GuruFocus had the pleasure of featuring Vitaliy Katsenelson, the CEO of IMA, on Value Investing Live.
Watch the full stream here:
Key takeaways
The live stream started off by diving into Katsenelson’s background. He explained that he initially immigrated from Russia and quickly fell in love with investing. He changed his major for a sixth time to finance, went to graduate school, got his CFA credential and then landed a job at IMA. Since then, he has spent several years teaching investing at the University of Colorado Denver and has written several books.
From there, Katsenelson explained that he finds investing intellectually stimulating. Throughout his career, he has had the opportunity to learn about new topics almost every day. He also discussed the influence of Warren Buffett (Trades, Portfolio), Charlie Munger (Trades, Portfolio) and Benjamin Graham on his investing career.
Katsenelson transitioned to dive into the six commandments of value investing, which he uses to guide his investing philosophy. These commandments are used to help steer investors away from being a speculator and gambling on stocks. He continued to explain that someone who is able to follow these commandments has no choice but to be an investor.
On the topic of idea generation, Katsenelson stressed his connection to value investors around the world. Throughout his career, he has generated a group of colleagues that all share great ideas. He also stressed that investors have to expose themselves to randomness and avoid falling prey to the idea that ideas will always show up consistently.
Katsenelson heavily emphasized the need to find quality businesses. From there, investors should also look to find companies that are growing their earnings as this can often bail them out after overpaying for a quality business. His process then takes a look at long-term headwinds and tailwinds that may affect a company and, finally, he examines any short-term factors that should be avoided to manage risk.
When asked about the metrics he likes to use for valuing companies, Katsenelson explained that he is fluid with his strategy across every industry. He works with an understanding that certain metrics work better in some cases, but avoids relying upon a single data point to make decisions. He continued to explain that the one thing he consistently looks at across all industries is management. Any time he finds a management team that is heavily invested in its own company, he is elated and feels much more confident in their decision-making.
Stocks
After a deep dive into his thoughts on the market, Katsenelson discussed his investments in pipelines. He explained that one of his favorites is Enterprise Products Partners LP (EPD, Financial). The industry saw several years of capital destruction and have revised their strategies to generate better cash flows. These companies have also developed strong pricing power and the ability to pay off debt, which are great signs for Katsenelson.
Questions
A question from the audience sparked Katsenelson’s attention with the topic of defense companies. He explained that taking a macro view of the geopolitical sphere can actually help investors capitalize on risk. Throughout the last several decades, China has increased in economic power and the U.S. has been implementing de-globalization efforts.
In Katsenelson’s eyes, this tension will lead to two standards for technology. The U.S. and China will each attempt to cut each other off from data and, therefore, there will be an increased importance on military power. He believes this will be a significant tailwind to defense companies in both the U.S. and Europe, so he maintains positions in these companies on each front.
Another question asked Katsenelson what he likes to read to increase his knowledge. He explained that as he has grown older, he has diversified what he reads and has started to explore books about philosophy and mindfulness.
As he thought about the question, he continued to explain that he has also started to transition away from physically reading and relies upon alternative forms of content to learn. He has around a dozen different podcasts that he likes to listen to and subscribes to YouTube to get access to different interviews. He believes he has hit an all-time low with his reading, but has learned more than ever in the last year.
