Mario J. Gabelli, the Chairman and Chief Executive Officer of GAMCO Investors, asserted that he does not consider pulling out of a position based on whether stock markets are undervalued or overvalued, but rather “based on a given company relative to its cash flow and growth rates”. This statement fully describes the value-oriented investing approach developed more than 90 years ago. “We are not looking for the next six weeks – twelve weeks, we are looking for the next three to five years”, said Mario Gabelli in an interview on CNBC’s “Squawk Box”. But this does not suggest that the recent market correction does not have an impact on his investment decisions. It is not the stock market pullback that would eventually affect Mario Gabelli’s decisions, but rather it is the change in global economic fundamentals, which is one major factor that spurred the correction in the first place, that may push him to adjust his portfolios.
Benjamin Graham and David Dodd, two reputable professors of finance at Columbia University, are praised for developing the “value investing” approach back in 1920. A high number of successful value investors, including Mario Gabelli, were students of Graham and Dodd or their successor, Roger F. Murray. Moreover, Murray offered a series of lectures on value investing to Gabelli’s own analysts back in 1992, which yet again suggests investor’s confidence in value investing.
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Moving back to Mario Gabelli’s interview, the investment methodology of his firm is primarily based on “compounded knowledge of selected industries”. He began his career as a security analyst at Leob Rhoades & Co covering farm equipment, autos, and conglomerates and later on media and broadcasting. As he suggested in the CNBC interview, these industries still represent the main area of expertise of his investment firm. Subsequently, the focus on fundamental bottom-up research and its consistent investment process are the investment firm’s keys to success. The president and chairman of Monarch Cement Co. (OTC:MCEM), Walter Wulf, has previously claimed that he received a call from Gabelli asking numerous questions about the industry his company was operating in. Unquestionably, this provides even more evidence that Mario Gabelli and GAMCO are taking all the paths towards understanding an industry to its core.
Let’s now take a look at the top three positions of Gabelli that were raised during the April – June period. To start with, GAMCO Investors increased its position in Bank of New York Mellon Corp (NYSE:BK) by 119,785 shares during the second quarter, amassing a stake of over 6.68 million shares. The investment firm also lifted its stake in Ryman Hospitality Properties Inc (NYSE:RHP) to 5.03 million shares. Finally, Mario Gabelli’s firm also increased its stake in electronics giant Sony Corporation (NYSE:SNE) to 6.2 million shares during the quarter as well.
Professional investors like Mario Gabelli spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 118% and beaten the market by more than 60 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see more details).
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