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Newsletter - August 26th, 2023

Dear Reader,


Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.


This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.


For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:



 

Steven Romick

 

Steven Romick on Wealthtrack


Steven Romick wrote in the latest edition of Security Analysis prefacing the section: 'Analysis of the Income account'.


Though his performance over 30 years only matched the S&P 500, he accomplished it with arguably lower risk by buying undervalued securities, holding cash, and the maximum time period to recover his high watermark was 1.8 years vs. 6.1 years for the S&P 500 (3-minute mark).


Notes on his latest interview below:


2:15 Cash byproduct


Cash balances are a byproduct of Romick's investment process rather than a macro call. This is less of an issue for smaller investors like us with more opportunities to choose from.



4:15 Leaning into troubled markets


Romick bought into market declines when value was abundant.


As smaller investors, it's possible to find value opportunities at most times when industries or individual companies hit speedbumps - the type of stocks we report on.



6:15 Quality importance


Like most successful experienced investors, Romick gradually realized the importance of business quality. Investing requires "continuous learning" and the margin of safety isn't just about ratios but business quality as well (e.g. Sears).


Assessing business quality may be more important when managing larger sums of money where competition is stronger - but we do try to pick the best quality among the value opportunities we find.



12:45 Making the cut


Better quality and growth at the "least expensive" valuations.


It is possible to get worthwhile returns buying good businesses at prices we find expensive - but again, this seems more a problem for larger investors.



16:15 Temperament


The psychological component may be more important than returns because it's stickability to sound principles that matters over an investing lifetime.



19:45 Busted tech bonds


Romick talks about his contrarian bet on busted unsecured convertible bonds of tech companies - true to Graham-and-Dodd's distressed investing style, which we apply to stocks.



23:45 Stocks as inflation hedges


Multiples matter as well as unit growth and pricing power. No asset is worth an infinite price as Charlie Munger says.



25:00 Losing 90% of AUM


Romick's FPA funds lost 90% of assets under management during the tech bubble. Short-term underperformance is part of the journey.

 

Until next time, Cheers!

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