Whale CEO Hunt: Malone, Thompson, Musk, Kirk And Breen

First published on ValueWalk.com.

Exemplary business owners or CEO’s are a rare breed, but they do exist and Fundstrat recently set out to find them.

Five CEOs immediately stood out to Fundstrat’s researchers: John Malone, Randal Kirk, Ed Breen, Elon Musk, and Scott L. Thompson. These five have all shown exceptional returns both on a cumulative basis and on a weighted average compound annual growth rate basis.

Of these five, John Malone is the clear outlier. Over a span of 40 years, Malone has achieved a weighted average CAGR of approximately 23% compared to 11% for the S&P 500  through the appropriate use of leverage, buybacks, and artful corporate structuring.

Investors underestimate the importance of a key CEO

Last month, I covered a survey of Berkshire Hathaway’s operating managers from the Stanford School of Business’ Corporate Governance Research Initiative. The survey questioned approximately 80 managers of Berkshire subsidiaries. The managers had an average tenure of 12 years, and because they’d been in the position for so long, always planned for the long-term, which ultimately improved business performance.

Fundstrat’s research points out that since 2004, an average of 53 CEO’s, or 11%, are new to S&P 500 companies each year. As a result, investors have, on average, 50 opportunities every year to identify potential inflection points in a corporation’s fate based on management change.

Between 2004 and 2014 there have been 580 CEO departures from S&P 500 companies. Assuming that each new CEO brings several changes to the business he/she is taking over, it’s easy to see why so many businesses struggle to execute a clear, consistent long-term strategy.

Still, Fundstrat has picked out five “Captain Ahab” CEO’s who have been able to achieve outsized returns over their careers. The report goes on to dissect the factors that helped each investor outperform over their careers.

Following the Malone Returns

John Malone has been able to generate impressive returns consistently for more than four decades, and for this reason, the media mogul gets the bulk of the coverage in the Fundstrat report.

Malone started his career at Bell Labs/AT&T and eventually found himself as one of the company’s largest shareholders. He then went on the helped to build TCI into a cable industry giant eventually selling the business to AT&T for stock during 1999 achieving a total return on investment of 93,200% or 30.3% CAGR. Liberty Media was spun out of AT&T in August 2001 leaving Malone in full charge. In the 14 years since the Liberty Media spin, it’s estimated that Malone’s assets have returned 238% cumulatively and 9.1% CAGR.

Malone Value3

While the majority of Malone’s gains came during the first part of his career, before the creation of Liberty, his pioneering use of spin-offs and tracking stocks to maximise tax efficiency, management incentives and leverage while managing Liberty shouldn’t be overlooked.

There are 19 key corporate events, excluding mergers, which have helped Malone unlock Liberty’s value over the years all of which are shown below. What’s more, Fundstrat has reconstructed Liberty’s stock form a series of assets and tickers into one entity, to show how much value Malone’s corporate tinkering has created since Liberty Media first became independent.
Malone Value1

Malone Value2

Fundstrat points out that there are ten key tenets of “Malonism” that have characterised his value creation over the years. The central pillar of these tenets seems to be “pay as little tax as possible.” As Fundstrat points out, “the art/science of tax minimization exists deep within the Liberty DNA.” The top five commandments of “Malonism” are as follows:

  1. Tax efficiency: Tax department often the largest at Liberty
  2. Capital structure optimization: Uses leverage, particularly on subscription businesses; “Better to pay interest than tax.” Relucant around equity issuance unless accretive deals; Strategic buybacks; No cash dividends
  3. Long-term: Not worried about near-term acquisition impacts and near-term ROI
  4. Scale leverage: Builds and leverages scale for better pricing and strategic equity stakes
  5. Cash flow focused: Pioneered EBITDA measure; focus on free cash flow; EPS irrelevant.

Following Randal Kirk’s returns

Compared to John Malone, Randal Kirk is relatively unknown outside biotech circles. Nevertheless, Kirk’s record of value creation remains highly impressive.

Kirk founded and sold his first medical device company, General Injectibles and Vaccines, after 15 years for $145 million for a total return of 1,449%. In the 17 years that have passed since Kirk sold General Injectables, he has founded or actively invested in several companies that have later been acquired by larger competitors, including Scios (SCIO), New River Pharmaceuticals (NPRH), and Clinical Data (CLDA). Today, Kirk’s holding company, Thrid Security Investments is currently invested in 15 publicly traded equities, the largest of which is Interxon (XON).

Randal Kirk value1

Ed Breen

The third “Captain Ahab” CEO picked out in Fundstrat’s report is Ed Breen, who is currently the lead director on Comcast’s board and CEO of Dupont.

Breen’s career started at General Instruments (GIC), where he spent 21 years rising through the ranks when the company split in three Breen severed as the CEO of the set-top box unit for two years until selling it to Motorola in 1999. While Breen was in charge, GIC’s 474% on a cumulative basis to the close of the sale.

After GIC Breen took over as CEO of Tyco. Through dramatic house cleanings, balance sheet restructurings, divestitures, and spin-offs Breen achieved a 407% return for Tyco’s investors on a cumulative basis during his ten year period as CEO.

Ed Breen value1

Elon Musk

When it comes to innovation, there are few CEO’s that can stand up to Elon Musk. At the age of 12 Musk began creating value through innovations in technology. He has sold two companies he co-founded — Zip2 and PayPal— and has helped create groundbreaking innovations in the auto, energy/utility, and aerospace industries.

elon musk value 1

Because one of Musk’s key ventures, SpaceX is still private, his exact returns are difficult to calculate. Still, the present value of publicly traded Musk ventures shows that Musk has returned 1,424% since inception to date.

elon musk value 2

Scott L. Thompson

The last outlier CEO highlighted in Fundstrat’s report is Scott Thompson, who has recently been appointed CEO of Tempur Sealy, through the efforts of activist investor H Partners.

Scott Tompson has a short, but highly impressive record of unlocking value for investors. Tompson helped found Group 1 Automotive, which has since grown into the third-largest dealership group in the US. In 2008, Tompson was appointed as CEO of Dollar Thrifty Group, at the time the stock was trading at around $1. Through efforts including cost cuts, “re-franchising” and “risk fleet” car management, Thompson not only saved the company but also pushed it to industry leading margins. With its eventual sale to Hertz, Dollar Thrifty’s stock rose over 80-fold during Thompson’s tenure.

Scott Tompson value1 CEO

Interview With Deep Value Investor Jeroen Bos

Jeroen Bos has more than twenty years of investment experience and is one of the premier deep value investors in Europe. He worked as a scout for Peter Cundill in the London market and authored Deep Value Investing: Finding bargain shares with big potential, published in 2013.

Jeroen currently manages the Church House Deep Value Investments Fund, a small-cap fund that looks for unloved companies priced at a discount to their liquid assets. The fund is largely UK weighted and has a bias to the service sectors.

Jeroen Bos on deep value investing

Rupert Hargreaves: You’re one of the remaining traditional value investors that looks for companies trading at a discount to net current assets. In today’s market, are you still finding companies that look attractive from a value perspective?

Jeroen Bos: Yes, there are plenty around. They’ve actually become a lot easier to find over the past year or so. Before that, it was difficult, but now the market is getting very fed up with small companies that are not performing to expectations. These companies tend to be treated quite harshly when they miss expectations and for that reason their share prices are severely compressed creating the opportunity.

RH: You’re still finding deep value opportunities then?

JB: Yes.

RH: What are you looking for specifically?

JB: Really any company that in the past has been able to make money and is now available at prices where they’re cheaper than their liquidation value. And that’s all over the market. Any sector that’s performing badly. You don’t have to look that hard. For example, the oil sector or the oil services sector, bargains are starting to appear there.

RH: In the past you’ve mentioned a preference for service companies. What is it about service businesses that attracts your attention?

JB: They tend to be more resilient, they’re not capital intensive, and as a result, they’re easier to manage in a downturn. Once the company pulls through a downturn any additional turnover usually translates into profit on the bottom line. After the recovery starts to gain traction these service companies generally tend to rebound very quickly.

RH: These sort of service businesses tend to be very cyclical. Do you consider macro implications in your investment thesis?

JB: Well, I’m usually more interested in the company itself and what’s in front of me, rather than the immediate economic outlook because that’s not my main concern. But the stocks and values I’m looking for tend to appear at the bottom of the cycle when people have given up on the sector. If the company has no debt, and you buy at a deep enough discount to intrinsic value, with a large enough margin of safety, then you’re usually onto a winner.

RH: Do you have a particular margin of safety you’re looking for?

JB: Obviously it depends on the company in question. If the company I’m looking at is heavily loss making, then I’d want a large margin of safety because, in this case, any assets on the balance sheet will evaporate relatively quickly. However, if the company is only marginally loss making then the margin of safety I require will be a lot smaller.

RH: Is there one company in particular that’s attracting your interest right now?

JB: One example, if you look a UK stockbroker Panmure Gordon. The company recently issued a trading update where they alluded to the fact that M&A activity slowed down during the first half of the year; the market wasn’t as buoyant as they would have hoped and earnings would come in below expectations. Management still saw opportunities to remain marginally profitable, but the market punished the company pushing the share price down by 30% on the day. The share price has fallen from 150p to 80p in the space of a few months. If you look at the balance sheet, the liquidation value is 105p. So, a margin of safety has been created. I don’t know what the outlook for their market is in the near-term, I know it’s not that exciting, but this broker has been around for a long time, they have plenty of experience. You can definitely say that the stock is very cheap by looking at the balance sheet.

[At the time of the interview Rupert owned a position in Panmure Gordon & Co]

Jeroen Bos 1

Jeroen Bos on deep value investing

RH: You tend to run a very concentrated portfolio with the top ten holds accounting for around 70% of assets. How do you go about managing risk in a portfolio like this?

JB: Really, I’m not worried about the risk here. Yes, it may create some volatility in the fund but you buy the stocks when interest in them is pretty low, and you may be sitting on them for quite a while before something happens. It can take a while, and sometimes it’s frustrating, but as long as the value is still there the share prices should reflect that over the long-term. You’re bound to suffer a period of short-term underperformance. We’re all in a hurry, and we’d like the investment to turn positive on the day we buy it, but you know, that doesn’t happen in the real world.

Jeroen Bos 2

Jeroen Bos on deep value investing

RH: Your fund is UK based, but you’re allowed to allocate 30% of assets to overseas investments. One of your top ten holdings is Icahn Enterprises…

JB: Yes we’ve owned that for a long time, we brought it at $50 or so.

RH: What do you like about the company, is this play on Carl Icahn’s management expertise or an asset play?

JB: Carl Icahn is an investor with a very successful track record, and he’s done this for many years. I like his way of operating because he is a value investor but unlike many other value investors he is active and will force management to do whatever to liberate assets and make share prices appreciate. His timeframe is much shorter, and he’s more active in trying to dictate the behavior of the share price by getting involved with management.

RH: He’s looking to unlock value faster…

JB: Exactly, he’s not afraid to immediately fight for seats on the board and get involved.

RH: Do you think there’s a contrast between value investors in Europe and the US? Value as a strategy isn’t as popular in Europe as it is in the US.

JB: Yes, it is much more popular in the US than in Europe, the UK is an exception but only just. I think in Europe there’s a different mentality. European’s are only interested in this kind of investing in hindsight, once the opportunity has been presented and disappeared. We’re [the European’s] not experienced in actual value investing, we take a look at the positive historic data and say “yes this is a great style and strategy” but then, we become distracted by the media and the growth stories, which are currently doing the rounds, and then we forget about value.

RH: You’ve worked with some of the great value investors over the years, including Peter Cundill and Walter Schloss. Do you have any great nuggets of advice from these investors that you can pass on?

JB: Yes, Peter Cundill would always travel at the end of every year to visit the country that had the worst performing stock market for the year because that’s where the bargains would be. I think that’s a very smart way of looking for bargains. If you go where there’s trouble, that’s where you’ll find them.

RH: Peter Cundill clearly wasn’t afraid of investing overseas but many value investors struggle to invest outside their home countries for a variety of reasons. What’s your view on international value investing?

JB: Well, Walter Schloss never invested outside of the US. He didn’t trust the regulators in other markets, so he stayed well away. He never really trusted the figures he looked at, and couldn’t figure out his legal protection as an investor in many markets. And that’s why he stayed away.

I tend to stay away because I’m not sure how well I’m protected in various markets. You can find plenty of bargains overseas, but I’m not sure how well my assets would be protected. Overnight regulatory changes can alter the market entirely. So I tend not to invest aggressively in overseas markets. That said, I’ve been investing in Japan recently. There are plenty of opportunities there. What makes it fascinating to invest there is that I think the regulatory environment is quite good. Also, the companies you tend to find are usually much bigger than you’d find elsewhere. Most pay dividends and are profitable.

RH: Japanese companies are becoming more alert of shareholder interests as well….

JB: Yes exactly. I remember many years ago Peter Cundill traveled there a lot. He had a big exposure there, but he became very frustrated in the period of the early 80’s because the market wasn’t reacting to the value on offer.

RH: Japan has always been a great place to find net-nets…

JB: Yes but the problem with net-nets has always been picking the ones that are going to outperform. Statistically, the numbers show that value investing and net-nets investing works, but you need to have a catalyst. The trick is knowing what will make the stock move. And if you have a weak regulatory environment, it won’t matter how cheap the stock is, the share price will never react — investors will just avoid the company. So you have to be quite careful investing overseas.

RH: You have been an active value investor for several decades now and over this time, many traditional value investors have changed their style away from traditional value, towards a more quality/value slant. Why do you think so many investors have abandoned the value discipline?

JB: I think there are several reasons. Firstly, I think value investing is painted as being quite boring, like watching paint dry. You make these investments in companies that are going through a difficult period and these things take time to work out, which takes patience. It’s completely against the trading mentality that most of the media portray. Value investing does not fit the casino style, get-rich-quick profile many investors desire. I think that the whole financial industry is geared against the value style. From a commission-generating income perspective value investing is useless, trading is much more subdued in value investing than in growth oriented investing.

There’s plenty of statistical evidence supporting value investing, that it tends to work extremely well over the long-term. But there are periods when value underperforms, and these periods are enough for investors to abandon the strategy and start following something else again — despite the overwhelming amount of evidence, which shows that value is the best strategy to follow over the long-term.

RH: And lastly, what has been your most notable mistake over the years?

JB: There have been many. I think one of the greatest things I’ve learnt is to pay attention to debt. As you noted at the beginning, on the whole, these companies tend to be pretty cyclical and going into a downturn with a balance sheet full of debt brings a lot of pain and tears down the road. So that’s something to be extremely careful of.

RH: Stay away from indebted companies?

JB: It does depend on where you are in the cycle, though. If earnings start to recover, and things are starting to pick up then that’s fine, but when you’re heading into a downturn. Take Glencore for example. Gearing helped them fantastically when the commodity markets were favorable but when things started to turn sour, cracks started to appear. You need to know at which point of the cycle you are, to determine if debt is going to be earnings enhancing, or if it’s going to become a problem for the company.

If debt does become a problem, management is no longer in control and the company becomes a slave to the market or its bankers.

Jeroen Bos 3v alue investing

Jeroen Bos on deep value investing

RH: I think that’s covered everything, thank you very much for your time today Jeroen.

JB: My pleasure.


A Case Study In Value Destruction

Morgan Stanley on the UK mining sector. Presented without comment:

“The benefits of the volume growth over the last 10 years from AAL, BHP and RIO have been undone by price declines over just the last 3 years. From 2005- 2014, the cumulative EBIT benefit from volume growth for AAL, BHP and RIO has been $1.3bn, $12bn, and $6bn, respectively, with a combined $246bn in gross capex ($139bn net) required to generate that return. These investments in additional capacity have not only generated only modest returns, but they have actually led to an oversupplied market. Price declines have followed, with cumulative EBIT impact of $8bn, $29bn and $11bn over the last 3 years. So this investment in additional supply has ultimately reduced earnings by a far greater amount than the capacity added.”

Share Buybacks: Truths, Myths And Technical Bits

There’s an ongoing argument in the financial community about the effect the current elevated level of stock buybacks is having on the financial system and economy in general.

As a result, Both Deutsche Bank and McKinsey have looked at buybacks during recent months and concluded that these concerns are unfounded.

Share buybacks: Truths, myths and technical bits

Over 400 companies in the S&P 500 repurchased stock last year, spending a total of $575bn in the process. That is about 3% of the index’s market cap and is up 14% from 2013, nearly matching the $600bn record set in 2007.

According to Deutsche Bank, corporate America isn’t scrimping on capex to pay for additional buybacks. US non-residential investment (a proxy for corporate capex) is running at 12.8% of output in nominal terms, or 13.3% in real terms, matching the 2007 peak and well above the highest levels of the 1980s and 1990s after adjusting for inflation. But that’s not all, companies have shifted their capex spending from investing in structures to investing in high-tech equipment, software and various kinds of intellectual property all of which have seen prices fall over the past 15 years. However, prices for structures are some three times higher than the personal consumption price index since 2000.

Home Depot is a great example of this change:

“Home Depot is a good example of a company that drastically shifted its capex strategy in response to market changes. Before the crisis, the company spent about 55-60 per cent of its operating cash flow on capex as new superstores were built. But with the growth of internet-related retail activity, Home Depot no longer needs more physical stores. The resulting shift in focus to its online capabilities has cut capex to about a fifth of operating cash flow. The company has used the freed-up cash to resume a large share buyback program. What if it had kept the cash instead? Would critics of buybacks be happy knowing the money might get ploughed into more and potentially redundant super stores? Or would they prefer management diversify within the big-box retail sector, perhaps by buying Sears; or how about turning that excess retail space into cloud computer server farms?” — Deutsche Bank on buybacks.

McKinsey has reached the same conclusion:

“…there’s little evidence that distributions to shareholders are what’s holding back the economy. In fact, on an absolute basis, US-based companies have increased their global capital investments by an inflation-adjusted average of 3.4 percent annually for the past 25 years —and their US investments by 2.7 percent. That exceeds the average 2.4 percent growth of the US GDP. Furthermore, replacement rates have remained similar. Capital spending was 1.7 times depreciation from 2012 to 2014, compared with 1.6 times from 1989 to 1999. The only apparent decline is in the level of capital expenditures relative to the cash flows that companies generate, which fell to 57 percent over the past three years, from about 75 percent in the 1990s.”

“That’s not surprising, given how much the makeup of the US economy has shifted toward intellectual property–based businesses. Medical-device, pharmaceutical, and technology companies increased their share of corporate profits to 32 percent in 2014, from 13 percent in 1989. Since a company’s rate of growth and returns on capital determine how much it needs to invest, these and other high-return enterprises can invest less capital and still achieve the same profit growth as companies with lower returns. Consider two companies growing at 5 percent a year. One earns a 20 percent return on capital, and the other earns 10 percent. The company earning a 20 percent return would need to invest only 25 percent of its profits each year to grow at 5 percent, while the company earning a 10 percent return would need to invest 50 percent of its profits. So a higher return on capital leads to higher cash flows available to disburse to share-holders at the same level of growth.”

“That is what’s happened among US businesses as their aggregate return on capital has increased. Intellectual property–based businesses now account for 32 percent of corporate profits but only 11 percent of capital expenditures—around 15 to 30 percent of their cash flows. At the same time, businesses with low returns on capital, including automobiles, chemicals, mining, oil and gas, paper, telecommunications, and utilities, have seen their share of corporate profits decline to 26 percent in 2014, from 52 percent in 1989 (Exhibit 2). While accounting for only 26 percent of profits, these capital-intensive industries account for 62 percent of capital expenditures—amounting to 50 to 100 percent or more of their cash flows.”

“Here’s another way to look at this: while capital spending has outpaced GDP growth by a small amount, investments in intellectual property—research and development—have increased much faster. In inflation-adjusted terms, investments in intellectual property have grown at more than double the rate of GDP growth, 5.4 percent a year versus 2.4 percent. In 2014, these investments amounted to $690 billion.”

A more concerning problem

While it can be argued that current level of buyback activity isn’t holding back economic growth, there’s plenty of evidence to support the conclusion that volume of cash devoted to buybacks tends to peak near the end of bull markets. This means most companies are undertaking buyback programmes at the worst possible times.

In a recent research paper, Goldman Sachs Group noted that buybacks peaked in 2007 with 34% of cash spent and hit a trough in 2009 at 13% of cash spent. In other words, companies bought the most of their stock near the 2007 stock-market high, and the least near the 2009 bear-market low.

The tendency for companies to undertake buybacks at the worst possible time could be more damaging than anything else. Aside from the fact that poorly timed buybacks are a momentous waste of shareholder funds, which could be held back for a rainy day, the transfer of wealth from shareholders to CEO’s is extremely concerning.

Indeed, according to Research Affiliates, via the Economist, last year US public corporations spent $696 billion buying back stock.

However, companies issued around $1.2 trillion of new stock via rights issues, stock options plans, etc…Research Affiliates reckons that the net dilution was around $454 billion and remarks that CEO’s are approving buybacks to offset the dilution from options.

“The net impact is a transfer to management of more of a company’s cash flow than is reported as compensation on the income statement.”

What’s even more concerning is the fact that these are being funded almost entirely with debt on a net basis. US companies issued a net $693 billion of debt during 2014. As the Economist concludes:

“Investors are ending up owning a smaller portion of a more highly-indebted company; more of the cashflows generated by such groups will be absorbed by banks and bondholders.”

If You Want Growth, Avoid Dividends

In my experience, there is one big difference between the equity markets of the UK and the US: dividends.

For example, in the UK it’s pretty easy to find a large-cap stock with a dividend yield of more than 5%. A quick screen for companies with a market cap. in excess of £5bn that yield of 5% or more returns 12 results in a universe of 2733 stocks. More than half of these are FTSE 100 constituents. The FTSE 100’s average yield is 3.9%.

A similar screen applied to a universe of 11,333 US stocks returns 19 results after removing any master limited partnerships, trust companies and mortgage real estate investment trusts, none of which tend to exist in the UK market (I also excluded Kinder Morgan, but that’s an argument for another day). The S&P 500’s average yield is 1.9%.

The figures are telling. Just under 0.5% of the UK large-caps screened supported a yield of +5% compared to just under 0.2% of the US stock universe. This is by no means a scientific study, but it does illustrate the point that yield is easier to find in the UK.

However, unless you’re about to retire these figures are troubling as they indicate that there’s a much more sinister underlying theme haunting the UK equity market.

Ex growth

Henry Singleton and Warren Buffett are considered to be two of the best business managers of the last century. Henry Singleton, who is often referred to as “the master of capital allocation,” always refused to pay a dividend to investors. Instead, Singleton reinvested the cash into his company Teledyne, which over a period of 20 years went from being a tiny defense contractor with sales of $5m to a sprawling global conglomerate with more than 20,000 employees.

Singleton knew that Teledyne was generating a +30% per annum return on capital invested. Therefore, it made no sense to pay the profits out to investors:

“To begin with he asks, what would the stockholder do with the money? Spend it? Teledyne is not an income stock. Reinvest it? Since Teledyne earns 33% on equity he argues, he can reinvest it better for them than they could themselves. Besides, the profits have already been taxed; paid out as dividends they get taxed a second time. Why subject the stockholders money to double taxation?…” — Source

Warren Buffett has followed in Singleton’s footsteps. Berkshire Hathaway doesn’t pay a dividend to shareholders as the business is able to generate a +20% per annum return on equity by investing in itself.

These two case studies illustrate the following point: A company should only return excess capital to investors if it cannot find opportunities for growth elsewhere. If a company is paying out a considerable amount of earnings to investors via dividends or other methods, it usually signals that the business in question has gone ex-growth.

Unfortunately, there’s also evidence to suggest that if a company starts returning excess cash to investors while it is still growing, the tail will begin to wag the dog.

“Reinvestors” vs. “returners”

Last week, the Financial Times took a look at the findings of a new white paper from the Credit Suisse Holt group. The white paper looked at the fortunes of “reinvestors” vs. “returners”, companies that returned the majority of their cash to investors vs. those firms that reinvested excess cash into operations.

From the FT:

“Historically, according to the Holt white paper, companies have deployed an average of 60 per cent of their cash flows in capital investment (whether organically or through M&A) and have returned 26 per cent to shareholders (12 per cent dividends and 14 per cent share buybacks). More recently, the capital invested has dropped to 53 per cent while cash returned to shareholders has increased to 36 per cent, with an increasing share going to buybacks.”

“The Holt paper follows the fortunes of “reinvestors” and cash “returners” and finds that the latter increase their sales by only 5 per cent per year over the ensuing five years on average. Reinvestors managed to grow sales at 19 per cent per year. So the critics’ picture of tired ex-growth companies, out of ideas for growth, and deciding to reward their shareholders to the detriment of the chance for economic growth, has at least something to recommend it.”

“Companies are getting less cash than they used to, they are not optimistic that they can invest it productively and so they are choosing to deploy it in a way that weakens the chances of sales growth in the future. Not encouraging.”

So, according to Credit Suisse’s data “reinvestors” have been able to grow sales three times faster than “returner” peers. In other words, if you’re looking for growth avoid “returners”.

Weekend Linkfest 31/10/2015

This Kardashian headline shows why two Nobel winners say the economy is broken.

A great compilation of insightful comments on dividend investing: 101 Dividend Investing Tips From the Experts.

More on slowly unfolding car crash that is Valeant from John Hempton: Comments on the blockbuster Valeant conference call.

And here’s Bill Ackman’s response to the Valeant saga.

Risk Parity strategies are no longer racking up the returns investors are used to: Pension Funds Struggle As Risk Parity Collects Fees.

Shares of Japan’s Okamoto condoms fell 10% after China changed its one-child policy: Long nappies, short condoms.

Is sterling overvalued?

Why has world trade been so weak?

Are share buybacks jeopardizing future growth?

Dr. Michael Burry: Tips, Tricks And Case Studies

Recently I’ve had quite a few people contact me asking where they can find more information about Dr. Michael Burry and his investing process. I’m pretty sure this has something to do with the upcoming film The Big Short, which is based on the book by Michael Lewis, The Big Short: Inside the Doomsday Machine.

Here’s a collection of Burry resources as well as some key takeaways from his old blog posts that you might find interesting.


Dr Michael Burry founded Scion Capital in 2001 and in its first full year of trading, 2001, Scion returned 55.44% gross for its investors. The S&P 500 fell 11.88% over the same period. In 2002, Scion returned 16.08% gross for its investors, compared to the S&P 500’s -22.10%. And in 2003 the fund once again returned over 50% gross, beating the S&P 500 by 22.02% for the year.

From its inception in 2000, through to closing during 2008, Scion returned 696.94% gross and 472.40% net compared to the S&P 500, which returned 5.2% over the same period.

Burry’s strategy was simple but time-consuming and intensive. His early blogs detail how he went about finding prospective investments, as well as how he managed positions once he had decided to buy.

Burry resources

Csinvesting has condensed Burry’s blog posts from 2000/2001 into one case study here.

The Young Money blog has a summary of Burry’s posts on Silicon Investor if you don’t have the time to read through the entire case study from csinvesting above.

For a collection of Burry resources, you can head over to ValueWalk’s Michael Burry Resource Page

And finally, if you’re interested in the whole Michael Burry story here’s a four-part series I wrote for ValueWalk on Dr. Burry’s career:

  1. Dr. Michael Burry — Part One: Starting Small
  2. Dr. Michael Burry — Part Two: How Much Can I Lose?
  3. Dr. Michael Burry — Part Three: Looking For Bargains
  4. Dr. Michael Burry – Value And Quality