Who are you?
Great question, I didn’t think you’d ask. My name is Jon and I am 24 years old, originally from Cape Cod, Massachusetts. I grew up as the third of four boys in terms of age but first in terms of intelligence. To be fair to my brothers, I have to admit that I am also probably the least funny and certainly the weakest. But the good news for everyone here is that this isn’t a humor or a fitness blog. The four of us grew up in an “old school” atmosphere – one in which a “foul” in a driveway basketball game looked more like borderline assault.
I attended private high school on the Cape and then Boston College, both on scholarship. I started an online e-commerce business in college and grew it to over $1mm in sales annually and gave it to my brother in order to pursue a career in finance.
I graduated from Boston College in 2016 and move to New York City to work in Deutsche Bank’s consumer and business services group of their investment bank. I left DB recently to take a job at Brightstar Capital Partners, a buyout PE firm that recently raised its inaugural $710mm fund.
Why are you starting this blog?
In February of 2016, a few months before graduating BC, I did my research and bought some stock in Fiat Crysler for around $4.25 per share. I thought the stock was so cheap that even the most pessimistic operating assumptions left some upside in the stock, even before considering brand value (Jeep, being the most valuable) and access to the high end market through Ferrari.
When I started at Deutsche Bank, due to the nature of my job working with inside information, our compliance department forced me to close my brokerage account, so I sold Fiat Crysler on the last day possible for around $4.50, making a relative quick ~6% per share. Not bad right? Since then, rumors around Fiat selling the Jeep brand for more than the entire Company is worth began to circulate, and the Company spun off its ownership in Ferrari to shareholders. The stock currently trades for $21.15 plus around $14 of per share value in the Ferrari stake shareholders received. All totaled I estimate this to be an 8.3x return before dividends that I totally missed out on.
Missing out on Fiat hurt, but it wasn’t the only one. I was astounded to see that Apple showed up on Joel Greenblatt’s Magic Formula Investing list, a list that rarely has quality brand names such as Apple (I will talk more about this list and how I use it in my blog posts). The stock hit a low of $90 in May of 2016 and CNBC articles claimed it’s single digit P/E ratio was the “new norm” as it would be impossible for such a large company continue to grow. I bought Apple on the basis that it hadn’t had a product launch in over a year, but again sold for a short profit when starting my job. Since then the stock has more than doubled, excluding dividends.
One more sob story and I’ll go cry myself to sleep. Just under a year ago, I put in a request through DB’s compliance department to put ~75% of my net worth into Under Armour at $15.50 per share (yes, this is an aggressively absurd amount of portfolio concentration, but my net worth is significantly less than my annual salary from DB, which I view as growing. I am also young and can afford larger risks). Compliance denied the request as Under Armour is part of the consumer sector (which I covered) despite the fact that we had no client relationship or information on UA or either of its two big competitors. I told my friends and family (along with pages of reasoning as to why the risk-reward was attractive) urging them to take a stake if I couldn’t do it myself; they started laughing at me when the already beaten down stock when down further, losing ~one-third of its value. I was grateful for my compliance dept and that no one in my family listens to me. However, today the stock trades around ~$22, a ~60% return since my intended purchase, and significantly greater should I have theoretically had the courage to double down at the trough. Still think a lot of upside remains and like the stock for the same reasons it caught my eye.
To summarize, I haven’t been able to participate much in the stock market and it kills me to see my high conviction stocks do well. Hopefully as a community focused on value, I can help you make a few sharp investing decisions that will serve us all well.
Authors Note: I realize I have referred to stock prices and fluctuations quite a bit in the above. I assure you that I am focused on the long term (at least greater than 1 year horizon) and do not pay much attention to near term stock moves (I stress this point as it is absolutely essential to our success together).
What is your methodology?
Quite frankly, I get the majority of my ideas from other people that I really respect. Why recreate the wheel when others have done the work for us? Sure, we want to have independent thoughts — and we do — but I’ve noticed most sure way to find great investments is to read what the great investors are backing. Here are some sources I ascribe value to:
13F’s of value investing geniuses: the likes of Warren Buffet, David Tepper, Monish Pabrai, among several others. Note: the nature of 13F’s are somewhat helpful – we must look for concentrated position of long only investors to really ascribe significant meaning behind it. There are many great investors that own hundreds of stocks – discerning which they have the most conviction in is difficult unless they have a relatively concentrated US focused portfolio. It also doesn’t help much if the sock has already appreciated in value from the time the investor took their first stake; at that point, much of their discount to intrinsic business value may have already been traded away.
magicformulainvesting.com is a list started by Joel Greenblatt thanks ranks stock by EV/EBIT ratio (which I consider to be the best measure of the expensiveness / cheapness of stocks generally) and Return on Invested Capital (which I consider to be the best metric for the quality of businesses – eg relatively to how much capital a business consumes how much does it generate? For example, software businesses are highly attractive because their development costs are relatively minimal compared to massive scale / user base they can attain – think Facebook, Google, among many others). Stocks that rank well in both categories show up on the list. The strategy has performed well historically. However, I think we can do even better than the general MFI strategy Greenblatt lays out by handpicking stocks based on a third quality; many stocks are on there for a reason – Many pharmaceutical companies are might show up due to the lack of a strong drug pipeline despite being profitable in the past. Because I have no knowledge of this space, I will avoid these businesses altogether. Other companies just have really bad outlooks – for example, Gamestop, the videogame retailer, has a horrible business outlook given that video games can be purchased right from the gaming console in the living room. While cheap and historically profitable, it’s clear to me there isn’t much value in the stock. On the other hand, quality businesses show up from time to time and usually do not stay long; Apple did in Spring of 2016, as I mentioned earlier. If you bought Apple then, you’ve done very well. I can talk to more names on the list specifically elsewhere in the blog.
Other sources include Monish Pabrai lists:
- Uber cannibals (businesses that buyback shares aggressively)
- Shameless cloning (high conviction stocks of proven capital allocators)
- Spinoffs (which have historically performed well as the market takes a bit of time to become comfortable which them as a standalone business)
Whenever I find a security show up in more than one of these places, I take note and plan to research in more depth. For example, David Tepper’s most recent new position, Lam Research Corp, is also a member of the Magic Formula list, a deadly combination.
Andrew Walker of Rangeley Capital keeps a blog (http://www.yetanothervalueblog.com/) with very insightful thoughts. He thought he was yet another value blog – little did he know I would create yet another value blog!
This is just the start. I find ideas from all over, but I wanted to give you all a taste of the type of sources that resonate with me.
Please leave comments / feedback. I’ll try to respond to every comment. Thanks all
The Value Guy 