After dealing with unexpected and unacceptable wi-fi and cell-phone data problems, here are a few notes about Day One (Monday, Oct. 17th) in the 2011 Value Investing Congress. You can follow their own live updates on Facebook or Twitter. We start with David Einhorn – he wasn’t the first speaker of the day, but things started to get interesting when he came onto the stage. Another great source for VIC updates is our friends at ValueWalk.com.
One thing we can say right off the bat is that, having attended both, the Ira Sohn Investment Conference is a better event: shorter in length, better attended and with better speakers, more focused and, we dare say, with more committed speakers.
David Einhorn: Short Green Mountain Coffee Roasters (Nasdaq: GMCR). Both Reuters and Bloomberg‘s stories are accurate enough accounts. That said, they don’t fully capture what appears to be another case of relentless research by Mr. Einhorn. Again, he may be right or wrong, but it’s hard to argue that his team hasn’t worked hard at this. This reminds us of Einhorn’s must-read book Fooling Some of The People All of The Time. And the Einhorn effect remains intact: by the time his talk was over, the stock was dropping 13%.
Jim Chanos: Global Value Traps. He presented the many features of a “value trap”-kind of investment, some of which can occur simultaneously. Then he distilled five value traps he’s focused on and named names. One of them? Brazil’s Vale, one of the world’s largest mining companies. While he’s always fun to watch, we’d prefer one-two main ideas and derive his investment process from them. If it sounds like David Einhorn’s presentations, it’s because we prefer the deep-research presentations.
Vladimir Jelisavcic, Long Acre: DryShips, Inc. (Nasdaq: DRYS) – long the convertible bonds. This was a tough one to watch and a reminder of the need for synthesis/”packaging” skills. A bad presentation detracts from the actual message and influences our perceptions about the speaker. While it’s obviously important to keep this in mind in order to avoid being “charmed” by an outstanding speaker, it’s also important for the speaker to present well and avoid an undeserved bad impression. And lo and behold, by the time Mr. Jelisavcic got to the details it was clear that he had done the work on the convertibles – assuming he’s correct about the difficulty of increasing capacity in the UDW ships/rigs (UDW=ultra deep water).
In the Q&A question, Vladimir discussed his fund’s philosophy/goals: to attain equity-like returns via distressed debt investing. His point is that if the debt is distressed, there’s a high probability that the stock is also distressed, in which case the debt investment gets you “closer to the assets”. That is, you buy something with potential price upside (from the bond price and conversion premium) but with higher seniority. The problem is that it’s always an investment research process that’s heavy in legal advice, consulting and so on.
Timothy E. Hartch, Brown Brothers Harriman: Long Dentsply (Nasdaq: XRAY). Re-reading the notes it’s clear the presentation was heavy in data, but not much conviction to be found here. He started by saying that Dentsply is “the one company” in his portfolio that he’d “invest and leave the money there for 20 years”. He called it the best business he knows. While we know and like the company, there are plenty of other businesses we’d prefer to that one. And this observation – that preferences/weightings/risk appetites/experiences/mental models of Investor A will differ from those of Investor B – ties up very well with the interesting story he told about his first assignment at Brown Brothers Harriman (henceforth BBH for carpal tunnel syndrome-prevention reasons):
Mr. Hartch began as a Corporate Finance analyst, and the first assignment was to help a client sell his media company. After valuing the company and sending the pitch book to four interested strategic buyers (all media companies as well), it was time to hear their bids. Companies 1 and 2 had the same valuation: US$ 10-15mm. Company 3 had US$ 25-30mm. He was still concerned because he told his client it could fetch US$ 40-45mm. Then Company 4 siad it’d buy the company for US$ 90 million… The valuable lesson (and best part of his presentation): “Same company, same data, same day, yet very wide range of values. Valuation in an estimate. Be humble about your own.”
There was also an interesting long case on “micro-cap” Energy Solutions, but still very little meat in our notes.
The last speaker was Alexander Roepers of Atlantic Investment Management. He was very generalist, and we were hoping he would spell out his case for McGraw-Hill Companies, an activist case. So we’ll leave you with his first sentence:
“I’m glad none of my ideas were trashed by either Jim Chanos or David Einhorn!”