The Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) annual meeting wasn’t the annual game in Omaha’s town last week. The 10th annual Value Investor Conference on May 2-3 at the University of Nebraska at Omaha featured some of the best minds in investing today opining on everything from stocks to portfolio management to civil war risk.I attended the Friday portion of the Conference and was impressed with the crop of presenters, as I have been in past years. Here, though, are notes, musings, and takeaways from my three favorites of this year’s bunch.
I attended the Friday portion of the Conference and was impressed with the crop of presenters, as I have been in past years. Here, though, are notes, musings, and takeaways from my three favorites of this year’s bunch.
David Rolfe, Wedgewood Partners
Most presenters at value conferences focus on a specific investment they’re hot on or elaborate on the process and philosophy that brought them to the dance. Rolfe, the Chief Investment Officer of Wedgewood Partners, took a different approach, which I really enjoyed: Digging into the massive success story that is GEICO. Rolfe, who had done an extraordinary amount of homework, walked through GEICO’s rich history.
Most investors don’t realize this, but Benjamin Graham, Warren Buffett’s mentor and the father of value investing, was once GEICO’s chairman and served on its board of directors for 17 years. Rolfe also highlighted an interesting paradox — that Benjamin Graham’s biggest home run was not among the net-net deep values he is known for, but a thriving fast-grower. As Graham put it, “In 1948, we made our GEICO investment and from then on, we seemed to be very brilliant people.”
There’s something for value investors to learn, here. That a growing, well run, competitively advantaged business can deliver outsized long-term gains even if it isn’t conventionally cheap. Buffett saw the same light as he invested on and off in GEICO over many years before Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) swallowed it whole in 1996.
Rolfe himself has long put that philosophy to work successfully — Apple Inc. (NASDAQ:AAPL) sits next to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) as his fund’s two largest positions. While Apple is all the rage among value investors today, Rolfe was ahead of the curve and started picking up shares back in 2005, recognizing the size of the market opportunity and the power of the Apple Inc. (NASDAQ:AAPL) ecosystem. These thesis strokes are old hat today, but they weren’t when Rolfe started purchasing shares eight years ago in the $60s. Well played, sir.
Howard Marks, Oaktree Capital
Marks might be the hottest name among today’s hard core value nerds. His book The Most Important Thing received high praise with book jacket promos from the likes of Buffett, Joel Greenblatt, and Seth Klarman. Having Buffett personally praise your book is like having the president stump for you in a campaign, which says about all you need to know about Marks’ status among the value crowd.
It’s well earned. Marks, the head of Oaktree Capital Group LLC (NYSE:OAK), is a smart, deep thinker and deft investor capable of swinging up and down capital structures in order to find value. His talk focused on the crux of Marks’ style — respecting one’s circles of competence and being intellectually honest with oneself about what you don’t know about the market or a given stock. Drilling down, it’s even more important to identify as best you can what you don’t know.
Marks didn’t get into specific ideas but did say that he’s been sniffing around for bargains in Europe, shipping, and U.S. commercial real estate outside of A buildings in A cities. Marks doesn’t see equity markets as being in bubble territory. “I don’t think we’re at a cyclical asset peak. Certainly not in stocks. But something more like the 6th or 7th inning.” He’s a lot less enthused about Treasuries, whose record low yield offer an outstanding opportunity to lock yourself into long-term underperformance. “I think the big mistake today is buying long Treasuries.” Bond buyers, beware.