Topics discussed include value investing philosophy, risk management, when to sell a stock, incorporating a macro outlook into stock picking, research process, being a global investor, thoughts on passively investing in S&P 500, and the contradictory psychological profile of a good investor.
Value investing involves buying something cheaply relative to its intrinsic value and cash flow.
Assessing a business's characteristics, such as growth potential and durability of earnings, is essential in making investment decisions.
Risk management should focus on absolute risk and the selection of quality businesses with strong balance sheets.
Deep dives
Investing Philosophy and Value Investing
Dan O'Keefe, the managing director of Artisan Partners Global Value Team, discusses his investing philosophy as a value investor. He defines value as a judgment about a business's worth and emphasizes the importance of buying something cheaply relative to its intrinsic value and cash flow. He also mentions the significance of managing risk by investing in quality businesses with financial strength and partnering with management teams focused on building long-term value.
Characteristics of Businesses and Risk Management
Dan O'Keefe highlights the importance of assessing the characteristics of businesses when making investment decisions. He focuses on factors such as growth potential, resilience to competition and regulation, cash generation, and durability of earnings. He emphasizes that quantitative markers, such as return on capital and equity, should be considered alongside questions about the duration and defensibility of a business. O'Keefe also discusses risk management and the need for a margin of safety when buying businesses at a discount relative to their worth.
Portfolio Management and Macro Outlook
Dan O'Keefe shares insights into portfolio management and the macro outlook. He emphasizes the importance of absolute risk management and avoiding the sole focus on relative performance. O'Keefe discusses the number of stocks in a portfolio (approximately 30 to 35), position sizing, and the importance of holding onto high-quality businesses. He also touches on the consideration of macro factors, such as differences in economies and the potential influence on valuation. However, he expresses a cautious approach to macro predictions, emphasizing the uncertainty and difficulty of accurately forecasting macroeconomic trends.
Key Point 1: Focus on Risk Management and Resilient Businesses
The speaker emphasizes the importance of risk management and having a portfolio of companies that can adapt and thrive in different environments. They take comfort in businesses with strong balance sheets and resilience, such as American Express. Despite going through challenges like the financial crisis and COVID-19, American Express has consistently returned to new highs of earnings. The speaker advocates for holding and buying more of such companies when their stock prices weaken, emphasizing the importance of enduring volatility and having a portfolio that can withstand different circumstances.
Key Point 2: Research Process and Global Investing
The speaker discusses their research process, which involves a small team of generalist analysts covering multiple industries within their geographic regions of responsibility. They focus on developing a holistic and absolute perspective on what constitutes a good business and valuation, rather than relative comparisons within specific industries. Their research involves deep analysis, including reading annual reports, studying industry data, interviewing management teams and competitors, and building financial models. The speaker emphasizes the importance of continuous learning, humility, and stubborn conviction in becoming a great investor. They also mention the potential mispricing and opportunities in international companies, as non-US companies have been undervalued due to the US market's outperformance over the past decade.
