One of the investors we follow closely here at The Acquirer’s Multiple is Steven Cohen, founder and chairman at Point 72 Asset Management. According to their last reported 13F filing for Q2 2018, Point72 has $25.056 Billion in managed 13F securities.
Cohen recently wrote a great article together with Matthew Granade, managing partner of Point72 Ventures, at the WSJ which provides a warning for investors based on the impact that model-driven companies are having on the changing business landscape saying:
“Software continues to eat the world, but yesterday’s advantage is today’s table stakes. In the hunt for competitive advantage, model-driven companies will accelerate away from the pack now that software has become ubiquitous.”
Here’s an excerpt from that article:
The software revolution has transformed business. What’s next? Processes that constantly improve themselves without need of human intervention.
Marc Andreessen’s essay “Why Software is Eating the World” appeared in this newspaper Aug. 20, 2011. Mr. Andreessen’s analysis was prescient. The companies he identified— Netflix , Amazon, Spotify—did eat their industries. Newer software companies—Didi, Airbnb, Stripe—are also at the table, digging in.
Here’s a great article published at Forbes recently regarding one of our favorite value investors, Joel Greenblatt. The article is written by Jack Schwager, author of the Market Wizards series, in which he recounts his interview with Joel Greenblatt for one of his books. Schwager recalls some of the insightful parts of the interview included Greenblatt’s successful investing strategy and his three golden rules of value investing.
Here is an excerpt from the Forbes article:
Is “value investing” correct? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
One of our favourite value investors here at The Acquirer’s Multiple is Jim O’Shaughnessy.
O’Shaughnessy recently wrote an awesome series of tweets detailing twenty five investment lessons that he’s learned over thirty years of value investing. They’re a must read for all investors.
With Jim’s permission here are his twenty five timeless investing lessons:
One of our favorite investing books here at The Acquirer’s Multiple is The Most Important Thing by Howard Marks.
There’s one passage in particular in which Marks discusses how keeping one’s ego in check is the greatest formula for long-term wealth creation. Here’s an excerpt from the book:
The sixth key influence is ego. It can be enormously challenging to remain objective and calculating in the face of facts like these:
With so many articles dedicated to the debate on value stocks vs growth stocks I think it’s a good time to revisit what Seth Klarman calls ‘Value Pretenders’ in his best-selling book, Margin of Safety.
Here’s an excerpt from that book:
“Value investing” is one of the most overused and inconsistently applied terms in the investment business. A broad range of strategies makes use of value investing as a pseudonym.
Many have little or nothing to do with the philosophy of investing originally espoused by Graham. The misuse of the value label accelerated in the mid-1980s in the wake of increasing publicity given to the long-term successes of true value investors such as Buffett at Berkshire Hathaway, Inc., Michael Price and the late Max L. Heine at Mutual Series Fund, Inc., and William Ruane and Richard Cunniff at the Sequoia Fund, Inc., among others. Their results attracted a great many “value pretenders,” investment chameleons who frequently change strategies in order to attract funds to manage.
These value pretenders are not true value investors, disciplined craftspeople who understand and accept the wisdom of the value approach. Rather they are charlatans who violate the conservative dictates of value investing, using inflated business valuations, overpaying for securities, and failing to achieve a margin of safety for their clients. These investors, despite (or perhaps as a direct result of) their imprudence, are able to achieve good investment results in times of rising markets.
Several years ago Jason Zweig did a great interview with Seth Klarman titled – Opportunities for Patient Investors, which was published by the CFA Institute. While the entire interview provides a number of value investing insights, one answer, in particular, provides a unique insight into Klarman’s psychology towards investing saying:
“In investing, whenever you act, you are effectively saying, I know more than the market. I am going to buy when everybody else is selling. I am going to sell when everybody else is buying. That is arrogant, and we always need to temper it with the humility of knowing we could be wrong—that things can change—and acknowledging that we have a lot of smart competitors.”
Here is an excerpt from that interview:
Zweig: In a Forbes article in the summer of 1932, Benjamin Graham wrote, “Those with enterprise haven’t the money, and those with money haven’t the enterprise, to buy stocks when they are cheap.” Could you talk a little bit about courage? You make it sound easy. You have great clients and great partners. Was it easy to step up and buy in the fourth quarter of 2008 and the first quarter of 2009?
Klarman: You may be sceptical of my answer, but, yes, it was easy. It is critical for an investor to understand that securities aren’t what most people think they are. They aren’t pieces of paper that trade, blips on a screen up and down, ticker tapes that you follow on CNBC.
In 1993 Walter Schloss gave a great presentation called – Upper Level Seminar In Value Investing, at the Columbia Business School. Schloss’ notes for the presentation included a number of timeless investing lessons including the kinds of stocks he looks at for investment, how to scale into an investment, and how to manage a stock portfolio.
Here is an excerpt from the presentation:
Here’s a great article from Morningstar which discusses the importance of patience as a value investor. One of the key takeaways is:
“However, by anchoring investment decisions to value, we can navigate challenging circumstances and look through market noise and emotion to identify and take advantage of opportunities that may present in times of market stress. This often sees our views as contrarian to others in the market.”
Here’s an excerpt from the article:
It is difficult to know how long it will take for an attractively priced asset to appreciate towards its fair value, long-term investors must be prepared to wait.
Value investing has a prominent place in our investment process and is backed up by a vast body of empirical evidence that supports this approach to investing.
Perhaps it can be best described through illustration in the diagram below:
One of our favorite investors here at The Acquirer’s Multiple is Bruce Berkowitz. He is the Founder and Chief Investment Officer of Fairholme Capital Management, and President and a Director of Fairholme Funds. In 2010 Berkowitz was named as the 2009 Domestic-Stock Fund Manager of the Year by Morningstar as well as the Domestic-Stock Fund Manager of the Decade (2000-2009), also by Morningstar. Most recently, he was named 2013’s Money Manager of the Year by Institutional Investor Magazine.
Here’s an excerpt from an interview with Berkowitz in which he succinctly lays out his three-step approach to value investing, including the example of Bank of America:
At Fairholme, we’re very focused on price. Price matters most to us. And we think that price determines much of the success you’re gonna have in the future. So rather than predict what’s going to happen with the company we try to price it correctly with a large margin of safety. So pricing with a significant margin of safety is very important in our rule number one of not losing.
Once we determine what a cheap price is, our next step is to look at the investment and the underlying company and stress test it to determine all the ways that business can go wrong, the environment can go wrong, the balance sheet can go wrong. Try to kill the company.
If we can’t kill the company and we’re buying it at a price that reflects near death we may be onto something very good.
One of the best papers ever written on investing is The Wisdom of Great Investors, provided by Davis Advisors.
Davis Advisors was founded by legendary investor Shelby Cullom Davis, a leading financial advisor to governors and presidents, who parlayed an initial investment of $100,000 in the late 1940s into more than $800 million by the end of his career in the early 1990s. In 1969, Shelby Cullom Davis’s son, Shelby M.C. Davis, founded Davis Advisors after serving as the head of equity research at The Bank of New York.
Shelby Cullom Davis famously said:
“You make most of your money in a bear market, you just don’t realize it at the time.”
This timeless paper is a great reminder that wherever we are in the history of investing it is crucial that we don’t forget the painful lessons from investors of the past. Here are the most important takeaways from the paper:
Overview
It is important to understand that periods of market uncertainty can create wealth-building opportunities for the patient, diligent, long-term investor. Taking advantage of these opportunities, however, requires the willingness to embrace and incorporate the wisdom and insight offered in these pages. History has taught us that investors who have adopted this mindset have met with great success.