berman in 2001, where he went on to run their institutional mid-cap value product. After Neuberger, Andrew spent two years in activist investing at New Mountain Capital. Andrew graduated summa cum laude and as the top graduating senior from the University of Pennsylvania’s Management & Technology Program in 1990, earning a Bachelor of Science in Economics from the Wharton School and a Bachelor of Science in Engineering from the School of Engineering.
Dan Kaskawits joined Lyrical in January 2018 as a Senior Research Analyst. Dan has over 15 years of experience investing in public equities. Before Lyrical, he served as an Analyst at Elm Ridge Capital from January 2011 to December 2017 and as an Associate at Citi Investment Research from October 2003 to June 2009. Dan graduated from Tulane University and received an MBA from Columbia Business School. Dan has earned the right to use the Chartered Financial Analyst designation.
In this episode, Andrew, Dan, and I discuss how they got started in the asset management industry, lessons they learned from value investing legends, why Andrew founded Lyrical Asset Management, what makes a successful international value strategy, Lyrical’s approach to search, how they operationalize their core pillars, why it’s advantageous to be a generalist, their top book recommendations, and so much more!
Lyrical Asset Management LP’s participation in this interview does not convey any offering or the solicitation of any offer to invest in the strategies discussed. Moreover, the information contained in this interview is not provided by Lyrical in a fiduciary capacity and does not constitute investment advice. Positions held by Lyrical portfolios are subject to change without notice; Lyrical bears no responsibility to update any opinions or information expressed herein. A list of all Lyrical recommendations is available upon request. Please see lyricalam.com/notes for a discussion of certain material risks of an investment in Lyrical’s strategies.
Key Topics:
- Welcome Andrew and Dan to the show (00:56)
- How Andrew got into asset management from management consulting (3:09)
- Dan’s journey to Columbia Business School and his asset management career (5:29)
- Invaluable lessons from Joel Greenblatt and Rich Pzena in being an equity analyst and a value investor (8:25)
- Learning to be a value investor at Elm Ridge (11:05)
- The restrictions that come from career concerns and what makes Lyrical Asset Management different (16:04)
- Crucial elements of a successful international value strategy (19:43)
- Lyrical’s approach to search and the use of screens (23:33)
- Defining quality and analyzability and how Lyrical operationalizes them (29:20)
- Computing ROIC with significant intangibles (36:12)
- Ashtead Technology is a quintessential example of Lyrical’s investment philosophy (42:43)
- Often overlooked benefits of counter-cyclical cashflow (46:59)
- The generalist’s advantage (50:04)
- Dimensions of popularity (52:52)
- Why Lyrical offers clients the opportunity to invest in value ETFs (54:55)
- How the FAANG stocks influenced the outsized return of growth vs. value stocks in the past 10 to 15 years (59:14)
- Lyrical’s value-focused impact strategy (1:02:27)
- Andrew’s philosophy: “Don’t predict; prepare.” (1:06:19)
- Dan and Andrew’s book recommendations (1:08:44)
- And much more!
Mentioned in this Episode:
- Lyrical Asset Management
- Value Investing with Legends Podcast | Allison Fisch - Unlocking Value in Emerging Markets
- Annie Duke’s Book | Quit: The Power of Knowing When to Walk Away
- Benjamin Graham’s Book | The Intelligent Investor Rev Ed.: The Definitive Book on Value Investing
- Bruce C. Greenwald’s Book | Competition Demystified: A Radically Simplified Approach to Business Strategy
- James Montier’s Book | Value Investing: Tools and Techniques for Intelligent Investment
- Michael Mauboussin’s Books
- Annie Duke’s Book | Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts
- Walter Isaacson’s Book | The Code Breaker: Jennifer Doudna, Gene Editing, and the Future of the Human Race
- Walter Isaacson’s Book | Steve Jobs
- Ryan Holiday’s Book | Stillness Is the Key
Thanks for Listening!
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