Activist Investing in Korea (David Hurwitz)

Notes from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 8, 2014

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.

David Hurwitz of SC Fundamental has been collaborating with the Petra Capital folks in Korea as they begin to bring activist investing to that country.

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It’s almost inconceivable that he will talk about any individual stocks that are easily traded by US investors, despite the fact that he’s finding good operating companies that trade at half of book value — the kinds of values that haven’t been seen in the US since Ben Graham’s day but are apparently in abundance in Korea. So don’t get too excited, though there remain nicely valued large cap South Korean stocks that are buyable for “regular” folks like us (including Hyundai, Samsung, LG, Posco — though they’re having trouble, some of the banks, etc.). I don’t own any of them, but there are so many cheap stocks in Korea that they come up at pretty much every value investing conference.


Kukbo Designs, company that had never spoken to an investor before Hurwitz contacted the CEO.

Provides interior design services, cash equals market cap, price/book of 0.55, PE of 4.2, no debt, 15 consecutive years of profit, founder owned 50% of the shares but there are interesting minority shareholder provisions in Korea (that are rarely exploited). They got a new statutory auditor named, CEO cut pay, talked dividends and buybacks, and the stock went up from 3,000 won to 18,000 won. Those records of success are helping in future fights.

They created an exclusive Korean fund last year with Petra to do concentrated activism.

Korean country overview, which is misunderstood particularly on the US East Coast:

15th ranked GDP, wealth and well educated. Total market cap is the same as Germany or Australia even with the market being relatively very cheap. Also a well-run government with high debt rating, strong rule of law.

Average valuation for KOSPI (full market)

28% discount to S&P 500 on PE basis, 50% discount on price/book basis. ROE is quite a bit lower than it is in the US, but it’s not because they perform poorly — it’s because they have huge amounts of cash and are overcapitalized, so that simple change from an activist (buybacks, etc.) is a huge target for ...

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