Steven Romick: The Evolution Of A Value Investor

During this interview with WealthTrack, Steven Romick discusses his evolution as a value investor. Here’s an excerpt from the interview:

Host: Steven, for the seventh edition of the investment classic Graham and Dodd Security Analysis, you were asked to write an introduction to a chapter about your evolution as a value investor. How have you evolved?

Romick: I think the largest theme within what I wrote in this chapter intro, is really this idea of continuous learning and this idea of being a value investor means to focus on a margin of safety, trying to protect capital, and you aren’t protecting capital if you buy something at a low PE or in a low price to book for a business that is going to disappear.

I mean, Sears looked like a value investment and did not end up performing quite so well, as everybody knows. So the margin of safety earlier on in my career, having been schooled in the earlier Graham and Dodd mode of security analysis, which is protecting yourself with a balance sheet.

So buying something below book value or or looking for hidden assets and being aware of hidden liabilities that might be off balance sheet contingent liabilities and such. And what I realized over time was that the value of the business was going to offer me, afford me great protection.

Host: So can you think of a company that you’ve owned recently since that kind of revelation and that education as a value investor that you maybe would not have owned ten years ago.

Romick: Probably wouldn’t have bought a Netflix a couple of decades ago. Google we bought over a decade ago. We’ve held it since.

But we probably wouldn’t have held it as long as we’ve held it. Probably would have been a more active seller than we have been. Because we are more willing to accept that this is a really a great business. And it’s not without risk.

We have to always examine the KPIs, the Key Performance Indicators as to what could impact its business. And we’re very mindful of that. But we know we continue to hold that stock, whereas 20 years ago we would have bought it.

We bought Google in 2011 or so at roughly net of cash, give or take 11 times earnings. And as it migrated higher in valuation, we could have… twenty years ago probably bought the same thing at 11 times earnings. The same business, wouldn’t have held it, or I may not have held it.

You can watch the entire discussion here: