I spent a lot of time in the car over the past few days. While I drive, I often spend time listening to videos or talks that investors or fund managers give. I bookmark these videos in a file, as many of them are 30-60 minutes or more, and I often don’t have the time to listen to them. But riding in the car allows me to catch up on these, and I enjoy it.
One of the best places to find excellent lectures by great investors is the Ivey School of Business. Ivey is one of the only schools in North America that teaches value investing in the Graham tradition. Prem Watsa, CEO of Fairfax Financial Holdings (FFH.TO), who many call the Warren Buffett of Canada, is an Ivey alum. I’ve reviewed many of these lectures in other posts on this blog. They are a great way to further understanding on how these investors think about stocks, markets, portfolio management, and other facets of the investment business.
Although I am more of a quantitative investor, I am always trying to improve my analysis and my qualitative skills. I always keep in mind that (according to Buffett himself), “the most sure money is made on the quantitative side, but the real big money is made on the qualitative side” (paraphrasing).
The best way I know how to improve my qualitative skills and business analysis is to study other Buffett-type investors who discuss their logic and their ideas like Mohnish Pabrai, Tom Gayner at Markel, and funds like Fairholme, Sequoia, Tweedy, and Yachtman.
Mason Hawkins is one of these Buffett type investors looking for outstanding businesses with competitive advantages. He manages the Longleaf Partner funds at Southeastern Asset Management, and has a successful long term track record as a value investor. He writes excellent quarterly letters to shareholders, and he takes fairly concentrated positions in stocks (at least relative to most mutual funds).
These two things (big positions and publicly stated theses) make for a great learning tool. Anytime a great investor with a long term track record publicly discusses why he likes something, it’s worth checking into, if for nothing else than the learning experience you get. All knowledge is cumulative. I check Hawkin’s 13-f filings each quarter.
Circling back to the excellent Ivey Business School lectures, Hawkins gave a talk/Q&A there in 2005 that is definitely worth listening to. This is one of the videos I listened to while spending many hours in a car over the past couple days. It’s a long talk, but worth listening to if you have time. I’m a much different investor than Hawkins, but the two things I found most interesting about his talk (not to mention how similar his voice sounds to a former U.S. President) are:
- He doesn’t care what his performance looks like relative to the S&P 500. His primary performance goal is the inflation rate plus 10% annually (he calls it “inflation plus 10“). So if inflation averages 3%, he wants to make 13% annually. He is very concerned with absolute compounding of his capital. That is an important thing to remember with investing. It’s the reason we invest our capital: to compound it, not to beat some benchmark.
- I liked the way he discusses the hierarchy of the margin of safety concept. He said the balance sheet is the most sure way to gauge a margin of safety… “cash is cash”. The income statement provides less certainty (you have to predict that the future cash flows will materialize, and thus have to be a good judge of business. The balance sheet takes “6th grade math” to determine the margin of safety. This is interesting because it’s ironic. Hawkins is primarily more of an income/cash flow statement investor from what I can tell. He wants great businesses with durable competitive advantages that produce lots of free cash. But he knows that the balance sheet is the most surefire way to judge risk.
He’s a smart guy, seems very likable, and is an excellent investor. Check out the video if you happen to be driving somewhere for an hour or so.