Tuesday, May 10, 2011

Howard Marks and Steve Romick notes from Value Investing Congress presentations

Howard Marks (Oaktree Capital): Oaktree manages over $80 billion and we've covered Marks' insightful commentary numerous times. His presentation highlighted the "human side of investing" and the difference between theory and practice. The manager said he splits investors up into two categories: those who know and those who don't, pointing out that it's what investors *think* they know that gets them into trouble. Risk can be introduced when investors overestimate what they know about the future.

Marks says that the main difference between value and growth investors is that value investors focus on the present. He went onto say that, "(The) most important science for investors is psychology. Investors who have their psyches under control will do best." This of course beckons the age old concept of not letting your emotions get in the way of making rational decisions.

He also went on to focus on the importance and difficulty of being contrarian and that market tops typically occur during a time of rampant bullish euphoria. Marks noted that pro-cyclical behavior is a huge mistake.

Oaktree's funds currently have a lot of cash on hand as opportunities are not abundant; Oaktree seems to be doing more selling than buying these days. He also mentioned he thinks that most institutions over-diversify.

Marks said that the gist of his presentation is featured in his new book that we highlighted yesterday, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Steve Romick (First Pacific Advisors): Romick noted that enticing opportunities today are scarce and compared it to trying to ski in the middle of summer. The one pocket of snow he does see potential in is large cap stocks as he believes small caps are overvalued.

Romick presented CVS Caremark (CVS) as a business with good tailwinds and a store footprint that's hard to replace. He says the company is undervalued, trading at a P/E of 12.2x net of the pharmacy benefit management (PBM) hedge. He also points out that management owns a lot of stock and that private label is an opportunity for them to grow as it's only 17% of revenue right now.

Interestingly enough, CVS also seems to be under pressure to split up from its previous merger (combining drugstore chain CVS with pharmacy benefit manager Caremark). Numerous analysts and investors believe the break-up value is much higher than CVS' current share price. Rival Walgreen's (WAG) recently sold-off its PBM segment.

Lastly, Romick also gave another investment idea in Hong Kong traded Goldlion (HK 533). It is an apparel and goods manufacturer in China that caters to the mid-high end consumer, akin to Coach or Polo.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.