“You have to understand why a security is mispriced. This is a zero sum game business, and you have got to assume that someone else on the other side of the trade is a competent investment professional and knows that they are doing. It becomes critical to understand why is the investor on the other side of the trade is making a mistake, and what is my edge against that.”
Brad Hathaway, Far View Capital Management
Brad Hathaway, founder and Managing Partner at Far View Capital Management, in an exclusive conversation with The Manual of Ideas discusses the nuances of investment philosophies & processes, and knowing when to be flexible in executing these processes, and being aware of the major risks in global value investing.
Brad starts by discussing his perspective on the nuances of investing globally:
Management incentives and the quality and competence of management is even more important outside the US than in the US, as it has a material impact on shareholder returns
Next, Brad shares some insight into how he thinks about being aware about the available opportunities, and being flexible with an investment process:
Be aware of what market is doing, and be willing slightly tighten the investment process when there are not too many things to do and conversely slightly loosen the process when there are too many things to look at.
Brad then shares his perspective on the key risks to watch out for as a global value investor:
Be careful of seemingly cheap opportunities if you are unable to explain why the equity is trading at a cheap valuation. Keep in mind that the insider trading laws outside the US are not as strong as in the US, and there is a possibility that someone has some information that will come out after the fact
Finally, Brad shares an example of one of his investments which highlights how to conduct diligence for global investments:
A lot of time you might think that you are getting an incredible bargain, but the person selling the equity may be right. You have to conduct deep diligence to build conviction with not only your thesis, but also fully understand what the seller might be missing
Brad’s unique views on the company specific risks in global value investing, process flexibility as well as building conviction in an investment idea are an excellent perspective on how to navigate the challenges in global investing.