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Welcome to the latest edition of Value Investor Digest, Issue 59 – February 2024.
In this instalment we feature a link to the newly released Partners Capital “Intellectual Capital Library”, an interview with Alex Roepers from Value Invest New York, Charlie Munger’s final interview with CNBC; plus articles, papers, podcasts and videos from Dave Iben, The Economist, Money Maze, RECM, Aled Smith, Simon Evan-Cook, Nick Samuels, Howard Marks, Nasdaq eVestment, Redwheel, Capital Cyclists, Compounders Podcast and Kopernik.
“The bulk of our research is being made available to all, in the interests of nurturing a community that values openness, dialogue and shared progress. This endeavour pays tribute to the visionary work of David Swensen and his seminal endowment model, that he similarly shared with the world.”
“Japan has always been a fantastic universe and sandbox for us to play in, we’ve been active there since 2003 and we’re having an excellent year in Japan and I think the upside there looks very attractive still. If I look at our holdings in Japan, they are averaging dividend yields of 3-4% and PE’s that are around single digits or 10-12x and that’s in a market with still zero interest rate policies. So that’s very attractive and it’s amazing to me that they’re not valued higher at this point.”
“Charlie Munger sat down in Los Angeles for a taped interview with CNBC’s Becky Quick on November 14, 2023. We intended to use the material for a one-hour special program to air just before his 100th birthday on January 1. Instead, Munger died at the age of 99 on November 28. Excerpts were used in a special program that aired on November 30. This is an extended version of the wide-ranging conversation. Munger speaks about his love for the progress of civilization, why he think he could have done “a lot better,” and describes how he got through the most difficult times of his life.”
“But then the bears will come to us and say: ‘fine, if we don’t produce enough oil, oil gets consumed in the gas tank’ and whatnot, we’ll run out so we understand why oil needs to come up to its equilibrium price. But gold, who cares? We don’t put it in the gas tank, we don’t eat it. We don’t use it industrially. We say all right, we kind of agree with that. Gold does not sound like a commodity, it sounds like money. And we don’t eat dollar bills. And we don’t put euros in the gas tank and we don’t put in into the industrial process. And so maybe we should look at you know, supply and demand of dollars versus supply and demand of gold.”
“While some dispute the efficacy of this study, the general principle of self-control as a route to success in life is hardly controversial. When it comes to investing, however, we would caution against the alluring promise of additional sweets and advise instead: just eat the marshmallow.”
“‘I’m an entrepreneur. I’m a founder. That’s the way my mind and brain works,’ mused Whitney Wolfe Herd in an interview with Fortune magazine on November 6th, the day she announced she would be stepping down as chief executive of Bumble, a dating app she founded in 2014. Ms Wolfe Herd, who had previously co-founded Tinder, a rival app, confessed to her lack of enthusiasm for the drudgery of running a public company.”
“Our guest today has been referred to as ‘the English Warren Buffett’ for his style and success in investing. His book, published in 1992, Accounting for Growth, and its ensuing controversy helped propel it to the top of the bestsellers chart, displacing Stephen Hawking’s ’A Brief History of Time’ from the No.1 spot.”
“For a second consecutive year and third year in the last five, investors removed over $100 billion from hedge funds. On the surface that does not sound positive (it’s not), but also consider that industry assets have grown in four of the last five years. In 2023, total AUM rose by 3.2%. In the post COVID-onset year of 2021 when both net flow and performance were additive, industry AUM grew by nearly 8%, and in the two years before that there was growth of near 2% and 4%, respectively.”
“This outcome contrasts the risk of growth traps to that of value traps. When things go wrong with value traps, investors have a level of protection from tangible assets, cash, and dividends. When things go wrong with growth traps, investors are wholly dependent on the kindness of sceptical strangers…”
“This is not a note for those who have a career in fundamental equity analysis as this cohort would not make a decision on relative PE alone. The target audience is macro investors, many of whom have had great success with trend following strategies. I wrote this post having seen a few articles appearing, by macro strategists, where the recommendation was based on PE ratios at a country or sector level.”
“Truth be told, the behemoth that is the FCA would prefer fewer, larger operators. So much easier to monitor and control. Fair summary? Maybe, maybe not, but it’s why I believe the financial industry is developing in the way it is. Consolidation is encouraged, not discouraged, and the regulatory landscape is becoming hostile to smaller operators.”
“Without a clearly articulated and understood investment philosophy (on both sides) you leave yourself open to being wrongly boxed by the fund selector, and expectations are awry right from the start. When things go wrong (and they will), they’ll be heading for the door, and that’s assuming they invested in the first place. Many PMs do have all this in their heads, but have struggled to articulate it. Some have never given it any thought at all. A well written (but also real) investment philosophy is crucial as everything else stems from that.”
“We’re unlikely to go back to such easy money conditions, other than temporarily in response to recessions. Therefore, the investment environment in the coming years will feature higher interest rates than those we saw in 2009-21. Different strategies will outperform in the period ahead, and thus a different asset allocation is called for.”
“…the leaders of one cycle are not the leaders of the next cycle. Despite hundreds of examples of this, investors have a difficult time letting go of what has been working, fearing they will miss out. In 2023, the Magnificent Seven were up 75%, while the equally weighted index was only up 13%. It is difficult for many to avoid the party or leave early; doing so involves career risk, which is difficult for most to take. We, however, find little value in trying to squeeze the last bits of juice from an orange. We have been very public in our comments that one should think about the next forty years; we are unlikely to have another forty years like we just had.”
“My guest on the show today is Brandon Halcott, a true entrepreneur. Brandon founded a company called Tru Family Dental, which was a roll up of dental practices that was sold to a private equity owned dental company a few years ago. Now, Brandon is at it again but this time is focused on building both a dental practice platform and one dedicated to engineering and architectural firms.”
“From a stock market perspective, Japan has seldom been as insignificant as it is today, it represents a little over 4% of the aggregate global stock market capitalisation despite being one of the world’s largest economies. John and Jeremy think this is the nadir for equity valuations. Their discussion is hot on the heels of Jeremy’s recent investor trip and Hosking Partners’ first overweight exposure to Japan. They perceive extraordinary, often hidden, value in Japanese equities at a moment when the country appears to be at an historic turning point.”
