Mario Gabelli: We’ll Use The Same Guiding Principles To Avoid Over-Paying For A Company’s Intrinsic Value And Lose Less During Market Manias

Johnny HopkinsMario Gabelli, Value InvestingLeave a Comment

One of the investors we follow closely here at The Acquirer’s Multiple is Mario Gabelli, Founder, Chairman and CEO of GAMCO Investors, Inc. Gabelli recently did a Q&A session with some folks at Reddit which provided some great value investing insights. Here’s an except from the thread on Reddit:

Hello Reddit!

I’m Mario Gabelli, founder, Chairman and CEO of GAMCO Investors, Inc. (NYSE: GBL). Native of The Bronx, my Undergraduate degree is from Fordham School of Business and my MBA from Columbia Business School. I started as a sell side analyst at Loeb Rhoades in 1962. I established Gabelli Asset Management in 1977 and unfortunately, took it public in 1999.

I was credited by Columbia Business School with adding the idea of Private Market Value (PMV) with a CatalystTM to value investing philosophy.

· #1 Asset Manager – CDA Investment Technologies (Now Thomson Reuters) (1982)

· Morningstar, Inc. – Domestic equity fund manager of the year (1997)

· Barron’s All-Century Team (2000)

· Institutional Investor – Money Manager of the Year (2011)

· New York Society of Security Analysts – Lifetime Achievement Award (2014)

Graham & Dodd + Buffett = Gabelli

“That’s my approach to life: Go where others fear to tread. Hell, I bought a Cadillac in the middle of the oil embargo.” – Mario Gabelli, Forbes

I am joined by Daniel Miller, Managing Director at GAMCO and lead portfolio manager of the Pet Parents’ Fund, a first of its kind actively managed ETMF venturing into the ever-growing pet ecosystem.


UPDATE: Dan and I thank you, we have consumed our box of peanut brittle. Great questions – we look forward to doing this again.

Q: Unfortunately, took it public in 1999. So apart from this what other decisions in life you regret now ?

I don’t regret being born in the bronx and I wish everyone else was. In answer to your question- not starting more aggressively in the 70’s investing in hedge funds when Steinhardt suggested I do so is something I do regret.

Hi Mr. Gabelli, thanks for doing this! I have a couple questions for you.

How much does big data factor into your analyses and decisions?

What is your take on all of the share buybacks taking place, and do you think we are reaching the limit of how much stock public firms can buy back?

We have been using data from a variety of sources for the last 50 years following in the tradition of Graham and Dodd. In the early stages we used a abacus and 13 column spread sheet and green eye shades. ha ha.

Today we use google and hit a send button.

Hey Mr Gabelli, Thanks for doing this AMA. I have a few questions I’m looking forward for you to answer

How do you deal with uncertainty about when interest rates will rise in your valuations of companies when looking at long term investments (5 year or more discounted cash flows)

In your opinion is it better to buy cheap companies or good companies for a small investor?

Where do you see the future of value investing going forward? And how does it differ from it was in the past?

Once again thanks for taking the time to do this 🙂

“Plus ca change, plus c’est la meme chose.” I am in a camp that take great discomfort in the belief that current valuations will exist 5-10 yrs from now- that is, multiples of EBIDTA minus maintenance capex. therefore an ideal investment is to have companies in your portfolio that have pricing power and that are bought at a reasonable multiple.

All investors are the same. You will have companies that have pricing power that will benefit from the growing U.S. economy and will do as well as they have in the past quarter century in the next quarter century.

Value investing will continue to encompass growth and we’ll understand more the value of the service sector of the economy. We’ll use the same guiding principles to avoid over-paying for a company’s intrinsic value and lose less during market manias.

What piece of advice would you give a CFA Level 3 candidate who wants to go from working at a pension fund to a front office type of role?

Continue reading annual reports in an industry in which you want to dominate the knowledge of. Or read all the annual reports and figure out which micro cap company you’d want to take control of. Concurrently, start your own investment company and put yourself in the front office in the beginning.

Hi Mario,

Are you incorporating alternative data into your investment research process? If so, how?

Yes – old fashioned research reports.

Our firm’s research process is GAPIC. Gather. Array. Project. Interpret. Communicate.

What is the longest stretch of time between when you made one of your investments and when they finally paid off? What is the largest investing mistake you made that nonetheless was profitable, and what was the largest financial loss you incurred that wasn’t, by your definition, a mistake?

It is called Earl Scheib (Best slogan, we will paint “any” car “any” color for $19.95) about 4 decades.

Hi Mario,

Basic question here: What informs your discount rates? How do you get to a number?

As a Level 3 CFA candidate who is not front office/no modelling experience, I’ve always wondered how the front office gets from ‘this company has decent growth potential’ to ‘the discount rate is X%’

In the 1970’s we looked at public companies and valued them as though we could own 100%, in other words, the private market value. In turn, we used then, and we use today, the business models that are currently referred to as private equity: How would I finance the company? How much equity? What are the tax dynamics? What’s my exit multiple? We could also take the Buffett approach: Love them and never leave them. Both work well if followed patiently and religiously with passion.

Mr. Gabelli, as a young investor, I’m always looking for advice about how to get better. Is there any particular habit, process, magic book I should read, etc. that you would recommend?

Or, conversely (maybe a more interesting question), is there any particular piece of “conventional wisdom” or common advise that you think is especially bad??

First thing, I appreciate your belief in capitalism. As it is one of the best of the various alternatives to allocate capital.

The world is littered with countries that are pursued socialist philosophies – a visit to Cuba or Venezuela would underscore this.

Start by reading Ken Langone’s “I love Capitalism!” to see what has made the American meritocracy a global standard.

As for your investment process, I will send you a free copy of Deal Deals and More Deals as well as Roger Murray’s presentations on value investing.

Hi Mario,

I have a few questions:

1. Was is your opinion on blockchain technology? Are you doing anything with this space?

2. Do you think a value investing strategy will begin to perform after the recent run up and concentration in growth stocks?

3. What is your take on the Disney, Comcast, Fox situation, especially after the increase bids for Sky?

4. Are you concerned their is too much concentration in too few stocks due to ETFs?

5. Where do you see the future of active management moving toward?

6. Why are your funds fees so high?

7. What’s the best vehicle for a retail investor to get involved with Gabelli or others with similar investment strategies?

Thanks for taking the time to do this today!

1. Yes

2. M & A will

3. I said it best in some years ago- “Let the auction begin.” Now I say “Let the auction continue.”

4. Tulips, Canals, railroads, dot-com, hamburger flippers. I wish I had 100% of my wealth in Berkshire Hathaway and never sold. Should you have 10 eggs in a basket and never focus on them or should you have 1000 eggs? Depends on the individual’s financial profile, their state of mind and their tax situation. For those that want to own a piece of America over the next 10 years, the S&P index will do just fine.

You can read the entire thread on Reddit here.

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