Is value investing dead? | CWL with Greg Steinmetz

Summary

In this insightful podcast, host Sam North engages in a deep conversation with author and investor Greg, discussing the importance of patience and value investing. They explore historical examples, such as the negative gas prices during COVID-19, to highlight investment opportunities. Greg shares his experiences from the Sequoia Fund and emphasizes the significance of holding onto exceptional companies like Costco. The discussion also delves into Greg's writing process and his upcoming book focusing on the ideological clash between Andrew Mellon and Franklin D. Roosevelt, reflecting on shifts in American economic policies.

Takeaways

• 💡 The importance of patience in investing: Holding stocks for the long term can lead to significant gains, as exemplified by the Sequoia Fund's average holding period of 7 years and Berkshire Hathaway's 30-year holding period.
• 📚 The value of historical perspective: Learning from the past, such as during the COVID-19 pandemic when gas prices went negative, can provide insights into market opportunities and the cyclical nature of wealth.
• 💼 The significance of indispensability: Jacob Fugger's success was partly due to making himself indispensable to powerful figures, a strategy that can be applied to investing in companies with unique, essential value.
• 📈 The potential in market downturns: During times of crisis, such as the COVID-19 pandemic, there are opportunities for value investors to buy stocks that are being undervalued or dumped.
• 🤔 The challenge of identifying true value: Even with thorough research and analysis, recognizing a company's exceptional potential and not being overly concerned with the exact purchase price is crucial.
• 📚 Lessons from past successes: The Sequoia Fund's early investment in Costco and Fenol, which turned out to be great investments, teaches the importance of recognizing and sticking with exceptional businesses.
• 🔍 The role of research and due diligence: In-depth research, like visiting stores and talking to industry insiders, can provide a unique edge in understanding a business's potential for success.
• 🕊️ The resilience of value investing: Despite claims of its demise, value investing remains relevant, as market fluctuations continue to present opportunities for those with patience and insight.
• 🏦 The impact of interest rates on private equity: With interest rates moving unfavorably for private equity, there may be more opportunities as companies previously taken private are listed again.
• 💬 The power of storytelling in writing: Engaging storytelling can make complex financial insights more accessible and entertaining for readers, as demonstrated by the author's approach to writing about financial figures.
• 🏛️ The historical significance of government policies: The shift from small government to big government ideologies, as explored in the upcoming biography about Andrew Mellon, has lasting impacts on economic structures and can offer lessons for today's investors.

Q & A

What is the main theme of the conversation in the provided transcript?

The main theme of the conversation is value investing, with a focus on historical insights from Jacob Fugger and Jay Gold, as well as the application of these insights to modern-day investing practices.

Who is Jacob Fugger and why is he considered the richest man who ever lived?

Jacob Fugger was a German banker and businessman who became the richest man of his time. He is considered the richest man who ever lived because he was the wealthiest commoner, having amassed his wealth without being a king or a member of nobility.

What lesson from Jacob Fugger's life is most relevant to investors today?

The lesson from Jacob Fugger's life that is most relevant to investors today is the importance of being indispensable. Fugger made himself indispensable to the Pope and the ruler of the Holy Roman Empire, which allowed him to extract profits and survive in a challenging time.

What is the significance of the story of gas prices going negative during COVID-19 in the context of value investing?

The story of gas prices going negative during COVID-19 signifies an opportunity for value investors. It illustrates the point that temporary market conditions can create investment opportunities that may not last, and investors should be able to recognize and capitalize on such moments.

How does the guest in the conversation define patience in the context of investing?

In the context of investing, the guest defines patience as the ability to hold onto investments for a long time, allowing for significant gains. He mentions that investors often struggle with patience, which is crucial for achieving substantial returns.

What is the average holding period for stocks in the guest's firm?

The average holding period for stocks in the guest's firm is 7 years, and they have held stocks in Berkshire Hathaway for as long as 30 years.

What is the guest's perspective on the recent phenomenon of 'meme stocks' like GameStop?

The guest views the 'meme stocks' phenomenon as not investing but rather a short-term market trend. He suggests that it's not his realm and that he prefers to focus on long-term value investing rather than participating in such volatile and short-lived trends.

What is the guest's approach to writing about historical figures in finance?

The guest's approach to writing about historical figures in finance is to tell the best possible story, focusing on entertainment and information rather than being prescriptive. He allows readers to draw their own insights from the stories.

What was the guest's most memorable investment success during his time at the Sequoia Fund?

One of the guest's most memorable investment successes was buying Costco very early on and selling it after it went up a quarter of a point from their purchase price. It later became a 20-bagger from that point.

How does the guest view the current state of value investing, especially with the rise of technology?

The guest believes that value investing is not dead, despite the rise of technology. He points out that opportunities for value investing still exist, as demonstrated by examples like the temporary negative gas prices during COVID-19 and the rise of a company making air conditioners for data centers.

What advice does the guest give regarding having a cash pile and waiting for investment opportunities?

The guest advises that having a cash pile and waiting for investment opportunities is a valid strategy, especially when interest rates are low and the market is overvalued. However, he also notes the importance of being ready to invest when the right opportunities present themselves.