A Great Investor Lecture 2007: An Investor Evolves

I will be posting a series of lectures by an outstanding investor who evolved from a deep cyclical value investor to buying good business at the proper prices.

You will learn from someone who began as a securities analyst, then ran a hedge fund, and finally invests as an independent investor.

Go here for the link to the 28-page document:

http://www.scribd.com/doc/67676334/Great-Investor-Lecture-on-Mar-27-2007

I would be interested in your thoughts.

4 responses to “A Great Investor Lecture 2007: An Investor Evolves

  1. Thanks John for this lecture. I found his strategy realistic for not-so-talented investor like me. Buying large/established companies with temporary problems seems very practical. Sell to profit from the closure of discount to intrinsic. I am more a trader than I’d like to admit. Buffett and Munger said they would focus on small situations if they had to do it again with small amount of capital. My experience has been that it is hard to find situations that I understand and get to a level of confidence to invest. For the very few I did find, I could not invest enough to matter much overall.
    Wallace

    • Dear Wallace:

      There are some subtleties to the strategy. You will never have an edge knowing MSFT, NVS, Campbell Soups, AMAT because these are huge companies with operations throughout the world,
      but YOU can be an expert on their financial characteristics knowing that they are ABOVE average businesses. Then you are left to being precise at the price you buy and sell these companies. The reason is that large franchises usually are at or above value–not like today–and rarely get much below 25% except in 2009, 2001, 1987, 1974, etc.

      Small companies are usually not franchises and are more like asset investments. The prices tend to go much more above and below value, so you can have more of an edge in terms of price but not stability of the business. However, look at WDFC or Landauer or BCPC–small bu stable business. These are NICHE franchises. The companies are small but they dominate, 70% market share, their niche. Those companies can almost be priced as bonds.

      Good luck.

      John Chew

      As I post more lectures of this investor, you will learn more. I know this strategy works well but many will think it is too boring.

      A great way to see for yourself, the efficacy of investing in stalwart companies over time is to look at the 35-year or 50 year charts of http://www.srcstockcharts.com

  2. The sounds so simple and sane.

    You have your list of 30-50 great, large companies you’ve identified as having a durable moat from all your Greenwald / Buffett reading on franchises, and that’s your WHOLE UNIVERSE. They are so widely-followed that they rarely get cheaper than 15-20% off fair value, so in normal times the trailing 1- or 2-yr low might give you a hint as to where that is. Anytime you want to put some money to work, you see what on your list is near a recent low and probably buy there (verifying nothing has materially changed about the business).

    Compare that to running screeners over the ENTIRE stock universe, tinkering with valuation models on all sorts of unknown small and mid-caps, inputting your own estimates of normal earnings, WACC, and future growth (if you dare) – buying what looks to be 75% off …or is my WACC estimate just a little low…? One false move and you’re dead.

  3. Also, I may have companies like Matthews International (MATW) which is not a GREAT business but is an OK/Good business with good management based on how they run the business. I know their products will be needed (caskets and burial urns/cremation urns. If I can buy at a decent NO GROWTH price, perhaps Mid $20s then I would have it on the list. The companies do not have to be huge. WDFC has CAs in its WD-40 business but not in its other businesses.

    Also moats are constantly getting stronger or weaker sometimes just ebbs and flows vs. huge destruction.

    Learn from Greenwald, but never cease to do your own thinking. I think he is WRONG on Amazon, for example.

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