Graham & Doddsville
Total Page：16
File Type：pdf, Size：1020Kb
Graham & Doddsville An investment newsletter from the students of Columbia Business School Inside this issue: Berkshire Annual p. 3 Volume III, Issue II Summer 2009 Meeting & Heilbrunn Center Reception “Fish Deeper, Fish Alone”—Paul Sonkin The Mother of Dis- p. 11 tressed Cycles-Steve Paul Sonkin is managing mem- because people expect it, I Moyer ber of the Hummingbird Value think it’s not going to hap- Fund. He has worked at the pen. An example that I was Precision Castparts p. 16 SEC, Goldman Sachs, Royce talking about the other day is Apollo Group p. 18 Funds, and First Manhattan 9/11. I think that there are a Company. He holds an MBA lot of commonalities be- Focused on Essentials- p. 20 from Columbia, where he tween Lehman and 9/11. Brown Brothers teaches courses on applied Basically, what happened is Harriman value investing. that Lehman set off a chain reaction – sort of a negative A Quant Among Us- p. 26 GD: What is your take on feedback loop. I think it was Jim Scott the market right now? There a Thursday morning, Octo- th seems to be some diver- ber 11 when the Reserve Michael van Biema at p. 36 gence of opinion among in- Fund announced that they NYSSA vestors currently about had a lot of exposure and Paul Sonkin - Managing Mem- ber, Hummingbird Value Pershing Square P. 34 where we are in the cycle. they broke the buck. I re- Fund. Challenge member that we were think- PS: What’s going on now is ing, “Our cash may not be Editors: that many of the people I am safe.” Wachovia had failed happened after 9/11 – al- though, I think that was Charles Murphy talking to – many smart, and you were having these MBA 2009 savvy investors – think that huge bank failures and the more psychologically driven. world became a very, very You had this huge exogenous David Silverman the second and third shoe is scary place. Everybody event, which introduced a MBA 2009 going to drop. For that rea- son, I think there is a tre- pulled back. The country huge amount of uncertainty Matthew Martinek mendous amount of money just shut down for a quarter, in both cases. MBA 2010 sitting on the sidelines. And, which is very similar to what Continued on page 2 Clayton Williams MBA2010 Welcome Back to Graham & Doddsville Contact us at: [email protected] We are pleased to present investment philosophy, and value investing professor at you with the third edition of at Graham & Doddsville, we Columbia. Paul gives us his Visit us at: Graham & Doddsville, Colum- believe that there is no bet- thoughts on the current www.grahamanddodd.com bia Business School’s student ter way to study investing market environment and www0.gsb.columbia.edu/students/ -led investment newsletter than directly from successful applying Graham & Dodd co-sponsored by the Heil- industry practitioners. With principles to a microcap brunn Center for Graham & this objective, our current strategy. Dodd Investing and the Co- issue contains four inter- lumbia Investment Manage- views with leading invest- Since the application of value ment Association. ment professionals. investing goes far beyond common stocks, Steve The tumultuous market over First, the issue features an Moyer, author of Distressed the last year has only further interview with Paul Sonkin, Debt Investing, sits down reinforced the merits of a managing member of Hum- with us to discuss opportuni- sound, long-term oriented mingbird Value Fund and (Continued on page 2) Page 2 Welcome to Graham & Doddsville (continued from page 1) (Continued from page 1) Director of General Mo- winner of the second annual ties in the current dis- tors Asset Management Pershing Square Challenge. tressed cycle, and their im- and a former Columbia plications for value inves- Business School professor. Finally, this issue contains tors. articles detailing the numer- Along with providing our ous opportunities in invest- Next, Timothy Hartch and readers with insightful and ment education available to Michael Keller of Brown timeless content, we also CBS students, including this Brothers Harriman Core aim to provide specific year’s trip to the Berkshire Select Fund discuss their investment ideas that are Hathaway Annual Meeting philosophy of focusing on relevant today. Inside are and the Second Annual Per- essential services in a value two condensed student shing Square Challenge. framework. investment recommenda- tions. The first recom- Please feel free to contact us Finally, we talk with Jim mendation is Precision if you have comments or Scott, director of research Castparts (PCP), winner of ideas about the newsletter, at the Heilbrunn Center, this year’s Sonkin Prize. as we continue to refine this about applying quantitative The second recommenda- publication for future edi- tools to value investing. Mr. tion is the short-sale of tions. Enjoy! Scott is also a Managing Apollo Group (APOL), Paul Sonkin (continued from page 1) “When people When people are faced with money when they need to caviar. They’re not going to uncertainty, they really spend money. go from one extreme to don’t know how to react so another. You have intelli- are faced with whatever they are doing, What we are seeing with a gent people making intelli- they just stop. They go into lot of our companies is that gent decisions about spend- uncertainty, they conservation mode. I am a people are making necessary ing and there are companies big proponent of evolution- expenditures, but they are that are going to be benefi- really don’t know ary psychology. It is sort of revisiting all of their other ciaries of that. like the fight or flight reflex. expenses. You are still go- how to react so If you are faced with a huge ing to go out to dinner, but Getting back to the 9/11 shock, you get this huge maybe you go out to the analogy, the “next 9/11” is whatever they adrenaline bump and it is less fancy place. In our not going to be as much of a kind of like an automatic portfolio companies, I think shock. If you have another are doing, they response. I think that is that one big beneficiary of horrific incident where what happened in the fourth that is a company called 2,000 people were killed in quarter. What I am starting Avantair that does fractional say, San Francisco, the just stop.” to see now in the press and planes at basically half the country would just react in anecdotal evidence com- cost of NetJets. It has actu- differently because it has ing out of these companies ally been taking a lot of already happened once, and on a grass roots level is that share from NetJets. I think I think that when it happens people are starting to spend this happens at every level. the first time there is this money again. They aren’t People want to downsize a huge reaction. When it going to spend as frivolously little bit, but they don’t happens the second time, as they did in the past, but want to be eating cat food people become desensitized they are going to spend when they’ve been eating (Continued on page 4) Volume III, Issue II Page 3 Berkshire Annual Meeting I could have sworn I was at generations. The grand- what he intended to do af- a rock show, not an annual mother’s father had been ter the sale, and then to meeting. Yet there I stood approached by Warren Buf- send over three years of outside the Qwest Stadium fett in the 1950s to contrib- financial reports and a brief in Omaha, Nebraska on a ute $10,000 to his original history of the company. “There is no Saturday morning at 6am partnership and had de- Within three days, Bill had a with 35,000 other excited clined the offer. The family response. The offer was ‘hedge fund’ fans waiting in anticipation we were visiting had a simi- significantly lower than the for the doors to open for lar story. Her father was $200 million he had been the 2009 Berkshire Hatha- approached by Warren Buf- offered by investment bank- industry that way Annual Meeting. fett too. He told Warren ers and other furniture re- to come back when he was tailers, but ultimately Bill exists This year, the annual meet- driving a nicer car than him. accepted Warren’s lower ing had a cowboy theme, The irony is that Warren is offer. I was amazed that it separately which couldn’t have been probably still driving a worse took Buffett only three days more appropriate. Our car (he drove a Lincoln to feel comfortable purchas- from the tickets branded us as Town Car until 2001, and ing this company. “partners,” not sharehold- then replaced it with a ‘money ers. And when the doors Cadillac DTS). I wondered Waking up the next morn- finally opened, the stampede how many others had simi- ing at 5am was remarkably management’ for the best seats in the lar stories. easy. I jumped out of bed stadium began. Never did I like a kid on Christmas industry.” anticipate that I’d be com- After the Borsheim’s recep- morning. We arrived out- peting in a foot race against tion, we ventured over to side the Qwest stadium by agile seniors at 7am on a the local Dairy Queen (also 6am. After claiming our Saturday morning for a owned by Berkshire). It seats, we decided to go ex- chance to listen to a pair of was hosting a book-signing plore the exhibition hall.