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.
Guy Spier just released a book today called “Education of a Value Investor” which sounds interesting — he’s a British hedge fund guy who started out trying to follow Warren Buffett’s strategies and came to the hard realization that he is not Warren Buffett.
And he notes that our brains are miswired, we are not rational, and we cannot hope to be good value investors unless we can accept our weaknesses. What do we do about that to make decisions?
His idea is Posco (PKX)
Genesis of the idea:
From Frontline in early 2000s, the notion that when things trade below their replacement value people stop building them.
Posco showed up on Charlie Munger’s 13F filings (Daily Journal)
Sanjeev Parsad at Corner of Berkshire and Fairfax, putting himself out to learn ideas and cut down on the noise.
Sumzero competition included a writeup of Posco, writeup from Alex Bossert at Granite Hill Capital.
So that’s how people really learn about things — he accepts that he’ll be irrational about selecting from a universe of tens of thousands of companies, you can’t get ahold of all the information and really dominate an idea, the goal should be to try to manipulate your environment so you’re getting information from good and thoughtful people and cutting out the noise.
Posco is the South Korean steelmaker.
Charlie Munger having 5% of his portfolio in Posco has “high signal value.”
Global steel is a weak business right now and there’s overcapacity — if steel companies don’t run at full capacity, they don’t make money.
Arcelor Mittal has been consolidating the industry, buying up plants. China’s slowdown is the big deal. Profitability has been declining since 2004/2005, and now Posco and Baoshan are really the only two steel companies that are profitable (and this validates the oft-heard commentary that Posco is probably the lowest cost operator).
As rationalization takes place in the industry, as seems inevitable, plants are shut down, Posco is probably the last one standing and the one to survive almost everything. That’s not an immediate catalyst and has been expected for a while. It will not work out well if steel never recovers, but being in great company ...