How do you manage an activist holding? You voted with your shares — you sold the stock after something occurred that you didn’t like. How do you suggest other investors participate in situations like this?
JA:Pretty much, honestly, if you’re a small investor, I would recommend if you’re upset, write to the company. Some companies – most companies — are going to ignore it, but there will be companies where they’ll respond and you need to speak up for yourself, but if you’re a small investor and you own some shares, you know, you gotta vote with your feet. You really don’t have a lot of options, so yeah, it’s unfortunate, but the key is to get into companies where that’s not gonna happen. We obviously made a mistake. We made money on the stock, but we made a mistake in that we misjudged his character. So, the most important thing is not getting yourself into that situation in the first place.
So, how do you do that? How do you identify stocks that are appropriate investment candidates for your clients?
JA:Well, basically it’s just reading. I mean, we read a lot of periodicals and we read a lot of filings and it’s a very laborious process. There’s really no quick way to do it. A lot of people use stock screeners — we don’t find stock screeners to be particularly useful. I’ve used them on occasion to find ideas.
What we’re looking for is, number one. is it a company that we really understand well? Our portfolios are concentrated. We’re only going to own eight or ten stocks at a time (we could own bonds also). So, given that we’re going to have a concentrated portfolio, number one we have to understand the company very well. Number two, we look at management, if it’s a fairly well run company. When there are thousands and thousands of publicly traded companies, most of them are not run very well, either operationally or, from a financial perspective. So is it a company that we feel is being grown well or their management’s honest and then you know, we’re going to need a good, good position in this industry, I mean, very simple things. Is it a high quality company? So we want to say, look if we understand it, is it gonna be around, is it well run, is it generating cash and then can we buy it at a really good price? Companies that fit all those criteria, yeah, they don’t come around very often. There’s just not a lot of really well run companies selling at cheap prices.
So, you’re happy to sit on the sidelines until you find identify those guys.
JA:That’s right, and we’ll do things from time to time that will not necessarily fit into that category. If you’re around the financial markets, if you’re paying attention, you’ll see things that are interesting that are somewhat more anomalies and we’ll do that, but the whole purpose of it — really, the whole principle behind it is — do we have a big margin of safety and what is the chance that we’re really going to get hurt on it and that’s our guiding principle. None of these things are unique in any way, they’re not original, innovative, they’re very well worn, they’ve been done before, but they work, you know, that’s why we believe in them, because they work.