#48 The Independent Thinker

Dave Iben is the founder and CIO of Kopernik GlobalInvestors, a $6bn global value investment shop which prides itself on independent thought and is comfortable with contrarian positions.Steve invited Dave on the podcast because at a recent NewYork conference, Dave was cheerleading that value was back, and Steve wanted to discuss the rationale for his enthusiasm, given value’s massive underperformance in the last 15 years. Luckily Dave was spending the summer in London looking for cheap UK stocks, and they could record in person.

Gary Channon is one of the UK’s better known valueinvestors. He runs a value fund, a closed-end fund and a private equity vehicle.  He runs a highly concentrated portfolio. The top 5 positions are over 50%, and he holds no more than 15 stocks. I asked him on the podcast because he is really thoughtful about his process – he only buys stocks selling for <50% of intrinsic value, and if he can monitor the business performance independently of the company's communications. He is then prepared to hold them for extended periods, as long as they remain cheap.His framework for evaluating a stock includes parameterslike the depth of work completed and confidence levels, he has instructed his entire research team to become AI experts and he has already seen significant benefits; he thinks AI means sellside analysts will be more or less gone in twoyears; and we talked about his techniques for interviewing management which include spending 4-6 hours preparing for a 1 hour meeting.  

Jennifer Wallace is a value investor. She learned her tradefrom a series of luminaries, studying under Bruce Greenwald at Columbia, before going to work for famed value investor Bob Bruce (who used to hang out with Warren Buffett). Today she is the CIO of Summit Street Capital Management, and only invests in high quality companies with modest leverage when they are super cheap. This means she will often find stocks with issues that are hopefully temporary. But she has found a winning formula, having delivered a 7.8x return to investors since 2009. Around a quarter of her investee companies have been acquired. She explains why, her rationale for having a 25-30 stock equally-weighted portfolio and why you should not befriend CEOs - "if you want a friend, get a dog”.

In his youth, George Michelakis, was a top 3 global under-20chess player. No surprise he is pretty good at investing too and runs a $2bn long short equity hedge fund out of London. Since 2006, he has compounded capital at a rate of 5.35x vs 3.43k for the MSCI world, on net exposure of 30-45%. That’s an impressive record but astonishingly, he entered his longest-running short position 10 years ago. We talked about his investing philosophy, his theory about alifestyle recession, why shorting is critical to performance, how he manages the fund and the team, why he focuses on management and why, as in chess, man plus machine or analyst plus AI will beat the lone human, which has profoundimplications for investors.

Dan Rasmussen is the founder and CIO of Verdad Advisers, an unconventional quantitative investment boutique. In this conversation, Steve and Dan agree that private equity and credit look highly risky for the next decade. They debate the value of forecasting, where they have very different views. They similarly disagree on forecast horizons, with Dan favouring near term accuracy and Steve thinking longer term forecasts are more likely to be accurate. They also debate the persistence of growth and discuss Dan’s favourite financial metric. Steve and Dan have different perspectives on many issueswhich leads to apparently contradictory conclusions but in reality, they don’t disagree – the issue is base rates versus marginal opportunities. Steve and Dan view markets through different lenses, which makes for an interesting discussion.

In this episode with Tom Slater of Baillie Gifford, manager of the £10bn Scottish Mortgage investment trust, we cover a lot of ground. Of course, we discuss his current thoughts on China and the Mag 7, including why he has trimmed Nvidia but still likes Meta and his thoughts on Elon Musk. Tom explainshis investing philosophy, what growth managers do differently from traditional value managers and how the firm’s culture has made Baillie Gifford such a successful manager. Tom explains how he remains calm in the roller coaster rides of many of his stocks, with drawdowns of 60-70% common, notably Nvidia in 2022 on its way to that $3tn capitalisation; why he favours technical founders who can advantage their companies in the AI age; what Elon Musk said to him in 2013 and why that has stayed with him; the difference between investing in quoted companies and those in private markets;  and why he and colleagues don’t pitch stocks to the team, which he believes gives them an important behavioural advantage.

When it comes to credit, few people have better credentials than Greg Peters, co-CIO of PGIM, with AUM of $700bn. In this fascinating conversation, we discuss the differences between investing in equities and credit, the legacy of the zero interest rate period, why PGIM uses scenario based forecasting in preference to single point estimates, why covenants have gone out of fashion and why that’s dangerous, ad much more. Listen to the end for an update on the outlook for markets in 2025.

Anthony Bolton is best known for Fidelity Special Situationsfund’s 19.5% pa returns, 6% above his benchmark, over a 28 year period. He was not only a highly accomplished investor but was both revered and liked by his colleagues. Pragmatic, unfailingly courteous, courageous, and universally popular, he exhibits none of the arrogance that is sometimes exhibited by successful investors with far inferior performance. In a first for this podcast, this interview was recorded live at the Library of Mistakes in Edinburgh on November 21, 2024, in front of an audience of investors, professional and amateur.

Lionel Barber is the former editor of the Financial Times and probably the only journalist on the planet to have interviewed Presidents Obama, Trump and Putin. Under his stewardship, the FT  metamorphosed from a newspaper into a digital subscription business, and was sold to the Japanese company Nikkei for 44x earnings. And as editor, Barber fully backed up former guest Dan McCrum in his investigation of Wirecard. I was delighted when Lionel agreed to come on the show to talk about his new book, Gambling Man, a biography of Masa Son, founder of Softbank and creator of the $100bn Vision Fund. I have long been curious about Son, who for 3 days at the peak of the dot.com boom was the richest man in the world. Barber spent 3 years writing his meticulously researched book for which he interviewed 150 subjects, including Bill Gates and Warren Buffett, as he explains in our discussion. Some of his stories, including his description of Son’s inner sanctum, are marvellous. If you enjoy this episode, head over to our Substack, (sign up button on https://behindthebalancesheet.com/), take the monthly paid option and get exclusive additional content, including Steve's interview with Alok Sama, former CFO of Softbank International.

Bill Nygren has been at Harris Associates for over 40 years and considers himself a value investor. Yet his portfolio has owned Netflix, Amazon and Meta recently, while Alphabet is his largest position. Bill explains his unusual but highly effective approach to value investing. Harris has also constructed a unique organisational methodology to handle investing mistakes – I have never encountered a process in which the analyst is changed when the stock doesn’t go to plan. Bill explains why and other techniques in this fascinating discussion. Steve was so looking forward to this conversation and Bill didn’t disappoint.