While there were a handful of intriguing stock ideas offered during the first half of "the Super Bowl of value investing," different ways of thinking about investing were really the focus of most talks on Tuesday. That, and a hearty dose of macro musing.
Value investing around the globe
Amitabh Singhi kicked off the morning with a talk on investing in India. Singhi has found success investing in niche businesses with high returns on equity, whose stocks trade at high single-digit price-to-earnings multiples. I'd say that's a potent recipe for profits in any market! Singhi had very good things to say about the corporate culture at Tata Motors
Next up was Spain's Francisco Garcia Parames, who has racked up 17% annualized returns over the past 18 years. Parames identified two differences between himself and most other value investors: his focus on European equities and his adherence to the economic theories of Friedrich Hayek, Ludwig von Mises, and the rest of the Austrian School. Parames credits this latter framework with helping him to avoid financial stocks over the past six years or so. A similar economic view was evident in Michael Lewitt's presentation later in the day, in which he attributed the U.S.' persistent boom-bust cycle in large part to the meddling of the Federal Reserve.
You guys are dead
Passport Capital's John Burbank told attendees that the age of the bottom-up value stock picker is over. We've heard that argument a lot recently, and I found the balance of Burbank's comments a lot more interesting. He said that investors are making a mistake if they're not carefully studying what goes on in Washington, and that they need to think in terms of the two-year political cycle. He sees the 2010-2012 period as one of likely gridlock, while the 2012-2014 period may lend itself to potentially radical change.
In terms of the global macro picture, Burbank sees the developed markets bifurcating into two groups: the solvent and the heavily indebted. He sees capital fleeing the latter in favor of the former, which should push up valuations in places like Hong Kong and Australia. Australia would actually be a double-beneficiary under a future inflationary scenario, thanks to its commodity exports.
Following on the commodities theme, Burbank urged investors to be long in whatever China is short -- meaning materials such as potash and oil. Passport's largest position is Riversdale Mining, an Australian company developing coal assets in Mozambique. Interestingly, Companhia Siderurgica Nacional
Red meat
Lee Ainslie of Maverick Capital made the case for value tech stocks like Dell
Former Fool Zeke Ashton gave us more stock ideas to chew on than any other presenter, throwing out names from three out-of-favor industries: insurance, equity asset management, and retail. Some firms mentioned include Fairfax Financial -- which I pitched to Fools in late February 2009 -- and Biglari Holdings
"Invest like a champion today"
Guy Spier said this is a sign that Warren Buffett has posted in his office. It's an example of the signposts one can lay for oneself to stay on the right track in the daily pursuit of investment excellence -- somewhat akin to the messages tattooed on Guy Pearce's body in Memento. (I certainly second Spier's recommendation of that film.)
For mere investment mortals (i.e., the non-Soros' of the world), using checklists and other measures to keep our lizard brains in check is an important part of the equation. Avoiding overconfidence is also key. In his slide presentation, Spier offered up a Simpsons gag, showing an X-ray of Homer's brain, which occupies a very small portion of his skull. The idea is that our capacities are limited, and we should always remember that when investing.
Speaking of champions, Bill Ackman rounded out the day's talks with a fairly simple Q&A session. The guy usually rolls out a massive slide deck, exploring every nook and cranny of a highly complex security, so this was a real change of pace for the man from Pershing Square. I was almost certain Ackman would have a full-blown pitch for J.C. Penney
We did get to hear a little of Ackman's perspective on the retailer, namely that it is very cheap, has higher-quality assets than competitors like Macy's, a strong balance sheet, and significant non-operating assets that could probably be monetized. Ackman has taken an activist stance in the stock, but he said that even if he does nothing to shake up the company, the investment should still lead to attractive returns. At the same time, he also conceded that it's not as much fun to predict the future as it is to have a hand in shaping it.
That's all for now, Fools -- stay tuned for more coverage of the VIC as the event unfolds.
