We Study Billionaires - The Investor’s Podcast Network

TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee

Aug 11, 2024

01:06:32

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Scott Barbee, founder of the Aegis Value Fund, shares his insights on maintaining a deep value-based investment strategy in a market obsessed with growth. He discusses his three buckets of risk when evaluating businesses and introduces the concept of a 'genetic contrarian' as a powerful investment stance. Barbee emphasizes that fossil fuels will continue to play a significant role in energy, and he recounts navigating a 72% drawdown during the global financial crisis, highlighting essential lessons from investing legends.

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Quick takeaways

Scott Barbee successfully upholds a disciplined value investing strategy, consistently outperforming the S&P 500 by focusing on intrinsic worth rather than market trends.

Emphasizing risk management, Barbee introduces three unconventional principles that prioritize understanding permanent capital loss over price volatility and short-term tracking error.

Barbee’s contrarian investing approach highlights the potential in undervalued sectors, demonstrating that research-driven decisions can lead to significant, long-term financial gains despite market fears.

Deep dives

The Resilience of Value Investing

Value investing, characterized by strategies focusing on low price-to-book and low price-to-earnings ratios, remains effective, exemplified by the performance of Scott Barbee’s Aegis Value Fund. Since its inception in 1998, the fund has outperformed the S&P 500 by compounding at 11% annually compared to the index’s 7.8%. Barbee attributes this success to adhering to fundamental investing principles even as the market shifts toward tech stocks. By investing in companies with undervalued intrinsic worth, Barbee demonstrates that a disciplined approach can yield better long-term results, especially when market sentiment, driven by trends, overshadows intrinsic value.

Unconventional Principles for Assessing Investment Risk

04:17

Know When to Let Go

01:15

Sustainability of Shale Expansion is Diminishing

01:26

Anticipate Change in a Stagnant Market

01:18

Intro

2min

The Value Investing Journey

15min

Contrarian Investing and Bitcoin Strategies

4min

Contrarian Investments in Turbulent Times

13min

Analyzing Investment Strategies: Book Value and Cash Flow Insights

5min

Industry-Leading Rates and E-Commerce Solutions

3min

Navigating Value Investing in Volatile Markets

21min

On today’s episode, Kyle Grieve chats with Scott Barbee about how he managed to maintain a deep value-based strategy while it’s gone out of fashion, the three buckets of risk Scott uses to assess businesses, what a genetic contrarian is and why it can be a powerful advantage, why fossil fuels aren’t going anywhere anytime soon and why opportunities exist in that industry, how he navigated a 72% drawdown during the GFC, and a whole lot more!

Scott is the founder of the Aegis Value Fund. Which was created in 1998. Prior to Aegis, Scott worked as an analyst covering oilfield services at Simmons & Company. He also had a stint as a deep value advisor for Donald Smith & Company. He received his MBA from the Wharton School and the University of Pennsylvania. He also holds a B.S in Engineering and a B.A in Economics.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

02:41 - Some of the key lessons he learned from investing legends like Bill Ackman, Bob Robotti, Peter Cundill, and Walter Schloss

08:17 - How Scott has managed to maintain a value-based strategy when many investors have bailed to chase more expensive stocks

12:00 - Scott's three buckets of investing risk

16:10 - A breakdown of the concept of a "genetic contrarian."

17:30 - Why risk management is key to investing in businesses with high levels of uncertainty and how to take advantage of it

24:27 - Scott's views on energy and how fossil fuels are unlikely to disappear anytime soon

33:36 - The potential downsides Scott sees in super high-quality businesses

34:41 - Why lower-quality businesses with volatile earnings look very attractive right now due to a widespread de-leveraging

43:55 - How Scott dealt with a 72% drawdown during the GFC

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Learn about the Aegis fund here.
Read Scott’s Manager Letters here.
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