YouSaid · the spoken record

Scott Barbee

lines on the record: 55
first: 2024-08-11
most recent: 2024-08-11
sittings or episodes: 1
sources: podcast

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“Thank you. I really enjoyed doing it. I've loved this podcast for so long, and it's been a real delight to be on. And you can find me at Aegis Funds AEGIS F-U-N-D-S Plural.com.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Pays to change a winning game. And I think there's, I can say it, but the chance of a number of people doing it are very low. But for a guy to have done this and to have the mental acuity and agility to get off of these and to get into some of these others that haven't performed as well because the market is hugely binary. And just like in 1999 when the tech stocks had sucked money out of everything else, clearly when you look at fund flows, information technology fund flows are way high and a lot of energy and so forth that continue to lose some assets. And so there's a real opportunity here for somebody that has that mental agility to switch into things that are much, much cheaper and perhaps get a double run. We had clearly missed the backside of this. They could be pretty nasty, I would think. So yeah, that's kind of what I'm thinking about the market. There's a real big opportunity for somebody who's made money in it to kind of pull back and reassess.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Don't want to use coal plants, hasn't built a nat gas plant in years, and doesn't like nuclear either and just wants to run on solar and wind, there's going to be the emergence of bottlenecks to the ability of these companies to continue to grow for sure, but also even to continue to produce at today's levels with the margins. And as such, I think we may be at a time that could be close to 1999 again where you had the Nasdaq 100 that lost something like 75% of its value after we got through March of 2000. So I think there's some real risk in that sector of the market. I think for those who have been fortunate enough to have played in that, you know, I think it would pay to remember what Sir John Templeton said, that it always”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“What other investment product do you know of where you can set it and forget it, and that works in the long run? I think Michael Green has done some work on this that shows that maybe there's some market cornering aspects that are going on within the S&P and maybe the top stocks of the SP where they're becoming higher and higher valued. I find clearly within NVIDIA, which sits at the top, there's been strong earnings growth, but the sustainability of that I would put some question. I look at just the energy consumption of the NVIDIA chips that are supposed to be put out just this year. Each chip requires as much energy as one household. And when you look at the two and a half million that they're contemplating putting out, that's like a city almost the size of Houston that you're going to put into a 70-year-old electricity grid.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Yield, and yet you have these stocks having ripped higher, a very focused subset of these stocks really driving very narrow market driving everything. One of the highest percentages of stocks, the S&P 500, are now underperforming, have been underperforming the SP because they're not the seven. I think a lot about the work of Michael Green and Einhorn talked about the market sort of being broken. Horizon Kinetics has done some great work on the impacts of this immense fund flow that's been going into passive. I think there's this belief that, oh, we can just set it and forget it, put this money in this fund. And there's no need to do anything else for the rest of your life. And you're going to be fine. You're going to outperform most money managers. It strikes me, you know, what other investment product, and I think Horizon Kinetics had mentioned this, so I want to give the credit to them because it was something that resonated with me.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“I was pretty shocked, to be honest, around the significant recovery of the tech stocks that occurred in three. I had thought that, you know, that this kind of, I thought there was sort of a bubble earlier. And then in 2022, when the valuations came down significantly on these, I thought this was the start of a longer term, a longer-term trend and was a little bit surprised that we had the AI driven sort of reversal once again reignited so much of the animal spirits here, particularly in the context of interest rate that had already been hiked up real high. Historically, when the S&P was very high, people would say, well, that's because the interest rates are very low, so interest rate adjusted. It's not really all that, you know, the multiple is not all that stretched. But now you have interest rates at a pretty high level.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“The clients and the fact that as they panic and they pull assets, there's no opportunity to recover out of those assets and come back. And so your permanent business value begins to suffer. And then you worry about everything, all the other employees in the company here and how are you going to pull through. So that was a source of stress. But the underlying companies, you know, not so much. That wasn't the key source.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“About that, because I didn't do anything. And the stock price went down because they were purging out shares, and then the stock price came back because they finished. And I think our holdings would have lasted a lot better, even if the government hadn't done the big bailout. So we weren't like a lot of the investment banks that were really going to be zeros if the government had just let the free market take its toll. These companies that we had would have struggled, but they would have, you know, maybe in a poorer market, but I think they would have come through with significant value on the backside of some of this. Now it certainly may have taken longer if the Fed hadn't kind of went and juiced the monetary system a bunch. But yeah, so I guess here the point I was thinking, the other thing was that source of stress for me during that time was one of I built up a lot of clients and it's not so much a worry that the stocks are not going to recover. I had pretty high confidence that they would be able to recover. And just a matter of waiting for the time for them to do it. The real stress was”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“That is going on in the case of fun. A lot of companies were trading down to very, very cheap multiples, even discounting a recession or a deep recession. Some of the leveraged companies had more significant declines, but some of them had no debt. Sometimes companies were trading down to levels below the cash per share. I didn't feel like, oh gosh, unless the government bails out everything, these companies are going to go to zero. It seemed pretty obvious that there was going to be a purge of whatever these margin calls were all going to cause. And then there was going to be a reset. And interestingly, in 09, we went down, it was another 5, 30 percent to the bottom in 09, just in year-to-date 09 alone. And then we ended up for the year at 91%. And then, of course, 91% got us on the cover of the Wall Street Journal and whatnot and saying, how did you do this? How did you navigate through it? Well, I felt very sheep.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“It was much, much more of a problem of the other shareholders of the companies and not the companies themselves. Coming into 2007, a lot of the quantitative guys had really ramped up leverage on and playing of the value factor. So they were buying a lot of discount to book securities and they were shorting out high price to book and playing convergence. And those guys gotten blown up in latter part of 07 even. And then it just, it's all sort of cascaded. to the point where the proprietary trading desks of a lot of the brokerage firms that held a lot of the deep value special situation stuffs we were dealing in were really getting repo funding pulled and were being forced to liquidate these companies and in the fog of war you kind of knew part of the story but you didn't know the whole situation until months and years later really but you're trying to assess every”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Wow, yeah, that was a tough time. I just had my first child in 07. And so my wife and I were watching Friday Night Lights, you know, and I'd been born in Texas and got to school there. And so I really liked the Friday night football series, but they had the slow guitar music in the front of the show. And I'd felt like gotten up and crashed my car every day coming home for weeks and then watching one or two episodes a night and going to bed for years after that experience when I heard that kind of show and the guitar music that kind of get chills. It's a very, very tough time, probably the toughest thing I'd ever gone through. Interestingly, the kids wanted to watch it in 2020 during COVID. So that was a recast there. But, you know, in terms of the drop-off, you know, these companies were trading at valuation levels. When you sat down and you looked at the valuations, they were absurdly cheap. It was not a problem on the whole in our stuff.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Sometimes I like drinking from a fire hydranter. But there's a second level of person that I have a much harder time with. And it's the person that will give you a great, it's like the realtor or something that will give you the great detail on the granite in the kitchen. And it makes you think, well, they're an honest broker because of the level of granularity that they're giving you and detail they're giving you. And meanwhile, they're totally ignoring that the bathroom is smoking or something. There's a fire in the other part of the house or something. And that's a tougher one because you end up getting somewhat, you feel a little more affinity for a person who gives you that level of detail and you can give them the benefit of the doubt that they're really giving you everything they think. So that's something I'm still working on.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Granularity is significantly higher in the mining space, which is something that is totally off from what my original perception of mining might be. So being able to get in, do significant due diligence on these things, and be able to tether your due diligence to third-party mining reports and whatnot can be a very helpful way of avoiding kind of getting in a situation. It's kind of interesting. There haven't been that many times where I can say somebody really lied to me. But what I find kind of intriguing is there are generally two kinds of ways that people will obfuscate. The first one I find I can identify very, very easily. And that's the guy who just doesn't want to get into the detail. Because normally if you really love what you do and you find the right guy, they just really want to talk to you about their business and are excited about it and are willing to give you, it's like you're.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“The mining investors out there, they just lost just about all their capital. What was left in the business was the folks that were, the liars on top of the hole in the ground, they'd moved on to greener pastures. They usually don't take it down 85% market to work in. They went on to Bitcoin or whatever else, greener pastures for the speculators. But what they left in the mining space was a bunch of really interesting engineers and technical people that I thought were really as an engineer. I appreciated and enjoyed, I felt like they were very focused on a, albeit a volatile business where the commodity changes. And that can create a lot of differences. But I thought it was an interesting area to dive in. Brushes metal is so interesting too that a lot of these guys have party reports on the reserves and on the mining plan. These engineering reports are available for everybody to read. And so the level of publicly available”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“I wrote that quote kind of trying to explain why precious metals mining is such an interesting area. Because I think there's probably a few businesses in the market where being wrong would very quickly determine that you're kind of inept. And so, you know, these shares carry a high degree of reputational risk associated with them from an investment manager perspective. And as a result, I think they trade more cheaply than the broader markets. And so it's been an area that where there's been a lot of misperception with respect to Prussia's metals, where the average guy thinks what a mine is a whole with a lyre on top. And when you really dig in, you begin to realize that particularly after the 2013 to 2015, when the mining index dropped something like 85% in the context of a rising market, it just blew up all.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“I personally have an immense amount of my own personal wealth. The vast majority of my personal wealth, liquid anyway, in the fund, it's the way I personally would choose to place my investments. So I think I'm fairly strongly aligned. I think with the other employees here, we don't have a real requirement. I'm kind of a freedom guy, a liberty guy. So I let people decide how they want to do it. That said, what's been interesting is that over time a lot of the people who work here end up owning a pretty nice piece of the fund as well.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Analysis that you thought you were buying a dollar for 50 cents and you turned out you were buying a quarter for 50 cents or a dime for 50 cents. And then under those sort of scenarios, those are really the most emotionally frustrating. But I think it's important to really be willing to assess that accurately and not be stuck in your behavioral biases and exit. I keep trying to remind myself you don't have to make your money back where you lost it.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“With cash being a derivative of the investment process, there are a couple of reasons why we might sell something. First is the positive the stock goes up to the point where the multiple becomes more of a market-based multiple or above market-based multiple, where it's above our assessment of intrinsic value, where the margin of safety drops off because of share price appreciation. We'll sell under those scenarios. If we don't have something new to buy, we'll just hold cash. In another case, something will be still at a discount, but all of a sudden we'll find something new in the portfolio, we'll be 100% invested, and we'll find something new outside the portfolio that is a really good investment, and it'll be worthwhile to swap despite the fact that we're selling an investment that we still believe is somewhat undervalued. So we'll sometimes pull off the swap when I can get a bigger margin of safety elsewhere, risk return profile elsewhere. And then I guess the third, which is the problem case, is, you know, some new piece of information comes to light that makes you question your original.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, there's clearly a lot of tax advantage to writing a business that continues to grow. And it allows you to take advantage of growth in your own capital and compounding without having to pay taxes on that capital, as opposed to the sort of cigar bed approach where you're buying things, then you shift out into something new. That's a very high tax arena. I think sometimes the valuations of the companies have adjusted to account for that. So you get perhaps better valuations within our space because of that tax issue that occurs. In terms of discipline or selling decision, I think one of the biggest issues of discipline, one of the biggest reasons why investors, professional investors anyway, might have problems with discipline, I think, is that they have a fully invested mandate. And so they are then forced to hold things longer than they would otherwise. We don't hold ourselves to a fully invested mandate. We'll have higher cash levels from time to time.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“To see perhaps a decline in the valuation of quality companies, and at that point, I think we may make a shift and get back involved in a more stable earnings type companies. But for the time being, I think there's a lot of systemic financial risk that's kind of associated with low wall and quality type companies.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Pretty significantly over the last several years because they've been in some cases because of ESG and the fossil fuel business, they've been kind of starved of their bank lines. And as a result, they've really pulled down on their leverage. Quality businesses, the ones with stable earnings and stable, slightly growing earnings are kind of the darlings of the private equity buyout craze. And I find it interesting that Dan Rasmussen and Verdad, you know, he's done a lot of work on the valuation that a lot of these businesses have been bought out at. these quality businesses have been bought out at continues to climb higher and higher and higher. And so there's an awful lot of kind of high multiple companies inside the private equity space. And I think there's high multiple quality companies inside of private equity that, you know, if there is a downturn and an increase in interest rates, which has already occurred if a lot of these guys, as they start to roll their corporate debt up to today's market rates, there's likely to be a lot of damage in that.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“That's a good question because I think there's a lot of misunderstanding around what value investing is all about. We all love quality businesses. I guess the real question is, what is the price of quality? At the moment, my perception is that, you know, it's really important that quality is trading at a really very big premium now to cyclical stocks that have more volatility of their earnings. My guess is that a lot of that has been driven by the ability for quality companies to, in a time when debt is available and very inexpensive to lever up a more stable earnings stream. And so if the problem of the economy has been too much debt, I think maybe quality companies getting a premium might be somewhat related to that. So I prefer to stick with some of these other companies that might be perceived as lower quality with more volatile earnings, because I think in many cases these companies have reduced financial leverage.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“The price movement because two competitors have merged and the pricing in the business has gotten better. And so you can then say, well, as our supply boats all come off of contract and they get renewed, here's the bump up in revenues that we're going to see. But we have as a tether, we could tether that all today's day rate and say, hey, the day rates have already moved. And I find that to be so much more tangible thing to bet on kind of the cell phone penetration is going to be x plus 10 for the next 10 years or something like that where these to me are harder to determine.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Issues that can create an improvement in the return on equity of the business. We do this in an engineering type way. There's two ways you can get better EBITDA, right? And what I really want to focus on when we're looking at this, I like the cost side in some ways better because you can determine how many heads you've cut and what that cost structure that you take out could be and how that could drive the cost down. I think those are more measurable with a higher degree of confidence than sometimes revenue growth that sometimes looks like a hockey stick and sometimes that can get fairly esoteric. And I prefer to try to tie that back to tangible situations like we were talking about CSI Compressco, where there's been $60 million that have been spent on compressors and they're going to come on in the next 15 months. And here's what they could earn potentially at a 20% if they were put on at 15 to 18 percent ROEs. And it's that kind of analysis that we like to see. So newly contracted situations or areas where we've already seen”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“To those names clearly that provides us a lot more downside protection because those assets will be there for quite some time and can ride through a cyclical downturn in the economy or something. On the flip side though, you know, sometimes when you're buying at these levels, when you're catching a bottom of a cycle, the return on equity, the return on that book value is very, very low and sometimes negative. And so some of the analysis that we really do is to say, look, we're trying to get through a lot of the, how do we get the car through the tunnel without us having to hand the keys to the car or to the banks? And that's really the, you know, there's a lot of analysis that we do at cycle bottoms around that kind of analysis when we do buy companies that have leverage. We want to make sure there's shareholders, the equity guys are going to be able to avail themselves to the recovery before a failure. And so presuming that that can be done, we're looking several years out and we're looking for 10.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“When we buy these companies, a lot of times, if you can assure yourselves that you're buying at a pretty nice discount to book and the book is real, we look a lot at book to market adjustments to try to evaluate how good is book value. Sometimes you'll have markets that, you know, book value adjustments that are positive, like you have a land position where the land is on the books at some value from 50, 100 years ago. And then you've got kind of a hidden asset there. Or you can have book values that's overvalued. Maybe you have a malinvestment that's occurred that you placed your capital in the wrong business, in the wrong industry in a sunset, and there's a lot of additional reorienting your business structure would require a lot of charges and one-time charges associated with rationalizing the personnel or whatnot. When you look at both the assets and liabilities to come up with your book, there's a lot of work that's done there. If you can buy at a discount, particularly an unlevered discount,”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“You're really mandating that these countries remain mired and sort of energy poverty in our view. Nevertheless, you've got this huge long-term demand trend at your back. And you've got this supply that's kind of falling off, the supply growth from the United States that is just slowing immensely. And I think that's going to create a real inflection in the market over the next couple of years. So I like the underlying demand dynamics. And then on top of it, within the energy space, there was an awful lot of companies that were being disposed of from pools of money that had chosen to manage the money based on metrics other than maximizing risk adjusted return. For ESG purposes or anything else, but in some ways very happy to come in and take advantage of these kind of pricing dislocations that have been occurring within the Companies”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“In the market, that I think it's driven more by politics than by evaluation of facts. And as a result, there's a view that fossil fuels are going to go away soon and have been very, very prevalent in the market and still remain somewhat prevalent. I'm a believer in some of the work that's been done by guys like Arjun Murti at Veriten, who explains that the S-curve of development of countries like China and India, even Africa, where the per capita consumption of energy is a small fraction of what it is in the United States. If you take China and if you take India and Africa and non-China Asia and you bring the consumption levels just up to China, you've got almost a 60-70% increase in the overall demand for oil. In some ways, if you're going to try to mandate the end of fossil fuel,”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“And so we kind of saw that dynamic and saw that was a very productive one and bought in. Now, with respect to energy, it's been our favorite sectors over the last couple of years, the supply and demand dynamics from an aggregate level appear to me to be really unusually strong over the last probably 10 or 12 years. The U.S. shale has been responsible for adding something like 8 million barrels a day of additional supply into the global oil supply. And today those levels of shale expansion just do not appear to be sustainable in any situation. It looks to me like it is likely to be extraordinarily flat going forward on an aggregate basis. So this immense pulsing out of additional supply that had come out of the shale plays is likely to end. And on the demand side, there's a little bit of a view that”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“MLP craze from years back where they put a bunch of leverage on these things and you offer a big dividend and put it in an MLP structure. So a lot of compressor rental guys were in these kind of structures. And when interest rates went up really”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Companies in the compressor business when you spend the CapEx interestingly, you don't get the benefit of the compressor being in the fleet earning for about 15 to 18 months. So there's this long lag from CapEx to interest earning asset. So when you have a big expenditure and all the debt associated with that starting to come into the book and you're not seeing the benefit of having that additional enterprise value growth offset with additional cash flow immediately, and there was some concern. When you study it, you realize that these are long, it's just this long cycle capex. And these guys were seeing excellent opportunities for strong ROE compressor parental additions and they put those on the other. They were really ramping their capex very, very hard to grow their fleet. Interestingly, it was at a time when CSI Compressco and a lot of the other competitors had levered up historically because there was a big”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Add natural gas services was a nice pick for us last year. We've probably made 70, 80 percent of our money, presuming on exit today, which might not have occurred. But a year ago, this was an interesting classic case of a company trading at a big discount to book. There was some perceived CEO turnover as an old CEO tried to retire and the new CEO could come in and then had left the business after a short period. There was a lot of big CapEx that had been getting spent without seeing a lot of results in terms of additional margin dollars coming in. And so there was a worry that maybe there was a problem there, I would suspect. And then on top of it, there was some significant selling by some other institutions. And that combined of just making unloved kind of entity at the time. But we understood compressor rental space had followed and owned in the past CSI compress go. And so we kind of understood what was happening. A lot of these.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“We don't excludely do price to book stocks. Price to book is excellent at picking up companies that are a suppressed return on equity because they're at a cyclical low. And so to catch some of these companies at cyclical turning points, price to book is a very nice initial indicator. But we also do EVD EBITDA kind of analyses to more cash flow type metrics in order to pick up some of these companies that might be producing a little higher return on equities, but the market might be missing something, and yet they're turning at that low valuations on cash flow.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Is likely to come a little bit more into phase and deliver probably pretty solid returns. When we look at the top of the funnel, of course, doing the quantitative analysis of the markets and focusing ourselves at that level is the start. We also look at cash flow EVD EBITDA. And then we're looking a lot at other indicators of value, share repurchases or buybacks, whether there's a restructuring, whether there's been management change recently or activism. And how much leverage is in the system? If the stock is highly levered, clearly that's a big risk factor for us. Bear Stearns at 40 to 1 leverage, even if it's at 50% of book value, the asset value drops a little bit and the company gets into a lot of trouble. So highly levered entities don't provide that margin of safety from an asset perspective that a very low or unlevered companies typically can. So we watch a lot of those things.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“You know, we spend a lot of time looking at the watch list, but looking at the screens that are coming off of the markets. And the discount to book screen is one of the key ones that we've used to help us sort of orient and focus our kind of limited analytical resources on the subset that we think might provide some of the best returns. And historically, the discount to bookstocks have done very well against the broader markets. The last 10 years has been a little more of a hard slog, but clearly I think some of that has to do with the interest rates having been submarket levels. And I think some of that is likely to change. And back in the 70s, when you last had the interest rates spiking and concerns over inflation, the value premium of owning really heavily discounted priced book securities was really strong. So we're pretty optimistic that this initial heuristic of evaluating on book.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“An expansion of their processing that should increase production by 70-80% in the next couple years, after which if the current gold price holds on and stays just static, doesn't even go up, it just stays static, I think we're at free cash flow multiples that are almost 30, 40 percent. So once you get the benefit of this mine expansion coming on, to me, it's one of those where it looks like the reward is pretty darn strong too and probably offsets some of the risk factors, particularly given that so many of these other risks that plague mining projects seem to be non-existent with warzone or minimized, I'd say, with Orezone.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“So, it's not really right next to an army base. So it's really the idea of this being subject to some of the risks of some of the other mines in the country, I think, are a little bit lower. Interestingly, the new military guy, Truore, who took over, was a former mining geologist. So, you know, has some understanding of the industry through his own history. And I think they at the core, while they, you know, I think they're probably frustrated with the French who'd kind of run it as part of Francophile Africa, I think they are understanding of the fact that Western know-how and operations are really needed to kind of keep those minds running, to keep the government nicely funded. There is clearly risk in that situation. But I think the returns, you need to judge risk, of course, in the context of return. And I think that in the case of Warzone, they're funded to do a...”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Budget and on time, which is a big rarity in the resource space, interestingly enough. The regulatory mine is permitted and there's minimal permitting problems in Burkina. So what we're left with is country risk. And clearly, on the one hand, like Rothschild said, you want to fi at the sound of the cannons and sell at the sound of the trumpets. And that's the way to really make it in the world. And going back to the contrarian mindset, we got to make sure we're not maybe the crowd is right here or not, but this is something we're all obviously thinking about as well. There has been a number of coups in the area. A lot of times with the various coups that mines keep working.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Orezone is one of many. We have a basket of these things that make up about a quarter of the fund, and Orezon's one of a dozen or some names. And interestingly, you know, within the resource space, these precious metals, mining kind of companies, they can have a whole slew of risks. There could be geologic risk, metallurgical risk, management agency risk, construction, regulatory permitting, country risk. There's a whole slew of them. Orezone interestingly is the geology is excellent. The metallurgy works great. Management is phenomenal. Patrick Downey, he's got a great reputation having turned around Claude Resources in Canada and Dell Radian. It was sold off under his directorship. He was on the board at Del Radian as well. So just a phenomenal individual. Construction risk in West Africa, the construction generally has been on.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, I think when I wrote that, I think I was kind of reminding myself, I'm kind of a genetic contrarian, you know, as a little kid, one of my favorite books was Survive the Coming Thermonuclear War, How to Do It, which I remember carrying it around on a vacation one year. And I must have depressed everybody. I think it's really important, though, for genetic contrarians to realize that sometimes you don't want to just be opposed for the sake of being opposed to people, and that the markets can sometimes be correct in their assessment of things. And often, I think I saw a saying somewhere that crowd is wrong at the extremes and right in between. As I've gotten older, I've spent a lot more time trying to puzzle through where we are, trying to fight my inherent dislike of crowds to think a little more about where we might be in that cycle. either on the positive valuation or low valuation side.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Even if a quarter or two directly ahead of us might be somewhat messy. So that's kind of our thinking on that. With respect to a number of concentration on a number of holdings in the sector or our focus on industry concentration or index tracking error, we're guys that focus a lot more on taking really strong positions in companies that where we've done the fundamental due diligence, you can't really beat an index if you're trying to replicate it. And so we are really active in the way we pursue our approach.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Risked long term capital. And the third is sort of the fundamental business risk or your assessment of the Or three really key fundamental issues that are going on. And those are really three sources of kind of long term risk that we spend an awful lot of time focused on. And I think the other, you know, when you focus on stock price volatility as a measure of risk, and a lot of quants do this, it can be sort of helpful. But I think in some ways you can be off quite a bit. I think folks have gotten very focused on this volatility measure because we've had 10 years of very low interest rates. And there's a lot of leverage in the system. So investors will, you know, either in pod shops, they're employing leverage. And so they need to very closely watch volatility metrics because they are levered and they can't, you know, they've got it. They've got to be much more mindful of drawdown. And so I think that gives us a differential view on stocks that might have some near-term problems. And we're much more willing to focus in the longer run.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Kind of, you know, we're much more thinking of, you know, that the true risks that occur in a situation or risks that really impair long-term value. And I think I kind of put those into three primary buckets in terms of the way I view risk. One is multiple. When multiples are very, very high, even if it's a good company, those multiples can come down just a little bit and you can lose an immense amount of money. So the higher the multiple, the more really the risky there is because clearly growth hurdles that the management teams have to hop over to meet that really high multiple is that these hurdles are much bigger. The second one is leverage. So when companies have high degrees of leverage, clearly the company can get into cash flow problems much, much, more quickly when they hit a problematic market or a cyclical downturn. And so, you know, companies that employ leverage are clearly ones that have a higher degree of”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think there's a lot of confusion in folks think that the stock price is equivalent to the value of the company. But stock prices move around in a variety of manners, and the value of the companies will move around as well, but they don't always correlate. And in the long run, it's the value of the company that really is what matters. When you have a stock price, some volatility or huge downward shift in the stock price of some kind, if the underlying company hasn't suffered the evaluation of the underlying company hasn't suffered or hasn't dropped nearly as much, you can get the investor base very negative on a particular company and thinking that there's more risk involved in the company when in reality once the stock price has dropped, margin of safety is much bigger. A lot of the errors out of the balloon or whatever metaphor you want to use. And it's a much safer kind of time.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“The way we dealt with it. But 08 was a real mess. It's just the opposite of the situation. Everybody's losing assets and so forth.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Out with one of those markets just after we started the fund. And the thing that was so intriguing to me, though, is that a lot of these deep value names dropped to even lower valuations as the capital flows from investors shifted to chase the shiny objects, as you say, right? And so it's almost like the real returns that were being offered by the old economy stocks had to adjust to match the kind of the Ponzi returns that were available in these other high flyers. So I kind of thought it made a lot more sense to own the old economy stuff that was the jewels that were being sold off that really had the baseline cash flows, underlying cash flows that the companies were generating were supportive of valuations. And that approach seemed to fit with our whole strategy and positioned us really nicely for when things imploded in kind of 102 or 3. So, yeah, that was the start of.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“And then it's an even better deal. Of course, you check your numbers, but if it's still penciled out, I was not the person to be easily swayed. And when the markets got above intrinsic value or above what I kind of estimate, which I think certainly happened during the TMT bubble in 1999, it becomes a very difficult time. We were almost so small that we didn't really have many clients to lose, but we had a lot of pressure and weren't getting a lot of growth. And we were just sort of sitting there. But I empathized with guys like Jean-Marie Villard, who would say, I'd rather lose half my clients than half my clients' assets. And so I think there's an element of cyclicality where a properly positioned investment-oriented firm needs to allow some of their clients to move off. It's always a struggle over those periods of time when you're really underperforming kind of a high-flying adrenaline-oriented market. To me, and we just right at the beginning in 99, we'd start.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, I read somewhere that when you buy things that are under intrinsic value and you're waiting for the prices to get up to intrinsic value, it's more of an investing kind of orientation. And when you buy things that are above intrinsic value or own things above intrinsic value, hoping for a higher price, that's sort of a wish upon a greater fool kind of idea that is more of a speculation-oriented philosophy. I've always had the value philosophy. My history has been sort of an engineer. I'm a mechanical engineer and an economics major. I like the grounding or the idea of really determining the fundamental value and owning it at a margin of safety. So whenever things were higher than that, I didn't have a lot of guidelines to really determine how to act and how to position myself. And so I was always much more comfortable, you know, understanding that here's my assessment of intrinsic value and if the stock is at a discount and it goes lower, well,”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Sort of 27 years into the management of that now. Bought out my partners in 2006 and 2008. I've been kind of doing sort of similar deep value investing ever since.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT
“Interestingly, on the brokerage side that we're covering at the time, Peter Kundle and Walter and Edwin Schloss. So I got a chance to kind of watch the way they were trading and how they scaled into positions and the kind of things that they were looking at. That was a real eye-opener for me around the business kind of worked and the kind of things that the value set we're working on and looking at and thinking about Donald Smith was really one of my key mentors in the business over the years. We've been very close until he passed in 2019. That's kind of the genesis of how I got my start over the subsequent years that I started the Aegis Value Fund in 1998. One of the guys at Simmons, Denny Canselmo, had an older brother who had started a mutual fund on a shoestring budget copying other people's legal work and all the big no-nos. I figure out how to do that and the mutual fund started in 98 and it becomes.”
2024-08-11 · We Study Billionaires · TIP651: Value Investing in a Growth-Obsessed Market w/ Scott Barbee · IDENTIFIED FROM THE TRANSCRIPT