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

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Aug 11, 2024

In this engaging discussion, Scott Barbee, the founder of the Aegis Value Fund and a seasoned deep value investor, shares his journey from engineer to value investing expert. He delves into the significance of maintaining a value-based strategy amidst a growth-obsessed market. Scott introduces his three buckets of risk assessment and explains the concept of a 'genetic contrarian.' He highlights why fossil fuels will remain relevant and shares insights on navigating market downturns, even during a significant drawdown.

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ANECDOTE

Career Start

Scott Barbee's interest in investing grew while working at Simmons & Company, tracking oil service company valuations.
A chance encounter with Donald Smith led to a mentorship and shaped his value investing approach.

INSIGHT

Maintaining Value Focus

Sticking to value investing principles during market bubbles provides opportunities when valuations correct.
Deep value names become even cheaper as capital chases high-flying stocks, creating attractive entry points.

INSIGHT

Three Buckets of Risk

Scott Barbee defines investment risk as permanent capital loss, focusing on multiple, leverage, and fundamental business risks.
High multiples and leverage increase risk, regardless of company quality, while flawed fundamental analysis poses a separate threat.

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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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Check out all the books mentioned and discussed in our podcast episodes here.
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