A new monthly issue of The Manual of Ideas is out! Here is an excerpt from my editorial commentary:
As another year draws to a close, I’d like to express gratitude for the wonderful value investing community in which we are able to participate. The Manual of Ideas would not be possible without the thoughtful contributions of so many fellow investors from around the world. Thank you for sharing your wisdom, insights, and ideas so generously with other members. I look forward with enthusiasm to continued wisdom-seeking and the opportunity to build lasting friendships with like-minded investors. We will do our best to help facilitate such valuable interactions.
I also look ahead with some caution about what the global equity markets may hold in store in the coming year(s). Valuations are quite stretched, complacency seems abundant. Our members are having a hard time finding compelling ideas.
Nonetheless, as Peter Cundill has famously said, “there’s always something to do”. Knowledge is cumulative in investing, and the time is always right for learning, whether it is about the art and craft of investing, industries, business models, or specific companies. When valuations are stretched, we may build a watchlist of businesses we would love to own at the right price. We may pick up a good book and expand our “latticework of mental models”.
In this issue, I am pleased to share with you not only the investment ideas currently favored by the “superinvestors” we track, but also the wisdom of several fellow members of the intelligent investing community.
In an exclusive conversation, Michael van Biema, managing principal of van Biema Value Partners, a highly regarded fund of funds based in New York City, shares insights into concentrated investing. Michael is co-author of a recent book on the subject. The book profiles eight great investors who have amassed enviable long-term records by managing concentrated investment portfolios. Here’s my favorite quote from the interview: “If you don’t start out humble, over time the market makes you humble. You learn humility the hard way. It is better to come in with a good dose of humility than to have to lose a lot of money to generate the humility.”
Michael shares an enlightening anecdote about the dedication required to be one of the best in the investment field. He mentions Chuck Royce, “whose office is in the same building we’re in. I see him leaving his office on Friday afternoon, and he is always carrying two big tote bags full of annual reports, industry journals, 10Ks, 10Qs, and other finance materials. He goes home on the weekend, and his way of relaxing is to have a good glass of wine, sit down, and read these materials.”
Also in this issue, Phil Ordway, managing principal of Anabatic Investment Partners, an up-and-coming investment firm in Chicago, shares insights into understanding industry structure. Phil has a knack for identifying niche segments with appealing competitive dynamics and business models. According to Phil, “The further along I get in investing, the more appreciative I am of great business models, the importance of industry structure, and the importance of the people in the business.” Phil has recently focused on community banks. He will share his industry research and favorite case studies at Best Ideas 2017.
Also inside, value investor Glenn Surowiec, portfolio manager of GDS Investments in West Chester, Pennsylvania, shares insights into contrarian investing in cyclical businesses. Glenn explains why he has become a fan of the writings of Marathon Asset Management. He shares an underfollowed small-cap idea, backed by a great founding team. Glenn also provides this pithy yet profound insight into assessing management: “It is actually pretty simple. All roads lead to capital allocation.”
We are also pleased to feature an exclusive interview with Reno Giancola, portfolio manager at Alignvest in Toronto. The firm focuses on fundamental long-short investing in Canadian mid-cap non-resource equities. Here is Reno’s take on great CEOs in Canada: “We think very highly of Rod Baker of Great Canadian Gaming (TSE: GC), Rai Sahi at Morguard Corporation (TSE: MRC), and Tim Close of Ag Growth (TSE: AFN). All three ignore the short-term nature of equity markets and are very much focused on generating long-term returns for shareholders. All three are significant owners of the companies they manage and will not do anything that endangers the long-term value of the businesses.”
Fellow value investor Carlo Gioja, based in Hong Kong, contributes his wisdom in a guest article entitled, “What Chess Taught Me About Investing”. Carlo points out that “the rules are easy, but the game is difficult”. Here is an instructive analogy to chess: “After only a few months of serious play, people tend to perceive themselves to be much stronger players than they are. This is partly because of the steepening learning curve (deceptively mild at the beginning), and partly the result of studying the games of strong players with the help of computers that make following even very obscure moves very easy. Then, when sitting across from Uncle Fred at the club, you may proudly remember that move that Karpov played against Kasparov. Unfortunately, unlike Karpov, you miss a fork two moves down and lose a piece.”
Finally, I am grateful to fellow value investor Ezra Crangle, based in Mexico, for contributing a review of the newly published autobiography of famed Spanish investor Francisco García “Paco” Paramés. With the book available only in Spanish at this time, Ezra lets us in on some of the key takeaways. According to Ezra, “Paramés tells an anecdote of when he sent a letter to Warren Buffett, which Buffett answered. Unfortunately, Paco did not respond to Warren again, and that’s where the relationship ended.” I found this brief anecdote quite instructive because it shows that even well-known investors need to put in effort in order to build relationships.
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