Ep. 37 - The Inoculated Investor with Ben Claremon

Ben Claremon is a Principal and Portfolio Manager at Cove Street Capital, a value-oriented investment advisor based in Los Angeles. In this episode, we learn Ben’s background from growing up in real estate to catching the Value Bug. We also talk about his in-depth research process that focuses on business, fundamentals and people. In addition, we do a deep dive on Lionsgate and reveal Ben’s Super Power.

 

To learn more about Ben please visit www.covestreetcapital.com or follow him on Twitter @BenClaremon. To learn more about Richard or to request a transcript of the podcast please visit www.thinkaen.com.

 

“Warren Buffett once wrote that value investing is like an inoculation--it either takes or it doesn’t--and when you explain to somebody what it is and how it works and why it works and show them the returns, either they get it or they don’t.” -Seth Klarman of the Baupost Group

 

Show Notes:

(01:12) Ben provides introduction. From Arizona to New York City to California. First job at a hedge fund right before the financial crisis. Attending Berkshire Annual Meetings and posting notes on his blog appropriately titled the Inoculate Investor.

(06:15) Going into more detail about the Berkshire Meetings. Handwriting versus on a computer.

(06:56) Early equity investments.

(08:02) First big investment working at the New York Hedge Fund was actually a large short trade on many regional banks before the financial crisis. One of the last great short opportunities.

(11:25) Ben talks about Cove Street Capital and its research and idea generation process. Running screens and Monday Morning Meetings. The importance of taking management meetings. Speaking to company executives as well as former and current employees is a huge part of the investment process.

(16:00) Three Pillars of the Cove Street Capital Investment Process include the analysis of the Business, Fundamentals and People.

(18:24) Deep dive into interviews with former employees. Leverage multiple sources including social media and Tegus, which it uses for investor-led interviews of industry experts including past employees and executives.

(22:25) Culture is a very important aspect for Ben. He doesn’t want to invest in a company with bad culture even in a turnaround situation. He believes a turnaround is hard if you have a poor culture. This can take years to fix, if ever.

(27:12) ESG versus Culture.  

(31:38) Ben discusses one of his top ideas, Lionsgate. He recently presented it on the Market Champions podcast (see link here). He thinks there is a gross misunderstanding of the people involved at the company. He also thinks it is trading at a large discount to intrinsic value.

(35:10) Streaming wars, MGM and Amazon deal. Ben doesn’t think Lionsgate will remain a public company, but is serious about selling to larger player.

(39:24) Lionsgate is one of the only media companies where insiders don’t have total control of the company. You aren’t going to force Viacom or Brian Roberts to sell their companies or do anything for that matter.

(43:21) Ben goes into his intrinsic value estimates of a base case of $18 and an upside case in the high $20’s. He also talks about one of the Lionsgate Board members, Gordon Crawford, jumping on a JP Morgan call and detailing a sum of the parts valuation for the company which assigned a base case value of $33.

(48:12) What distinguishes a great investor? Through the understanding of people and what their motivations or incentives are. “Read the Proxy Statements”.

(51:22) Compounders: The Anatomy of a Multi-bagger Podcast. Ben talks about the genesis of the program and why he believes it’s one of the few shows that interviews management teams the way an institutional investor would, for the long term.

(56:15) Wrap up and contact information.

Don't forget to follow Ben's Podcast at the Compounders Podcast.