Amit Wadhwaney of Third Avenue Funds

http://www.valuepodcast.com/148#t=1:09.441

Investment Mandate

  • Bottom up investors
  • But they will not buy a business if the macro outlook is negative
  • They focus on what they know: the here and now
  • They focus on the balance sheet
  • What is the business worth if they close the doors?
  • The asset valuation is very conservative
  • What are the recurrent liabilities?  They capitalize and deduct these liabilities from the assets.
  • They buy the discount to NAV
  • Think about asset values creatively; what can it be worth?
  • Don’t just buy cheapness, but buy businesses that have staying power
  • They like companies that are cheap, durable, and can grow

 

Risk

  • Investment risk: anything internal or external that destroy value or result in permanent impairment
    • poor balance sheet
    • bad management
    • bad business models
      • companies that have to access capital markets for recurrent business needs vs. growth
    • regulatory risk
    • susceptible to political interference
    • industry structure risk
    • related-party dealings
    • currency denomination (assets vs. liabilities)
  • avoid companies with low barriers to entry
    • they are characterized by short periods of prosperity
  • Foreign markets have to improve disclosure and transparency in order to attract investment

 

 Summary

  1. Invest in severely depressed securities for 3-5 years or preferably longer; it takes time for the clouds to depart and for the sun to shine through
    1. factors depressing a business for industry need to work out over time,
    2. in time sensible valuations will reassert themselves
  2. Five key points
    1. Bottom up
    2. Conservative valuations
    3. Avoid risks that can impair value
    4. Focus on balance sheets
    5. Be long-term

 

Asset Heavy Businesses

  • Asset intense industries can sometimes provide a high barrier to entry
    • i.e. the owner of fiber optic cable infrastructure

 

General Guidance

  • Understand the reason why the business is cheap
    • sometimes there is simply a lack of analyst coverage
    • sometimes the structure is complex and very few are willing to uncover value

 

 

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