These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.
Zeke Ashton has presented at several of these conferences in the past and usually has interesting ideas. He runs Centaur Capital Partners, mostly a hedge fund guy but also runs the Centaur Total Return Fund (TILDX), which is a hybrid income fund.
His main fund has doubled the S&P with lower volatility, but he hasn’t done that well lately because he has had trouble finding cheap stocks.
He says he started out as a hybrid investor, not really a value investor, since in the late 1990s he couldn’t make money at value investments and he just followed what worked. He couldn’t help himself from chasing the “action” from some stocks.
On example of an old investment of his was Ballard Power (BLDP), which was generally expected to have 5-10% of the worldwide auto market, and it went from $20 in 1998 to $100+ and never did much more than $100 million in revenue, and, as well all know, collapsed dramatically not long after that.
Another example, “cigar butt” stock Deswell (DSWL), which also spiked up from $3 to $18 during the Asian Contagion, and it looked good to $18 in the early 2000s but then collapsed back to $2, where it remains. You would have gotten your money back with dividends, but it wasn’t a great way to compound earnings.
Like the 1998/1999, this is an “ignorance is bliss” market. Though valuations haven’t caught up — Netflix now is far more reasonable than AOL was in 1999. At the time, Ashton got a job as a Motley Fool analyst.
Anatomy of a bubble: He mentions Jeremy Grantham, whose long-term “real return” projections for the next seven years are for annual losses of 1.6% — and they lag their models because otherwise people would take all their money out of GMO funds.
So how to survive the bear? Ashton in 2000 made the transition to being a pure value guy with his partnership that lost 3% from 2000 to 2002, during which time the Nasdaq and S&P were down 40-70%. There was a lot of cheap stuff out there, all the old economy industrials and REITs were dirt cheap. Those who stuck with their value did fine until 2008.
Deja vu: ...