Top Managers Flashcards
Buffett/Graham
Buy cheap companies, be concentrated, stay within circle of competence, embrace volatility
Buy high quality companies with large moats and great management
Pay more for a higher quality company
Be greedy when others are fearful and fearful when others are greedy
Buy a business, not a stock price - utilize Mr. Market as needed
Only swing at the fat pitch “The science of hitting”
TCI
Owner Operated - Investing is the #1 thing Chris Hohn cares about
Concentration and conviction are VERY important
Deep fundamental research and high analyst to stock ratio allows for concentration and embracing complexity
Extreme discipline/research allows wide fluctuations in stock price to not effect conviction
Longer term patience is paramount
Possible to invest in stocks with hair and special situations to unlock value in large businesses
Possible to find macro theme and then pick stocks which best fit that theme
i.e. cable thesis - supply side/consolidation themes
Monopoly type businesses at cheaper prices (not deviating from circle of competence EVER)
Strong, but evolving valuation discipline
Lends itself to names in infrastructure, utilities, branded consumer, aerospace, content, mission critical supplies
Take activist angle if necessary
Reputation can be used in your favor
Windacre
Owner-operated model
Process and discipline is the most important aspect of investing
Own the whole business privately, indefinite holding period, intense modeling, LT horizon
All about future cash flows the business will produce - model out 20 years
Values completely independent analysis - will often take contrarian view
Concentration, contrarian and circle of competence investing (2-5 names per analyst)
Only act when you have deep understanding of the business and intrinsic value mismatch is high
Will size positions at 25% of NAV, will take country/sector risk, wants to be most knowledgeable owner
Will invest in emerging markets, SOEs, and highly inefficient markets
Strong value orientation with similar quality metrics as TCI but will sacrifice on quality to buy deeper value or semi-flawed businesses
Continually monitor list of great businesses and only buy when discount to intrinsic value reaches >40%, then own until it hits intrinsic value
Sizes and does everything based on discount to intrinsic value
Click again to see term 👆
Starboard
Owner-operated model
Activism is a powerful tool - 16% annualized net return in a hedged strategy
Stock-picking is still an important component, but Starboard provides the catalyst
Essentially value with a catalyst investing. Target companies that are growing w/o good stock performance, but have good business, low ROI, minimal operating experience, minimal inside ownership, underperforming fundamentals.
Ex: Dollar tree- variable price points or divest family dollar
Lots of work on very few ideas - 3-5 per year, PIPE style investing
Will approach management friendly first, always focusing on operational improvement, corporate transactions, management change, and capital allocation
Lead activist with clear path to unlock value along with stock which is undervalued already
Research, create action plan, create a path to governance change, go active and unlock value. Control own destiny
Own excess of 5% in core positions and file a 13-D
Small cap has most opportunities
Find deficiencies in the way the company is run and how capital is allocated and change it to a more optimal structure
Proper incentive planning, selling companies businesses, board seats, proxy battles, bring in independent management, disciplined financial goals, refocus on core business, shrink to grow, create competitive environment, accountability leads to stock performance
Kettle Hill
Owner operated model - Andy is in love with investing
Long book annualized at 28% since 2003 - best track in US for diversified portfolio
Skate to where the puck is going, risk reward of 5 to 1 and get it right 50% of the time
Find outlier type pricings, i.e. interest rates will never change, value will never work etc…
Most of positions are catalyzed by insider buying - Andy has developed an edge at analyzing this factor
Value investor, but have to have momentum or a catalyst to work
Be mobile and take what the market gives you
Concentration and circle of competence - conviction weight
No utilities, biotech, healthcare, insurance - don’t know these businesses. Sizing is an important contributor to alpha
Believes he has an edge in trading, data, blocking and tackling
Technical analysis to trade, screening for catalyst - i.e. insider movement, alternative data sources, predicting earnings, surveys, doing more work, find repeatable ways to select winning investments. Can invest very short term, but have core longer term ideas
Invests in inefficient areas of the markets, finds unloved stories, forgotten companies, NEEDS differentiated view on the story - sells when thesis becomes consensus
Mitigates downside with stop losses and NEVER falls in love with any idea - discipline discipline, discipline
Ballie Gifford
Asymmetric upside investing and margin of upside, not how much you could lose, but how much could you GAIN. Probability weight scenarios and invest accordingly. FB vs Coke. Ex: FANG, Baba, Tencent, Tesla, Blue Sky investing
Companies that could go to 0 or 100 provide wide dispersion and potential alpha by definition. Unpredictable outcomes breed opportunity
Articulates high growth investing as it is not taught in business school, how come? 15 years of relative outperformance
The world is always changing, what is driving that change? World is changing exponentially faster than it ever has due to technology. Assets and book value don’t mean anything
Graham’s ideals may not work today given large companies have succeeded in sustained double digit growth rates for long periods of time. Ex: MSFT 24% EG for 33 years. History is full of changes and accidents and you cant view investing as complete science. People have overfished in that pond, and may need to move ponds
Shareholder efficiency, activist investors, institutionalization, private equity have cannibalized the old value premium. Can’t forget interest rates, and short-termism
Think long-term, own companies that think long term and march to their own drum and focus on achieving their long-term competitive edge. Businesses should be owner-operated, HAVE to think differently
Qualities in a Portfolio Manager
Owner-operated and manages money for the love of the game
PM manages client’s money like he would his own capital, unencumbered by business risk
Singular product/philosophy focused
Concentrated portfolio with low analyst/stock ratio
Understands what edge is and why it exists
Attacks complexity, shuns emotion, embraces volatility
Humble and willing teacher
Rational and intellectually honest
Shawspring Ecosystem Capture
Ecosystem Capture
Does the company create a step-function value proposition to bring users into the ecosystem? Does it continue to create incremental value for the customer to lock them into ecosystem?
Does the company relentlessly focus on the customer and the goal of the product or service?
Does the company align the producers with the consumers?
Does the company’s investors understand the focus on the consumer and align with it?
Does company understand how value is created in the ecosystem and how future value could be created? Is it a win-win for everyone?
Can this be replicated? How?
Cognitive referent
Was the business a first mover?
Are there obvious network effects? Word-of-mouth? Lower Addspend?
GPROMS = gross profit over sales and advertising expense
