On October 2, 2012, ValueAct Capital‘s fearless leader Jeffrey Ubben made a presentation on Day 2 of the 8th Annual Value Investing Congress in New York. Entitled “Avoiding Complexity and the VAC Circle of Life”, Ubben discussed several aspects of his investment philosophy during his presentation as well as the lessons he had learned through his years of triumphs and failures managing his own firm, and prior to that, serving as a managing partner at Blum Partners, and managing the Fidelity Value Fund. Among other things, he touched on the importance of steering clear of complex, unfocused businesses, as just one failure of its many parts can drag the rest down with it. Ubben also touched on the need to avoid companies with bad governance, instead putting oneself in a favorable position from the start of an investment rather than behind the eight ball with a dearth of problems to fix and a recalcitrant management team to butt heads with. This is particularly relevant for Ubben, who takes activist positions in the majority of his investments and seeks to work closely with management and the board to facilitate positive change. Ubben laid out his bullish case for a handful of stocks during his presentation, including Motorola Solutions Inc (NYSE:MSI) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX), each of which he remains heavily invested in today. His slideshow presentation, which you can find on the following pages, focused on two companies, Moody’s Corporation (NYSE:MCO) and CBRE Group Inc (NYSE:CBG). The bullish case for credit ratings agency Moody’s was particularly interesting given that Ubben’s own presentation pointed out his dislike of traditional financial stocks and hard-to-value assets. It was also notable for the fact that David Einhorn, who was shorting Moody’s (and had been for some time), had slammed the stock earlier in the same day during his own presentation at the same conference, noting that the company was facing numerous lawsuits among other issues.
Ubben pointed to Moody’s Corporation (NYSE:MCO)’s strong position and limited competition, as well as its potential for low double-digit revenue growth opportunities. He had first gone activist on Moody’s in July 2011, reporting ownership of 13.87 million shares at the time, a step up from the 11.05 million shares he held at the end of June of that year. He would increase that position to 17.34 million shares by the end of the third quarter of 2012 before beginning to sell out of the stake in the fourth quarter and then completely exit it during the first quarter of 2013.
What happened? For a longterm value investor like Ubben who was heavily touting the stock just months prior, not only at the New York Value Investing Congress, but also a month later at Invest for Kids Chicago, it seems a rather surprising turn of events to sell out of the stock completely. Did he meet resistance in the boardroom that caused a change of heart concerning the company’s governance or direction? As it turns out, Ubben’s long thesis on Moody’s Corporation (NYSE:MCO) was right, as shares have doubled in value over the past 27 months. One value investor who did hang on to Moody’s during that time is Warren Buffett, who still holds 24.67 million shares as of March 31.
Ubben does still hold a large position in CBRE Group Inc (NYSE:CBG), the other stock highlighted in his slideshow. He held 31.62 million shares at the end of the third quarter of 2012 and holds nearly the same position, 31.32 million shares, as of March 31 of this year. His long thesis has also proven to be wise in this case, as shares of CBRE Group have also more than doubled since the conference. Among other things, Ubben valued CBRE Group for its market leading position in a number of commercial real estate services, as well as the growing diversification of its revenue and the positive forecasted growth for the commercial real estate market. Blum Capital Partners, Ubben’s former employer, also remained high on CBRE Group Inc (NYSE:CBG) over the years and holds the second largest position in our database to this day, after Ubben himself.
Check out Ubben’s slideshow presentation from the 8th Annual Value Investing Congress in New York on the following pages.