This is the part I of notes taken by Anastasios Dimopoulos during the 4 th Annual Value Investing Seminar in Italy. It includes the talks given by Whitney Tilson and Mohnish Pabrai.
4 th Annual Value Investing Seminar in Italy – Day 1
The annual value investing seminar is organized by Cattolica Partecipazioni S.p.A. and takes place in Puglia , Italy . Our host was Ciccio Azzollini, the founder of Cattolica Partecipazioni S.p.A, and I want to thank him publicly for this great event and his generosity. This year I had for the first time the pleasure to attend the seminar and listen to the presentations of some well-known value investors. In this first report I will give you the highlights of the presentations that the first four speakers gave on the first day. Other reports will follow for the rest presentations of the first and second day and also one concerning my thoughts on various kinds of information about value investing in general that I picked up during the four days I was in Italy .
1 st day’s speakers: Ciccio Azzollini, Whitney Tilson – Glenn Tongue, Mohnish Pabrai
Ciccio Azzollini
Ciccio Azzollini made a very short introduction and talked about the two sides of value investing. The first side is that of Benjamin Graham which is buying really cheap businesses as measured by low multiples like P/E, P/B, EV/Sales, EV/EBITDA, while being fairly diversificated. The other side was made very popular lately by Joel Greenblatt and is to buy good companies at good prices.
He also talked about the investment he has presented last year and why he will never do such an investment again. Last year’s recommendation was Telecom Italia which had very low downside. The price of the stock has remained flat during the year and he said he will try to find situations that even if the downside is very low there is a lot more upside.
Whitney Tilson – Glenn Tongue
Whitney Tilson and Glenn Tongue presented one of their favorite stock ideas which is Berkshire Hathaway. They used several ways to arrive at Berkshire ’s intrinsic value which they estimated at about $144000/share. Then they analyzed an investment they have made by having custom call options written. This is a LEAP investment strategy that until now is doing quite well since Berkshire ’s stock price is going up the last years following its growing intrinsic value.
One of the attendees asked about what might happen to Berkshire ’s stock price if Warren Buffett isn’t there to manage it. In Tilson’s and Tongue’s opinion there is not much Buffett premium in the stock price today since the board is strong and there is also a succession plan in place.
The second idea was about Target which is the largest position ever in their fund. The thesis is that value could be unlocked by a possible spin-off of the credit card business and a sale of the owned real estate. The real estate is considered to be worth about $30-$40 billions to an LBO firm partnering with a real estate firm to do the deal. They see a very limited downside and the upside to be a matter of time. An equivalent situation was heard about KKR and Macy’s. The catalyst for Target according to Tilson and Tongue is activist investor Bill Ackman who has recently announced a sizeable stake. The thing that impressed me was that they believe Wal-Mart is in the same situation as to how it could be valued but it is too large to be acquired. Some of the seminar participants expressed their opinion that this kind of deal will be just financial engineering since if Target sells the real estate will have to lease the stores. There was agreement on that side of the situation but this doesn’t mean that a lot of value can be unlocked momentarily.
Mohnish Pabrai
Mohnish Pabrai talked a little about his low risk-high uncertainty investing strategy and specifically for “Abhimanyu’s Dilemma” from his new book “The Dhandho Investor”. “Abhimanyu’s Dilemma” has to do with the decision about when to sell a stock. Pabrai’s strict rule is “Do not sell if the intrinsic value is above the market price no matter what happens.” He gave an example which had to do about one of his investments that is mostly sold by now. The company is Universal Stainless & Alloy Products, Inc and the situation unfolded in the following order.
1. Bought stock at $14- 15 in 2002 seeing a forward p/e of 4-7 with no downside and a huge upside.
2. One year later the stock was trading at $5 but he couldn’t see anything wrong with his assessment of intrinsic value. He just waited.
3. One year later the stock was trading at $10-11 and the intrinsic value was estimated at easily over that price. Wait again.
4. In 2005 the stock was trading again at $15 but he didn’t sell at break-even because the intrinsic value was estimated by him at $30, so he bought more and waited.
5. In 2006 the company starts running at full capacity and is very profitable. The thesis is being confirmed and he starts selling at over 90% of intrinsic value.
In the second part of his presentation Pabrai talked about a current pick which meets the nine criteria of his framework as described in his book. The company is Delta Financial Corporation which Pabrai thinks is traded at a “throwaway price” of around $11 (At the time of this writing the stock was trading at $3.85). Pabrai estimates the company’s intrinsic value at over $30/share for several reasons. One good sign for him is that the insiders own over 30% of the company and they are according to him very conservative. He also told the audience that whenever he buys a stock it goes down and that is what happened with Delta Financial Corporation since he bought at the beginning of the year just before the subprime meltdown.
"Anastasios Dimopoulos studies Accounting and Finance at the the American College of Greece. He will graduate on December 2007Â and is planning to work as an analyst in a value oriented investment firm. You can contact him at [email protected]"
Also check out:
4 th Annual Value Investing Seminar in Italy – Day 1
The annual value investing seminar is organized by Cattolica Partecipazioni S.p.A. and takes place in Puglia , Italy . Our host was Ciccio Azzollini, the founder of Cattolica Partecipazioni S.p.A, and I want to thank him publicly for this great event and his generosity. This year I had for the first time the pleasure to attend the seminar and listen to the presentations of some well-known value investors. In this first report I will give you the highlights of the presentations that the first four speakers gave on the first day. Other reports will follow for the rest presentations of the first and second day and also one concerning my thoughts on various kinds of information about value investing in general that I picked up during the four days I was in Italy .
1 st day’s speakers: Ciccio Azzollini, Whitney Tilson – Glenn Tongue, Mohnish Pabrai
Ciccio Azzollini
Ciccio Azzollini made a very short introduction and talked about the two sides of value investing. The first side is that of Benjamin Graham which is buying really cheap businesses as measured by low multiples like P/E, P/B, EV/Sales, EV/EBITDA, while being fairly diversificated. The other side was made very popular lately by Joel Greenblatt and is to buy good companies at good prices.
He also talked about the investment he has presented last year and why he will never do such an investment again. Last year’s recommendation was Telecom Italia which had very low downside. The price of the stock has remained flat during the year and he said he will try to find situations that even if the downside is very low there is a lot more upside.
Whitney Tilson – Glenn Tongue
Whitney Tilson and Glenn Tongue presented one of their favorite stock ideas which is Berkshire Hathaway. They used several ways to arrive at Berkshire ’s intrinsic value which they estimated at about $144000/share. Then they analyzed an investment they have made by having custom call options written. This is a LEAP investment strategy that until now is doing quite well since Berkshire ’s stock price is going up the last years following its growing intrinsic value.
One of the attendees asked about what might happen to Berkshire ’s stock price if Warren Buffett isn’t there to manage it. In Tilson’s and Tongue’s opinion there is not much Buffett premium in the stock price today since the board is strong and there is also a succession plan in place.
The second idea was about Target which is the largest position ever in their fund. The thesis is that value could be unlocked by a possible spin-off of the credit card business and a sale of the owned real estate. The real estate is considered to be worth about $30-$40 billions to an LBO firm partnering with a real estate firm to do the deal. They see a very limited downside and the upside to be a matter of time. An equivalent situation was heard about KKR and Macy’s. The catalyst for Target according to Tilson and Tongue is activist investor Bill Ackman who has recently announced a sizeable stake. The thing that impressed me was that they believe Wal-Mart is in the same situation as to how it could be valued but it is too large to be acquired. Some of the seminar participants expressed their opinion that this kind of deal will be just financial engineering since if Target sells the real estate will have to lease the stores. There was agreement on that side of the situation but this doesn’t mean that a lot of value can be unlocked momentarily.
Mohnish Pabrai
Mohnish Pabrai talked a little about his low risk-high uncertainty investing strategy and specifically for “Abhimanyu’s Dilemma” from his new book “The Dhandho Investor”. “Abhimanyu’s Dilemma” has to do with the decision about when to sell a stock. Pabrai’s strict rule is “Do not sell if the intrinsic value is above the market price no matter what happens.” He gave an example which had to do about one of his investments that is mostly sold by now. The company is Universal Stainless & Alloy Products, Inc and the situation unfolded in the following order.
1. Bought stock at $14- 15 in 2002 seeing a forward p/e of 4-7 with no downside and a huge upside.
2. One year later the stock was trading at $5 but he couldn’t see anything wrong with his assessment of intrinsic value. He just waited.
3. One year later the stock was trading at $10-11 and the intrinsic value was estimated at easily over that price. Wait again.
4. In 2005 the stock was trading again at $15 but he didn’t sell at break-even because the intrinsic value was estimated by him at $30, so he bought more and waited.
5. In 2006 the company starts running at full capacity and is very profitable. The thesis is being confirmed and he starts selling at over 90% of intrinsic value.
In the second part of his presentation Pabrai talked about a current pick which meets the nine criteria of his framework as described in his book. The company is Delta Financial Corporation which Pabrai thinks is traded at a “throwaway price” of around $11 (At the time of this writing the stock was trading at $3.85). Pabrai estimates the company’s intrinsic value at over $30/share for several reasons. One good sign for him is that the insiders own over 30% of the company and they are according to him very conservative. He also told the audience that whenever he buys a stock it goes down and that is what happened with Delta Financial Corporation since he bought at the beginning of the year just before the subprime meltdown.
"Anastasios Dimopoulos studies Accounting and Finance at the the American College of Greece. He will graduate on December 2007Â and is planning to work as an analyst in a value oriented investment firm. You can contact him at [email protected]"
Also check out:
