One of the value investing firms we like to follow closely is Vulcan Value Partners, founded by C.T. Fitzpatrick, which currently has $12.7 Billion in assets under management including large positions in Qorvo, Alphabet, and Skyworks.
Vulcan’s strategy is to track a list of 500 ‘MVP’ stocks, then they wait for them to drop below what they deem to be the intrinsic value of a company’s recurring stream of free cash flow. A couple of years ago Fitzpatrick did a great interview with Forbes in which he discussed his value investing strategy and one of his most successful contrarian investments. Here’s an excerpt from that interview:
Question: What is the most contrarian investment decision that you’ve made in your career? How did it play out?
Fitzpatrick: After 9/11, my former partners and I started buying Hilton Hotels when the markets reopened. The stock kept falling. At one point, we felt that we were buying the company for the value of the Waldorf Astoria and getting the rest for free. We looked foolish buying Hilton at first, but it turned out to be a fantastic long-term investment.
Our investment ethos is to buy underpriced companies that are on our MVP list, most of which we’ve been following for years. We have a good understanding of the fair value of a company, and when something happens, be it a geopolitical, sector, or company specific event that causes the company’s price to deviate significantly from its value, we’ll buy. On the flip side, when we feel that a company we own is too richly priced, we sell and keep following the name until it descends back to a fair value. Some names, Hilton among them, I’ve been following in this fashion for decades.
Something else that we focus on is minimizing our weighted average price to value ratio. This isn’t always straightforward – In the financial crisis, we found [ourself] selling 80 cent dollars – companies that were great investments – to buy 60 cent and 40 cent dollars. The lower the overall price to value ratios, the greater the margin of safety. Our overriding objective is first and foremost to protect capital and to earn a return on that capital.
You can read the entire interview here:
C.T. Fitzpatrick – Forbes Interview
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