Value Investing with Legends

Today’s conversation is with the Chairman of Davis Advisors, Christopher Davis. Christopher oversees approximately $30 billion of client assets worldwide. Christopher currently serves as CEO and Portfolio Manager and Davis Advisors continues to be recognized as     a leading independent investment management firm and one which wholeheartedly embodies the basic principles of value investing. Christopher received an early education from his father and grandfather who shared their passion and enthusiasm for investing and business with the family but when it came time to start university, he decided to go in a completely different direction. From veterinary school to seminary, Christopher took the long way around before settling into a career in investing. From his first job at the State Street Bank, Christopher quickly found his own passion and has thrived in the field for the past 30 years. On this episode, Christopher and I talk about the impact his family had on him on a young age, the importance of finding the right investing style for you, why he placed so much importance on developing a strong accounting foundation, why Wall Street needs to embrace globalization, his approach to assessing competitive advantage, and so much more!   Key Topics: How Christopher was impacted from an early age by his father and grandfather’s natural curiosity and passion for business (2:13) Why Christopher believes a lot of people get turned off of the investment business (3:53) Why curiosity is key in building knowledge and experience (4:46) The importance of finding the investment style that resonates with you (5:26) The winding path Christopher took before starting his career in investing (6:58) Why Christopher decided that working at a bank was the best first step into the investing profession (8:58) What Christopher learned as an early employee of Tanaka Capital Management during the S&L crisis (10:24) Christopher’s decision to switch his focus to insurance and financial services (11:00) The particular advantage in the insurance industry for investors who can gain insight from the accounting choices companies make (12:57) The management culture Christopher looks for in insurance companies (14:07) The often-overlooked value of business model stability in the financial services industry (15:10) Christopher’s transition to Davis Advisors and the joining of the family firms (18:42) From breaking the third-generation stigma to leading the firm (20:05) How investing with the idea of owner earnings became a core philosophy at Davis Advisors (23:08) The drawbacks of rules-based accounting systems versus principles-based accounting systems (27:34) Why Christopher believes we're in a period of extreme disconnect between what financial statements show and the underlying reality of many businesses (28:27) The importance of correctly assessing a business’s competitive advantages (30:55) Christopher’s approach to assessing the durability of a competitive advantage (31:50) How technology has created advantages of scale in the financial services industry (38:33) Two big trends Christopher expects to play out within the next 20 years (39:54) Why the distinctions of domestic, international and emerging markets are becoming less relevant today (41:22) Finding investment opportunities where there’s a disconnect between perception and reality (42:19) The importance of recognizing opportunities for investors in foreign markets (43:35) Christopher’s approach to business valuation (51:27) How Christopher’s firm views and evaluates a business’s management (53:15) What you can learn from studying a business’s alumni (55:13) Why Christopher is such a strong advocate for active management (59:38) And much more! Mentioned in this Episode: Christopher Davis’ Firm | Davis Advisors Davis New York Venture Fund Davis Financial Fund Davis Global Fund Graham Tanaka, President of Tanaka Capital Management Kent Daniel and Tobias Moskowitz’s Article | Momentum Crashes Thanks for Listening!  Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at valueinvesting@gsb.columbia.edu.   Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!

Today’s conversation is with investor David Abrams, who was described by the Wall Street Journal as a “one man wealth machine.” David is the CEO and Portfolio Manager of Abrams Capital, an investment firm that he founded in 1999. Abrams Capital is unlevered and long-term oriented and currently holds over $9 billion in assets under management. David is notoriously private and is not keen on interviews and appearances so I’m especially grateful to him for sharing with us today.  After graduating with a BA in History from the University of Pennsylvania, David made an unplanned entrance into a career in investing. It was then that he discovered his love for the field and he went on to work with another value investing legend, Seth Klarman of the Baupost Group, before starting his own firm. David is a member of the Board of Trustees of Berklee College of Music and an overseer of the College of Arts and Sciences at the University of Pennsylvania. On this episode, David and I discuss how his experience working on merger and risk arbitrage transactions led to his decision to join the Baupost Group, what it was like to start Abrams Capital in the midst of economic uncertainty, why David prefers a generalist approach, the importance of the fundamentals in assessing investment opportunities, and so much more!  Key Topics: How David got into investing after completing a BA in History (2:58) David’s experience with his first job in the investment world (3:45) David’s decision to join The Baupost Group and expand his expertise beyond arbitrage (7:01) Why David took a year off after leaving The Baupost Group (9:37) What it was like to start Abrams Capital on the heels of the stock market crash in 1998 (11:12) Why David wanted to have a broad mandate for Abrams Capital (12:54) The key factors to examine when analyzing the fundamental economics of a potential investment opportunity (14:11) The importance of forming judgments and using qualitative analysis rather than solely relying on the numbers (16:17) How the current market tolerance for risk and uncertainty has changed compared to 20-30 years ago (18:01) The increasing value of human and intellectual capital (19:42) Why an increased risk appetite and tolerance for failure is beneficial for the markets (20:26) The advantages and disadvantages of being a generalist (21:18) Why you always need to consider the position of the other side of the market (22:32) The assessments David uses to determine the fundamental value of a company (24:13) The impact of the relentless forces of competition on investment decisions (26:37) How the presence of catalysts affects investment requirements (28:53) David’s approach to developing a successful relationship with a company’s management team (29:56) Why exiting investments isn’t always a straightforward process (34:32) How David develops his investment wish list (36:55) How traveling helps David’s keep a broad perspective and outlook on various industries (39:06) The relationship between conviction and position sizing for David (40:51) David’s approach to industry diversification, currency risk, and hedging (41:26) Why David made the decision not to use leverage in his portfolio (44:02) Does the state of the economy at large factor into David’s investment process? (45:44) David’s perspective on the future of value investing and the asset management industry (49:09) And much more! Mentioned in this Episode: David Abrams’ Firm | Abrams Capital Rob Copeland’s Wall Street Journal Article | Hedge-Fund World's One-Man Wealth Machine Seth Klarman, CEO of the Baupost Group    Thanks for Listening! Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at valueinvesting@gsb.columbia.edu. Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!

Michael Mauboussin, Director of Research at BlueMountain Capital Management, discusses the importance of teaching value investing alongside psychology, cognitive diversity in decision-making, techniques to mitigate bias in investment processes, and the impact of machines on value investing.

Today’s conversation is with the master of consumer brand investing, Tom Russo. Tom is the Managing Member of Gardner Russo & Gardner LLC, Partner at Semper Vic partnerships, and he oversees more than $9 billion through separately managed accounts and Semper Vic partnerships. Tom is also a board member of the Heilbrunn Center for Graham & Dodd Investing at Columbia Business School. Growing up in Janesville, Wisconsin, home of the Parker Pen Company, Tom saw first-hand the impressive prospects of family-controlled consumer brand with global appeal. Since then, he has become well-known as the go-to person for all things consumer brands. Whether you’re wondering about the development of a beer business in Africa or the strategy for developing a brand in a new market, Tom’s three decades of experience has given him extraordinary insight. On this episode, Tom and I dive into how he developed his investment philosophy, what he learned about investing during his early years before starting his career, the huge impact Warren Buffet had on his career and specializations, the main investment principles Tom follows, what you need to consider about a company before investing, why under-spending is a key risk factor Tom looks out for, and so much more!   Key Topics: How Tom’s early experiences while growing up in Janesville, Wisconsin influenced his thinking and perspectives (2:47) Why Tom believes in challenging ideas and continuous evaluation (4:21) The importance of considering multiple angles and opinions to mitigate risk (6:27) What Tom learned about himself as an investor in his first jobs after Dartmouth (7:52) Tom’s introduction to Warren Buffett and the concept of value investing while studying at Stanford (10:41) How Tom’s investment philosophy developed (12:21) Why you need to consider a company’s management structure and incentives in determining whether to invest (14:17) The two main investment principles Tom learned from Warren Buffett (15:58) Why Tom decided to focus on investing in family-controlled, international, consumer brands (17:06) The fascinating history behind evolving consumer habits (18:16) The connection between consumer brands and population and prosperity (19:15) How the long-term perspective of family-controlled companies can reduce agency costs (21:28) What Tom considers in assessing the ability of a company to succeed in a new international market (26:08) What we can learn from Home and Garden TV about the value of investing in full-force to facilitate long-term profits (31:36) Why Tom has high confidence in the power of specialization (35:40) How Tom approaches the issue of maintaining alignment with management (38:04) Why you need to be aware of the blind spots you may develop based on specialized expertise (39:56) How Tom analyzes a company’s valuation to determine the best time to invest and when to exit (42:42) How much does regulatory risk factor into Tom’s investment decisions? (49:32) Why Tom is concerned about the risks associated with Brexit (50:30) Tom’s approach to investing in companies in emerging markets (56:01) Tom’s thoughts on the future of value investing (59:06) And much more!   Mentioned in this Episode: Jack McDonald, The Stanford Investors Professor of Finance, Emeritus Benjamin Graham’s Book | The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel Warren Buffett, CEO of Berkshire Hathaway   Thanks for Listening! Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at valueinvesting@gsb.columbia.edu. Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!

Today’s conversation is with the legendary Mario Gabelli, the Chairman and Chief Executive Officer of GAMCO Investors, Inc., the firm he founded in 1977. A 1965 summa cum laude graduate of Fordham University's College of Business Administration, he also holds an M.B.A. from Columbia Business School, and honorary doctorates from Fordham University and Roger Williams University.   Since starting his firm Mario has been called “a prophet in the wilderness” by Forbes and strongly believes that the small, neglected stocks are where the money is going to be made in the future. With a focus on strong research and flexibility, it’s this foundation that has allowed the fund to successfully generate returns for clients even when facing a headwind in the market.   From his management technique to his investment rationale, Mario shares his perspective and strategies for maintaining positive results in an ever-evolving marketplace. On this episode, we talk about how Mario started out as a researcher, the benefits of a niche research focus, why it’s so crucial to build accumulated knowledge in your industries of focus, how Mario identifies investment and growth opportunities, and so much more!   Key Topics: Mario shares how he first became interested in Graham and Dodd’s investing principles (2:45) The early career opportunities that steered Mario’s research focus (3:19) How Mario ended up starting his own firm at the bottom of a major economic downturn (4:27) The market response to Mario’s niche research focus at his firm (5:38) How the private market value and catalyst concepts came about (8:00) The important lesson Mario learned on a research trip to Toronto in 1977 (10:55) Why Mario uses a global approach to master the dynamics of change in an industry (12:53) Mario’s management techniques for working with super-specialized analysts (14:49) When did the Gabelli Asset Fund and the Gabelli Growth fund get started? (18:30) How Mario identifies and connects political and industry events with investment and growth opportunities (20:22) The approach Mario uses for managing clients and the firm’s positioning under difficult market conditions (24:39) Mario’s perspective on the effect of economic cycles in various industries (29:39) The factors behind the decision to invest talent and funds into specific industries while staying away from others (33:10) The changes that Mario expects to see in the business and economic models based on the current market activity and projections (36:07) Mario’s thoughts on the evolution of public markets (40:15) Why multiple sustainability is Mario’s biggest concern currently (42:59) Mario’s advice to people interested in starting companies (45:35) And much more!   Mentioned in this Episode: GAMCO Investors, Inc Barron’s Roundtables   Thanks for Listening!   Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts.  And feel free to drop us a line at valueinvesting@gsb.columbia.edu   Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!