One of the friends I made at the Glide Foundation, Tod Thorpe introduced me to Tony who had some questions. I recorded them on video and he gave me permission to share.
Questions are below.
1. Have you had any new or unexpected reflections in the last year since publishing your book?
2. Also a big fan of Joel Greenblatt and love “The Little Book that Beats the Market”! I subscribe to value and contrarian approach as well but do you ever feel like there’s risk of “value traps”. If so, how have you avoided them? Michael Kors, for example, is now on the Magic Formula screen is trading at 5x EBITDA / 10 PE with no debt.
My research would suggest it’s not a value trap but I’m definitely wary of the bear case that a lot of people have sided with. Thus, the current valuation assumes a lot of the bear case that the brand will disintegrate in 5 years. However, my research after talking to store associates and customers suggests that while the brand perhaps has slowed in some segments, it is still very much alive and on trend. Other factors such as e-commerce taking away from same store sales, declines limited to watch sales not purse sales, and trend of preferences for smaller bags suggest the brand is still in-tact and does not require anything heroic in order to grow earnings (due to international and men’s wear runway) and multiples trade back up.
Conversely, great network companies trade at high multiples that would never be on that list such as Amazon. I wonder if I’m missing some opportunities by not considering higher multiple companies and if you might have a similar feeling. One of the businesses I’m looking into is TripAdvisor which looks expensive on a PE multiple but I think is under-earning, has a large user volume tailwinds and a huge monetization gap that can close with Instant Book.
3. In your book, you talk about not checking the stock price every day, holding investments for the long term, and maintaining autonomy when investing seems to depend on a stable capital base. Would a mutual fund be a good environment to practice buying great companies over a long period of time?
4. What’s your opinion of investing at a beta neutral funds such as Citadel? You mention that both a macro and bottom-up approach is tough to do well. What if you try to take market factors out and pursue alpha?