Chris Mayer may be the presenter at the Value Investing Congress who is most familiar to Gumshoe readers, being as he edits a couple of newsletters for Agora Finance and we’ve revealed a few teaser picks of his over the years. He tends to be a pretty sober and value-focused guy, despite the wackiness of some of his promo ads, so it will be interesting to see which of his “owner operators” he picks — the two that he presented at the Congress in Las Vegas did very well.
Mayer started by saying that value is a bit hard to find these days, with the markets very high — he cited the fact that Baupost is returning capital to investors at the end of the year for lack of ideas to invest, and while not completely unheard of it continues to be rare for managers to give up on 2% fees even if they don’t have great ideas.
What does Mayer look for?
Cheap companies based on the replacement cost or private market value, Owner operators, and strong financial condition.
What’s an owner operator?
Founders, families, investors who have skin in the game, a track record, and incentives that line up with shareholders.
He says that Horizon Kinetics has created a wealth index — an index comprised of companies whose wealthy insiders hold substantial stakes. The Virtus Wealth Masters fund follows this index, which is also a good watchlist for stocks — that index has beaten the S&P 500 by almost 3% per year for 20 years. Mayer also points out the counter-intuitive fact that the S&P 500 is liquidity-weighted — so stocks with big insider holdings are under-weighted.
Another example: owner operators are more tax efficient, the companies that paid special dividends in the fourth quarter last year, before the anticipated tax changes, had average insider holdings of 25%.
Examples of stocks: Howard Hughes and Bill Ackman, Covanta and Sam Zell, Kennedy Wilson and Billl McMorrow, and Retail Opportunity Investments Corp with Stuart Tanz.
Kennedy Wilson is one of his favorites, one of the largest owners of distressed apartments in Ireland — they buy distressed, real-estate-backed debt from banks.
He also likes First Citizens and Atlas Financial, the stocks he featured in May. So what’s next?
One bank — he is heavily weighted in small banks, both personally and in the newsletter, particularly recent thrift conversions.