HOW STEVE KNOWS THE GUEST

Artisan approached us to see if we would have David on the podcast. Steve and David had a drink in New York and David’s schedule was quite busy so we waited until July to record. Steve laughed as David (who is obviously extremely wealthy) baulked at the bill – it’s a trait common to many value investors.

Contents

How David found value investing 4:25

What was it like working for Mario Gabelli? 10:29

The importance of cumulative knowledge 19:30

Active vs. Activist Investors 30:41

How to gauge when it’s the right time to buy 35:14

ABB 43:35

Universal Music 46:32

Diageo 50:18

How to judge management 57:25

How to judge a new CEO 59:47

Artisan 1:07:30

Why Artisan backed David 1:11:01

Book Recommendations 1:17:30

Transcript

0:01

Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment, or indeed an unsuccessful one. Our goal is to inform, educate, and entertain.

We hope you enjoy this and every episode Behind the Balance sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast, which is aired for your education and entertainment only.

0:41

Nothing in this podcast should be construed as investment advice or relied upon and for investment decisions.

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Steve Clapham: David Samra has been in investment business for over 30 years.

He specialises in international volume and at the end of 2024 had beaten his index.

By over 4 Percent per annum for over 20 years.

In a period when traditional volume has been doing poorly.

That may be why his fund, which has been closed to new investors for almost all of the last 14 years, has reached $50 billion. The reason, of course, is scale, but also what he terms cumulative knowledge build up and a focus on four key factors.

Owning good companies, buying them at a discount of at least 30% intrinsic volume, and ensuring they have excellent management and a strong balance sheet.

Samra will own stocks for several years. He’s owned Arch Capital, one of his largest foldings, for over 20 years and another ABB for over 10 years.

In our discussion, he explains why the issues of managing a $50 billion fund, which both restricts his universe and means he is to be absolutely sure when pulling the trigger around a new position as he’s committing a billion dollars in capital and sometimes $2 billion or even more.

Why he’s been holding positions which he no longer sees as cheap and why the business is much tougher today. And what he does when he feels management aren’t protecting his client’s interest. He isn’t scared to be an active investor.

This was a fascinating discussion, especially when David started discussing some of his positions because his depth of knowledge is really impressive. I’m sure you’ll enjoy this conversation with someone who must be one of the world’s top value investors.

David Samra, I’m really delighted to talk to you. I’ve spent the weekend reading your letters and is really fascinating. And you’ve had an amazing, amazing career.

I always start by asking people, did you always want to be a value investor?

And I know you didn’t until you do a class at university and at Columbia, you actually spent one day a week working with Mario Gabelli. So talk a little bit about how you find value investing and what was it like to work for Mario Gabelli? Because he’s been a guest on this podcast and he’s a man that doesn’t stand much nonsense.

David Samra: He certainly doesn’t. There are certain people who are wired for value investing.

Most people prefer to be involved with a particular stock that ring as success.

You know, we want to be involved with NVIDIA because NVIDIA is doing very well right now or we want to be involved with Costco because Costco is a is a great business.

It is a great business and, and it takes a certain type of personality, you know, as I, I’ve used this phrase, of course, it’s a very common phrase, but it takes a certain personality to run towards a fire.

And we love stock charts that go down. Those are the types of people that work in our organization.

It’s fascinating to me. You know, I don’t, I spend almost no time with the, the sell side.

And the reason is, and I learned this very early on in my career is, you know, you, you tell the South side what you do.

Oh, you know, we like companies that are out of favor and you know, they’re, they’re undervalued.

We take advantage of market psychosis.

And you say, you know, if you want to do business with us, great.

Show us some ideas of companies that are out of favor.

You have strong balance sheets, and every single phone call you get is, oh, our analysts upgraded this.

The stock’s already up 35%.

And the vast majority of market participants really are not wired in the same way that we are.

6:26

And why I’m wired this way is beyond me.

But the first experience that I had was in undergraduate school taking a security analysis class.

And the industry that I was assigned to was pharmaceuticals.

6:45

And so this is in the 80s and pharmaceuticals were, you know, sort of the technology companies of the era.

They’re they’re all highly valued.

And my partner at the time chose Merck, which at, you know, back then was a go go growth stock.

7:04

And I chose a company called AH Robbins.

And AH Robbins was a a company that had some serious litigation issues due to an IUD that that had caused problems with some of their patients.

7:20

But it also had some consumer products, one called Sudafed, which is an OTC pharmaceutical product here in the United States that was extremely valuable and and well, more valuable than the market cap had implied.

Now, why I was attracted that I felt like I was getting something for nothing, right?

7:39

You know, sort of a 2 for one deal.

You know, I grew up in a family.

We didn’t have any money and we were always on the hunt for, you know, a bargain, right?

And this was, you know, you know, just innately attractive.

And, you know, over the, the course of our careers, over the course of my career, I collected people who thought or think in that same way.

8:06

So, you know, I, I’ve always been a value investor.

I always will be in the way that I there, there’s some sort of arbitrage that I’m getting.

And over the years I’ve been able to refine that arbitrage to include balancing, balancing out risk.

8:27

And you know, risk presents itself in many different ways at the micro level and, and we think we think a lot about that.

So have I always wanted to be an investor?

No, But as soon as I got to to university it, it, it really resonated with me.

8:48

And I found a particular niche within investing that was was very comfortable based on the way that that I was brought up now when I got to Graduate School at Columbia and there was really no other place to go.

9:06

And I didn’t apply it anywhere else because that’s where Benjamin Graham taught the father of value investing.

And that’s where Warren Buffett went to school.

And when I got there, the first thing that I did is like, you know, I took a job with Mario because you could work there on Fridays.

And, and this was your opportunity to to get in the game, so to speak, and to learn from somebody that had a serious amount of experience.

9:30

And, you know, I would learn more in his Friday morning 45 minute research meetings and I would all week in my Business School classes.

So that was a a very formative experience for me.

And what was Mario like to work for her?

9:48

Because he’s a remarkable guy, You know, I saw him in Omaha back in May.

And he comes over and he shakes my hand and he says, says, how you doing?

What’s your best UK idea?

I was thinking, Mario, it’s Friday evening.

10:05

You know, why don’t you relax?

Right.

And you can’t help yourself, you know, it’s just, it’s in you.

You know, the, the desire to generate a return, which is a nice way to just make money pervades.

I think most of the successful money managers that are out there, you know, the first conversation they want to have is what’s your largest position?

10:27

And that’s neat.

What was he like to work for all?

You know, he was a tough cookie.

And, you know, one of my more formative experiences in this, you know, doesn’t have to do with me, you know, wanting or not wanting to be an investor.

10:44

But sort of one of the experienced tools that I picked up along the way was a situation that he was involved in where a division of a company that he was invested in was raided by the FAA.

They repaired blades and veins for aircraft engines.

11:01

It was called Crommeloy.

It was in upstate New York.

I was, you know, working with Mario in Rye, NY.

You know, Mario asked me to find out what was going on.

So I I got on the phone and I called investor relations because I was a kid and I didn’t know what I was doing.

And I wrote down what the investor relations person said.

11:21

And then I proceeded to walk into Mario’s office and say, here’s what’s going on.

Of course, he had read the press release and he proceeded to throw me out of his office and I’m putting that nicely and told me to go back to my desk and really figure out what was going on.

11:39

So not knowing what to do, I had turned around to the fellow who worked in the the queue behind me and asked him if I could borrow his car because, of course, I was a graduate student, didn’t have any resources.

And I drove up to upstate New York, wherever the factory was.

Yeah, This is in the day before Google Maps, right?

11:57

So you had to figure out how to get there.

And so I get up there and I’m in my suit and tie and I walk in, you know, to the factory.

And I said to the receptionist, you know, may I may I please see the manager?

You know, I’m from Gabelli Asset Management, where shareholders.

12:16

And then she proceeded for the second time that day to throw me out of her office saying, you know, there’s no way we’re talking to, you, know, to you.

So I go back to my car.

I’m very frustrated.

I don’t know what to do.

I’m afraid I’m going to get fired.

12:32

So I see the coffee truck.

You know, there was a coffee truck outside the factory.

And so I took off my tie.

I rolled up my sleeves.

I walked over and started chatting with the fellow who was running, you know, I ordered a donut and a coffee.

12:48

I started chatting.

I’m like, wow, this must be really, really bad for you, you know, having this factory shut down.

And he said, yeah, you know, it’s been, it’s been bad, but but it’s, it’s all over.

And I said, what do you mean?

He goes, oh, I heard today that the factory is reopening tomorrow.

13:06

And and so, you know, I drove very, there’s no cell phones, right?

So I drove very quickly back to Rye, NY and gave Mario that information.

And you know, I don’t know what he did with that information, but hopefully he used, hopefully he used it to make some money.

13:27

Steve Clapham: I, I really love that story because it’s so different from today.

And a young person, well, you know, couldn’t imagine doing that.

David Samra: Oh, well, I think that there’s, you know, different ways to do due diligence now, but you know, that experience was formative for me.

13:43

Like I said, it it it becomes a tool in your tool chest.

So for example, when I was hired out of Graduate School into an international shop at a place that’s now gone called Montgomery Asset Management, you know, there was no training program.

14:00

This was a start up and they just put me in an office and said, you know, make money.

And I didn’t know what I was doing.

So what I did was I took Tweedy Brown, a very famous value investing shop in New York who had started investing outside the United States.

14:17

I just took their portfolio and I looked at all the companies that they owned and I would go on these two week, three-week, sometimes five week long business trips, just visiting company after company after company.

Remember, there’s no Internet, right?

14:33

These companies, they, they’re not reporting their results in English, right?

And some of them only report some of them once a year, some twice a year.

Then they don’t report quarterly.

You can’t pick up the phone and call them, right?

And so just going there and getting information put you at the leading edge of understanding what these businesses were doing.

14:59

And so it was that formative experience with Mario that said, you got to get out there and you got to find the information that you need to figure out what’s happening in these businesses so you can make an intelligent decision as to whether or not you want to own it.

Who are the people that are running it?

What’s what are their goals and objectives?

15:15

What are the strategies that they’re using?

And then analyzing their financials in details, which gets here behind the balance sheet, you know?

I mean, this is still useful to do though, isn’t it?

I mean, I find a lot of investors saying you just sit behind your desk and, and you know, look at the numbers and look at the Internet and you can really get a proper feel for the company unless you visit it, can you?

15:40

You know, I would say that if you ask many investors, you probably get a lot of different responses to to that question.

We believe relationships, understanding the people that are running the business, we believe it matters.

You know, what are their incentives?

15:55

What are they trying to accomplish?

What’s their level of experience?

You know, do they have the ability to handle, you know, the complexity of the business that they’re managing, especially now, you know, we manage $50 billion.

You know, our universe has shrunk down to very, very large companies.

16:14

And directionally, what happens to those businesses is very much in the hands of a few people and knowing who those people are and what their experiences are and what their success rate is in driving forward a business.

16:32

And given the facts that, you know, as very large shareholders, you know, we’re investing a billion, 2 billion, sometimes 2 1/2 billion dollars, maybe 3.

And these businesses, you know, we have the ability to put a very strong voice forward in terms of who’s managing these companies and what are the incentives in place.

16:58

And you know, what, what we’re looking for as as owners.

And often times we’re owners for a longer period than the chairman or the CEO, who tend to, you know, sort of come and go over time.

Steve Clapham: Typically, how long will you hold something for?

17:13

Well, we would love to, you know, buy it today and then it revalues tomorrow and then we sell it and do it again.

Unfortunately, you know, value investing doesn’t really work that way.

Generally when we get involved, you know, there’s some sort of issue that, you know, has created a market psychosis.

17:33

Oh, it’s bad news and and we don’t want to own it.

And there are challenges in this business, and it takes time for that market psychosis to go away until the company starts reporting more positive information than negative information.

17:49

Sometimes companies can continue to report positive information, but institutional memories are, you know, institutions are the ones that move the price at the margin, right?

You know, it’s not being driven generally by retail investors, especially these big companies that we own now.

18:08

And it takes an institution a long time to sort of buy into the good news.

You know, these things don’t happen overnight.

So generally we end up, you know, going in thinking we’re going to be around here for three, 4-5 years.

And if you look at our turnover numbers, they’re sort of between 15 and 25% year to year.

18:29

Steve Clapham: And you, I mean you’ve owned ABB for like 10 years, right?

David Samra: Yeah, we’ve owned Arch Capital basically since 2004.

There are certain businesses, you know, where the value just keeps compounding and for whatever reason, you know, it’s in property casualty insurance company and and you know, a, a, a decent sized chunk of the businesses is, is reinsurance, right?

18:53

Run out of Bermuda And people under appreciate the quality of that business and tend to give it a, a low multiple, right.

And so it persists that this attractive multiple despite, you know, a couple decades worth of evidence that this is an extraordinary company run by extraordinary people.

19:17

And yet it it fails to garner a, a valuation that we would we would think it puts us at some sort of risk of a permanent loss of capital.

So we just keep owning it and it keeps compounding.

And presumably the attraction of that is that you know it better over time.

19:34

Steve Clapham: You talk about this cumulative knowledge, talk a little bit about why that you think that’s important.

David Samra: It gives you an advantage.

It’s really interesting.

You know, we, we’re a little old fashioned in that, you know, we, we allocate responsibility by region and everybody’s that operates within a certain region, very broad regions.

20:01

If you cover Europe, you cover all of Europe.

If you cover Asia, you cover all of Asia.

You got how many analysts?

6 analysts and we, we have three different regions and two people in each region and they have they’re generalists within that region.

20:17

So imagine you’re coming out of undergraduate school or Graduate School and you get a job working for the Artist International Value Fund.

And you say, OK, what do I do now?

And so you get your first project and it’s a retailer.

20:33

So you you start figuring out what do retailers do and how do they work?

And why is inventory turnover so important?

And then you figure that out.

And then your next project is a cement company and then your next project is a bank.

20:50

And it takes a very long time to become knowledgeable enough for you to sort of go wherever value is showing up.

But what what it does to Steven is it, it fails to create analysts, but is successful in creating investors, people who can think about risk reward on an absolute basis, which is the way that we think about it rather than on a relative basis.

21:26

The example that I used to give many years ago when we were open and we were bringing in clients is and nobody thinks about the tech bubble anymore.

But you know, during the Go go technology days in 1999, if you had an analyst devoted to software, they would be pitching you an 80 times earnings company because it was cheaper than all the other companies trading at 100 or 110 times earnings, right?

21:50

Because you know, they, that was, they want to, you know, these are smart, motivated people and they want to do things.

But if you’ve got somebody who’s a generalist that has a wide berth and then has years and years and years of cumulative knowledge build, they can go where value exists out in the marketplace.

22:16

And we help them with that.

Of course, it’s a very collaborative process.

You know, the analyst doesn’t operate in a vacuum.

They work together with myself and my Co portfolio manager and in a very detailed way.

22:33

And that way we help them, you know, figure out quickly what is the information that we need and why that’s important.

And that’s, you know, that’s the learning process that goes on inside.

And, and the way that I built that is, is, you know, Steven, what we talked about earlier, you know, it’s just going out on the road and, and visiting companies and getting to know different businesses and investing in them over time and watching what happens, what is very important to this business, what drives these businesses.

23:04

And, you know, I try to take that knowledge and accelerate the research process for our, our, our team.

Now to answer your question, do we still go out and visit management?

23:21

The answer is unquestionably yes.

You know, I call it grazing where, you know, you’re on the road for, you know, two weeks or three weeks every every quarter.

And you know, you, you, you’re, you’re flying somewhere in the world, you’re spending a couple of weeks and you’re visiting companies that we own, companies that compete with companies that we own, customers of companies that we own.

23:44

But you’re also going to to visit the burnt out, dirt cheap companies that are trading in that market.

And perhaps even more importantly, you’re going to visit companies that you would love to own, but they’re just not at the right price.

24:00

And you’re doing some, you know, grazing due diligence.

Who are the people that run this?

What’s making it tick?

What makes this a great business?

And you’re recording that information.

And we put preliminary valuations on businesses, make some initial assessment, and then we wait.

24:20

And we wait until some something happens, doesn’t happen to all the companies that we admire.

But occasionally there’s a hiccup or a problem and then we can go in and finish our underwriting process and make a decision as to whether or not we’re going to invest there.

24:39

And so yes, the answer is yes, we still do it.

It’s just become a narrower playing field because of the size of our capital base.

Steve Clapham: This is an issue, isn’t it? I mean, you’re, it’s an enormous fund.

You’re quite concentrated. You got 40 odd positions.

24:54

So how narrow is your universe? I mean, I don’t know what your liquidity constraints are, but I mean there can be that many companies that you can invest in.

David Samra: No, there aren’t that many companies that we can invest in.

And so our job is made increasingly difficult.

25:09

Like I said, we’ve been closed.

We’ve effectively been closed other than a brief period around COVID, We’ve been closed since 2011.

So the vast, vast majority of the capital, despite our offers continuously to our clients to take some money back has been from compounding.

25:29

And you know, part of the reason why we have been successful, you know, when I I sit down and I try to figure this out is by continuing to build more and more tools in our tool chest.

So while we don’t talk about this very much anymore, a few years ago we found ourselves a very large shareholder of a French food company called Danone.

25:57

And the management team, the CEO, who was also chairman of what is a French national champion, was undermining the business.

He had very lofty ESG objectives and he was draining money put behind innovation and marketing, which is a lifeblood of a consumer company and investing it in his ESG projects.

26:18

And he was, he was killing the company and we had a choice, you know, do we, do we try to get a billion dollars out of this thing and then find another thing, right, which is time consuming and then put the billion back into another thing which is time consuming?

26:36

Or do we, we take some steps to to solve this problem.

And we of course, you know, we dialed for dollars.

We called all the activists that we knew and they said, you know, you got to be kidding me.

This is France.

There’s no way we’ll be we’ll be thrown out.

And Pepsi tried to take this, you know, many years ago.

26:54

It was impossible, but we had some advantages.

One, we’re, we’re a long only manager with a very good reputation.

So people though they tried, especially the media loves to call people activists.

If if you are simply utilizing your rights as a as a minority shareholder, somehow that makes you an activist, right.

27:19

These are legal rights, rules and regulations, laws that are created by a government that give you, as a minority shareholder, certain rights.

And somehow if you go ahead and try to enforce those rights, you become an activist in the eyes of the media.

27:38

So, you know, if you ever believe anything you read in the newspaper, you should stop because, you know, there’s so much bias and so much lack of expertise on the part of journalists, generally speaking, they’re trying to get click bait.

But anyway, you know, we engaged in this and we had several advantages, right, Because of our cumulative knowledge, because of our relationships.

28:03

We knew people on the board, we knew people that used to run these businesses.

There was a small activist called Bluebell that was involved and we knew of Bluebell from other things that we were involved in.

And so we could pull together all of these resources and understand what was happening enough, get a good enough understanding what was happening inside these businesses and have strong enough contacts.

28:34

And this is really important, Steven, to have strong enough contacts that knew that we were credible long term investors where when we provided them with what we were seeing, the information that we were seeing, they saw it, they did due diligence on it, they believed it and they saw that this iconic company was being ruined.

28:58

And all of a sudden we had people on our side, right, people that were inside this company and on the board.

And we were able over time.

So the first thing that we did is, is we separated Chairman and CEO.

29:14

So the that person went to just the chairman’s job and then we decided very quickly that he needed to leave that role.

We got him removed as the chairman.

We supported somebody who was on the board that we knew was a value creator to become the next chairman, which he he was then voted in by the board.

29:35

And then over the course of the next couple of years, we’ll replace the entire board of directors.

And now Danone is considered, you know, it took a little while, right.

We got a new CEO, they brought in new executives at the top.

And now Danone is considered to be one of the fastest growing FMCG companies, you know, in a tough environment.

29:56

And the valuation, you know, has appreciated along with the the decent growth rates that they’re putting up.

And now we know how to do that.

That is another tool in our tool chest.

Now we don’t go out of our way seeking companies that have problems at the top, but where we do have serious amounts of capital invested.

30:15

And even if there’s not a problem, let’s say there’s just mediocrity, we can, we can get changes to the incentive comp or we can, let’s say it’s one of the two, you know, one of a few of the senior executives need to be changed.

30:34

We, we, we can help implement that change and that helps accelerate the process of value creation.

So as an investor, cumulative knowledge build tools in your tool chest, you know these are things that you learn along the way that become useful to you as as an investor, as an owner of a business to try improve your lot and generate generate excess returns.

31:04

Steve Clapham: And you would call yourself an active investor and not an activist because you’re doing this behind closed doors, talking to the the board of directors in in private.

David Samra: Yeah, I mean, I, you know, I, I worked for this place called Harris Associates in Chicago for a little while.

31:20

And Harris was founded by an entrepreneur who basically started a family office that turned into an asset management company.

And the the way that Harris thought about investing was when you buy shares in a company, the way that you should think about it is as an owner that owns 100% of this business, what would you do with this business if you owned 100% of the company?

31:55

And, you know, I often times ask CEOs this question, you know, if you weren’t a publicly traded company, how would you run it different, right?

And it’s it, it’s shocking, you know, Oh, well, you know, a, a lot of it has to do with, you know, a perception that they have to meet some quarterly bogey.

32:14

You know, a lot of it has to do with the way incentives are structured, you know, because they’re they have to meet, you know, annual objectives set by the board.

And if, if they had an incentive that was based on long term value creation and that can be measured, they would not pay so much attention to the quarterly beat and raise, which is all garbage pushed by the broker dealers to generate commissions and activity.

32:45

If they were not forced to focus on those sorts of things, then they would run the business in a different way.

And you know, so we, we actually own a fair number of companies that are controlled by families.

And you know, part of the attraction there, they run it because it’s theirs, right?

33:04

And it’s as if they own 100% of the company and when they invest, you know, not all families, some families are terrible right at running businesses and and others are, are pretty good.

But we generally line up philosophically with with people who think about a company for what it is, right, not for what the stock market would like it to be.

33:28

Steve Clapham: It’s a really fascinating subject I wrote a few months ago. And yeah, I’ve got a weekly newsletter and sub stack and I wrote about corporate longevity.

Most people didn’t like it that much, but a couple of professional investors e-mail me say, oh, that was a brilliant piece.

And so I’ve been doing some more exploration about longevity and I’ve written about family owned businesses before because they seem to be, well, in general, they, they seem to be better and interesting.

33:55

I was listening to Rory Sutherland speak.

I don’t know if you’re familiar with him, the British, he’s a vice chair of Ogilvie and he’s a big expert in behavioural science.

He was saying, look, there are three, four companies, 3 private, one public formally family owned that won the big marketing awards and Guinness was the Diageo was the was the was the public company obviously no longer family owned but still got that sort of longevity, that long life.

34:25

And he was saying, you know, you said I’ve just got back from Texas.

And is it Bucky’s the.

David Samra: Oh Bucky’s is amazing.

Steve Clapham: Yeah, and there was also HEB, a food store, family owned I.

David Samra: Don’t know.

Steve Clapham: He just was listening, listening all these that he respected from a marketing perspective and he’s like, well, why is it that family owned businesses do so well?

34:46

Because they focus on the customer.

And he was criticizing accountants because accountants are, if you listen to the finance people, you just run everything according to the numbers.

And that’s not what creates innovation.

That’s not what creates the growth.

35:03

It’s, you know, the marketing people create growth by innovation and and finding new products.

It amazes me that more people don’t think in this way.

It’s interesting and you run towards problems.

And I just wondered how you did this because you know, my experience, you know, the profits warning, the first one isn’t, isn’t usually the time to buy.

35:29

Now, obviously you’ve got to buy a bit on the way down, but just talk about how you gauge that now’s the time because you, you, you can’t wait until it’s turning around because if you’re putting that amount of money to work, you’ve got to be very early, right?

David Samra: I know this is, this is not going to please people who love complexity, but the, the value of the business is the present value of the future cash flows.

35:52

And we know the, we know most of these companies pretty well given how long we’ve been doing it and how much time we spend analyzing them.

And we have a pretty good idea what the earnings power of the business is, especially after we go through a detailed underwriting process.

36:09

And if the price that we’re buying despite where it is and it’s, you know, problem process, if the price that we’re buying us that buying at gives us our hurdle rates, right?

So we shoot for 20% per year gross IRRS.

36:28

And I say gross because that’s not net of fees, it’s net of mistakes ’cause we make mistakes.

But you know, if it meets our 20% IRR hurdle, then timing be damned because it doesn’t matter.

36:46

And, and part of the refinement here, Steven, is you know, we’re looking for businesses.

We’re not looking for any old business that’s cheap, right?

You can get that.

You can buy an EFA value index and get statistically cheap equities for and pay almost nothing for it.

37:03

We’re looking for good businesses that are undervalued.

Steve Clapham: But everyone’s doing that.

David Samra: Sorry?

Steve Clapham: Everyone’s. That’s what everyone is doing.

David Samra: Everyone should be doing that.

Steve Clapham: Why have you been so successful at it?

David Samra: Well, we do it, everyone says they’re doing it, but if you look at their portfolios and you, you say, what is that really a good business?

37:25

Really, you know, beauty’s in the eye of the beholder and people, you know, marketing’s really important to raise money.

Remember, I’ve been closed since 2011.

I almost run this like a family business.

You know, if I lose some clients here and there because they’re upset that, you know, the market’s gone up and we haven’t participated, it’s it’s OK.

37:46

You know, we’re here to generate absolute returns and not take an enormous amount of risk in that process.

But but getting back to the timing, if we’re buying a good business, there is some underlying value growth every year.

38:05

So if it’s taking two, 3-4 years before it revalues, as long as the underlying value of the business is growing, I’m protecting myself against, you know, inflation eroding away my purchasing power.

38:20

So it doesn’t, it doesn’t bother me.

The timing doesn’t bother me in the least.

In fact, Steven, it generally works in our favor because we’re so early that usually there’s more bad news that comes out and the share price goes down and it gives us an opportunity to average down and get it at an even more attractive price as long as, you know, our estimate of normalized earnings power doesn’t change.

38:45

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40:48

Steve Clapham: You buy something, it goes down, You buy more.

Presumably at some point you retest your hypothesis because.

David Samra: Continuously.

Continuously, you’ve bought something, it’s gone down 20%, You bought some more on the way down.

Steve Clapham: There must come a point where you start to think, oh hang on, have we missed anything?

41:06

David Samra: Well, so I I don’t know if you can internalize this, but I learned some things from Mario.

Working for me is not a lonely job.

You don’t look the the analyst doesn’t lose voice, I lose money, right?

And so, you know, because we work collaboratively, right?

41:25

You know, we, we’re looking at the same information and, and this is my responsibility in the end.

So I’m losing credibility, I’m losing money.

It’s like a constant barrage of me looking over the shoulder of the analyst saying, have we checked this?

41:41

Have we done this?

Have we looked at this?

What are we missing?

Here’s some other information I received from another investor who called me up and told me I was a moron.

You know, have we looked at this?

And so it’s this constant re underwriting process that helps us build more and more awareness of what’s happening inside these businesses.

42:02

You know, I used to say, I don’t say this much anymore.

You know, owning a stock is a little like getting married.

You know, you don’t really know your wife until, you know, you’ve been living together for a while and you come across stress points, right, or big decisions that have to be made and, and how everybody reacts to that and, and what, what are the decisions made and, and how, how good are those decisions?

42:25

And companies are a little bit like that.

And like I said, we, you know, we have a gross IRR hurdle that’s pretty high knowing that, you know, we’re not going to always get it right.

But we need, you know, we need, we need to continuously reassess whether or not, you know, we, we have this right thing.

42:43

So, so our analysts doesn’t lose voice, right?

It’s, it’s almost the opposite.

It’s like it, it all falls on me to and, and the analysts working together to ask the right questions.

So yeah, we used to do that in the international group at Harris.

42:59

We would have another analyst.

We, we called it the devil’s advocate, right?

It’s basically a re underwriting process.

We don’t, we, we, we don’t do that in my group.

We’re, we’re constantly re underwriting.

And the devil’s advocate is, in my view, the CEO is far less involved in the details of the individual security was the analyst who did all the heavy lifting.

43:23

Whereas in our group, the heavy lifting is done by the portfolio manager, which is me and the analysts.

And we do that.

We do the work together.

And I mean 20% IRR.

Steve Clapham: I mean ABB is a good company, right?

But it’s not cheap.

43:39

David Samra: Well, not anymore, but it was when we bought it.

Steve Clapham: And, and you said in your letter in 2023, and so beginning of 2024 you wrote that letter, you said it wasn’t cheap then and you still own it and it’s still like one of your biggest positions.

43:56

David Samra: Well, I can’t talk about what I’ve done this year, but what we did, you know, if you look at our shareholder letter at the end of last year and this is another, you know, thing that is really important to me and, and communicating to my clients is, you know, I, I laid out the top 10 securities, right, which it’s 45% of our invested assets.

44:20

So they’re meaningful and I went through and talked about, you know, what the return expectations look like for each one of those securities.

And then I put, you know, what our challenges would be in 2025, which was selling many of these securities and then finding, you know, new investments that put us in a in a place to generate better expected returns.

44:46

And so we have been doing that over the last, you know, now six months and you know, the, we measure a discount to, to intrinsic value every day and we’ve widened that discount since the end of the year, but it’s still not at a place where I’m I can get really excited.

45:13

And so you know it, sometimes you have this acceleration in in, in value realization, which has happened to us over the last four or five years.

And you find yourself in a buoyant stock market with a portfolio of close to fairly valued securities.

45:31

And then you have this big reinvestment process which brings on reinvestment risk.

You know, you’re buying all these companies where the news is bad and you’re buying a whole bunch of them at the same time.

And that’s a challenging process, but it is one that over the long term puts us in a position to generate better expected returns.

45:52

And so, you know, we try to do is, is, is lay all that out for our shareholders.

So they understand exactly.

Not everybody reads the letter, you know, unfortunately, but, and then, then they get frustrated, you know, if, if they’re suffering from reinvestment risk, but you know, it’s, it’s, it’s, it’s, it’s tough to, to communicate with $50 billion worth of shareholders.

46:17

Steve Clapham: Yeah, I know.

So I suppose the the issue is that it’s hard for you to get in and out of of stocks if you even if you’re getting out of just one position, you might be replacing it with three because you might not have the same confidence.

I guess.

Let’s talk about some of your positions.

46:33

I mean, your portfolio’s very interesting.

So one of the positions I liked was Universal Music.

Now, it slightly worries me that I own Universal Music and so does Bill Ackman, but he’s got a pretty good track record.

46:49

And you own it as well.

And what I don’t understand, I’ve owned, you know, when I was at the hedge fund, we owned Vivendi.

I like this business for for a long, long time.

And when I did the calculations, I said mathematically, you know, they make what Spotify makes.

47:10

These are a big part of Spotify’s earnings.

And, and OK, they don’t, they aren’t selling concert tickets or doing the selling podcasts or audio books or other stuff that Spotify’s making.

But they’re they’re valued a fraction of Spotify.

47:26

And I never understood that.

Why do you think the market hasn’t really sort of seen the volume in Universal Music?

David Samra: We got involved in the same way that you did through Vivendi, right?

So this has been a multi year return profile for us.

You know, it’s in that camp of things that revalued and now we’re in the process of trying to find other things to do with that money.

47:48

And in that process, because we have a limitation, we can only hold 15% cash.

When I get up towards 15%, I have to start making choices what, you know, which of the securities I should sell and which which of those I’ll sell later, right.

And I tend to sell later those securities that are higher quality businesses and better managed And, and you know, this company fits in that category.

48:11

Now, it’s a small position for us, you know, for a few reasons.

Why is it valued like Spotify?

Well, Spotify’s a technology company.

And if you’re a technology company, you get a higher multiple.

That’s just the way that it works.

48:28

You know, it, it, it doesn’t, it doesn’t mean that, you know, and, and, and Spotify, quite frankly, is growing a lot more quickly and has a lot, you know, maybe there is 3 meaningful music publishing companies in the world, right?

You got Universal, you got Warner and you got Sony.

48:47

I don’t know what happened to Bertelsmann.

I can’t remember.

But anyway, they’re growing maybe mid single digit.

They make or break music stars.

49:04

Spotify is is is distribution platform.

Think of it as television for music or television, right?

It’s like a network in the old days of, you know, go go growth for networks in the USABCCBS and NBC.

49:21

Those things were very highly valued.

And and I think Spotify is sort of in that in that sweet spot right now, where is the content creators, right?

So Warner Studios, Paramount Studios, you know, the studios, you know, that created all the content that allowed that distribution to be so successful.

49:46

You know, they didn’t carry valuations that were as high because they just, they just weren’t as popular.

But I don’t think Universal is undervalued in any way.

Oh, you don’t I I’d be slightly more.

I mean, the multiples, they’re quite rich, but I, I, I still think.

50:04

It can grow and it does grow and it’s got the best management in the industry and the greatest line up of artists, but there’s no there’s no bad news that’s keeping that company from trading at what is a pretty full valuation.

Steve Clapham: OK, how about Diageo?

50:20

People keep telling me that, you know, young people don’t drink.

I have a young son who drinks a lot.

I mean, I, you know, I I appreciate that there are people, there are young people that don’t drink.

But I mean, I don’t think, you know, alcoholic drinks are one of the oldest businesses in the world.

50:37

I did this, this study of, you know, the longest life businesses a few few months ago in my newsletter.

And the most popular category was drinks companies.

Drinks companies been around for hundreds of years.

And the idea, yeah, young people are more focused on fitness and and maybe drinking a bit less.

50:56

I don’t think drinking a huge amount less.

You own Diageo.

What do you think?

David Samra: Young people aren’t going to use fossil fuels either, right?

You know, I’d be more likely to agree with you if you said young people won’t use fossil fuels, then I would.

51:14

They won’t drink.

Yeah.

Well, I’m being slightly pithy there, you know I do there.

There is certainly a slow down in that business now.

There was a boom, a COVID boom, and now there’s a slow down.

And the valuations of these liquor companies during COVID became very high.

51:33

And you know, if you just internalize that piece of information, right, something that was clearly temporary COVID, it was clearly temporary.

You went back to the 1918 pandemic.

51:49

You can see in three or four years, it sort of washed itself out, right?

It was clearly easily identifiably temporary, yet valuations on these businesses went up.

Fascinating insight in and of itself of the way the stock market works.

52:06

You could buy Peloton at a huge multiple, right?

An unproven business model at a huge multiple.

Yet they were giving us Ryanair in the middle of the pandemic, right?

The best run airline in the world with the strongest balance sheet that we’re giving.

52:23

And and so now that situation has sort of reversed itself and the pantry loading and the excess inventory that was held at bars and within the two tier distribution structure that liquor companies operate within the United States.

52:40

A lot of that has sort of come back and Diageo has made some mistakes, you know, where they overloaded some of their distributors in certain parts of the world.

You also have this GLP one, which is real.

You know, it’s growing very rapidly.

You know, the affordability of these products and the distribution of these products are, is, is only going to grow over time, right?

53:02

As soon as one of these things goes generic, you know, the, the, the penetration of these drugs is going to increase and that curbs appetite for certain products, one of which is alcohol.

53:21

And then you have this social trend that you alluded to where younger people in social settings, some of them are drinking less.

And I think that’s more or less AUS phenomenon.

I don’t I don’t know that that’s really translated outside the United States.

53:40

So these companies are all facing, you know, what look like some secular challenges.

In the meantime, you know you have a number of of different publicly traded businesses that operate in this field that have different characteristics.

54:01

And the one thing that we like about Diageo is not only do we think the valuation is attractive, but it’s scale and the quality of its brands, the scale at which they operate and the power that they have within the distribution structure in the United States gives them very large competitive advantages.

54:22

Now these are micro observations, right?

And so they’re not particularly useful.

But let me here where I, I, I live right now, you know, I live here temporarily during the summer where restaurants are very seasonal, right?

54:43

And you go to a restaurant and you ask I, I would like to have a rye Manhattan, for example, right?

They have one rye, all the restaurants, 1 rye in its bullet, right?

54:59

It’s, it’s a Diageo product.

And what’s happening, what I think is happening, if you understand the way retailers work and distribution works is look, I’m cleaning the inventory off the shelf.

55:17

But in order for me to have a broad line of attractive brand name recognizable brand name products that will turn, you know, I want to have, you know, these, these brands.

And when my distributor shows up, you know, because Diageo many years ago moved more towards exclusive distribution within the system, when when the big Diageo distributor shows up, they say you need to carry these products.

55:47

And by the way, we’re putting, you know, marketing behind these products.

And by the way, when you’re mixing your non alcoholic mojito, here’s our new product in that category.

In order for you to continue to carry Bullet Rye, we would like you to carry this, please, Mr. Bartender and Mr. Liquor store operator, right.

56:10

So they, you know, it, it does come down to execution.

They have to execute on this, but the distribution strength, which is real for this company sets them apart.

It’s not only distribution, but it’s also marketing support, innovation behind the products to try to, you know, create new cocktails and new events for people to, you know, want to drink puts them in an ability to perhaps gain market share in a difficult environment like this.

56:40

And we, we like companies like that.

And that’s what we mean by good business.

You know, you can look at the numbers, right?

You can get quote UN quote behind the balance sheet, in this case mainly income statement.

And you can see, you know that this is probably the most profitable FMCG company in the world.

56:59

You know, it is by the numbers of fantastic business.

But if you start to peel back the onion and look at where are the competitive advantages, where do they come from and and how are they reflected inside this company, you can see that in a more difficult environment that they should be able to continue to grow the underlying value of this business.

57:25

Steve Clapham: Interesting.

I mean management we’ve, we’ve touched on you, you know, it’s obviously very important if you’re going into companies that have got a problem, got something, you know, happening, something that’s bad.

And I just wondered if you could talk a little bit about how you judge management.

57:40

Obviously you’ve mentioned Incentive Structures and you describe George Weston of AB Foods as truly wondrous and I wondered why you thought that.

There’s a story about him.

IA friend of mine was doing a trip to Australia and he happened to be behind him in the queue to check in for the towel and he told one of his staff quick go to the bar and order the drinks because happy hour is going to end in 10 minutes.

58:13

David Samra: Well, you answered your own question, Steven.

You know, George, I can’t remember, it’s the third or maybe even 4th generation.

And generally diligence doesn’t travel that far down in a wealthy family.

58:30

And he takes enormous responsibility for the value of this company and what it means for him and his broader family.

He’s very thoughtful about the investments that he makes and they’re not all good.

You know that right now.

You know, they’re struggling with some of their, you know, historical assets in the UK, some of which they’ve made significant investments in on the back of government policy.

58:55

The government is changing the policy and AB Foods is stuck, you know, having to make a decision to potentially shut down some significant operations based on the way the government has changed rules.

59:10

And he’s, you know, he’s rational about that and he has a long term investing view.

The business operates in in several different fields, which is, you know, generally difficult to operate in.

59:26

And he, he does it well and he’s energetic and he works really hard.

And, you know, those are some pretty unique skills in addition to being a little bit, you know, I don’t want to call him quirky, but he, he seriously understands, you know, the value of a pound.

59:45

Steve Clapham: Is that the sort of thing that you look for?

And obviously you you’ve known him for some time, I assume, but when you’re coming at something new or where there’s been a change of management, so we were talking earlier before we press the record button, I was asking you if you were interested in caring.

1:00:03

So Kering has got a new CEO and if you said you didn’t like certain aspects of that business, but if you were to judge, if you were to look at business like that, how would you judge?

Whether the new CEO was able to effect change and whether he was worth backing?

1:00:20

Is it in a way once you’ve, once you’ve pressed the buy button, it’s quite difficult for you to reverse that.

So I just wondered if you’d talk us through how you think about it and what are the things that you look for?

David Samra: Well, track record is the first one.

That’s where we go first.

1:00:36

You know, you look at, OK, who runs this business, who controls it, who runs it?

What’s the structure of the board?

What are the incentives?

And what has this person done historically within that context or within another context?

And that’s your best, that’s your best evidence that this is, this is the right person to be running the business.

1:01:02

But what you know, I mean, Kering is perhaps a bad example because he’s come from a very difficult industry, the automotive industry.

But what about if you, you know, you’ve, you’ve been a good, you’ve got a good track record in a different industry, but it’s perhaps an easier and no industry is easy.

1:01:18

Everything’s got its own complexity.

But if you’re running an airport, it’s a lot easier.

And running an airline, I mean, so how do you, how do you judge how much of it is the man and how much of it’s the organization?

Well, we don’t know that an auto executive is going to be a successful luxury goods CEO, but what we do know is that that business was originally, you know, founded and built by industrialists, not by luxury good owners, right?

1:01:48

And I, you know what?

And, and so an industrialist hires an industrialist.

That doesn’t really surprise me.

I, you know, I don’t know if that’s an error or not.

You know, it could be I’m comfortable with this person because he thinks about factories and efficiency, but I don’t know that those are the skills that are necessary to be successful in the luxury goods business.

1:02:12

It’s more about quality of product creating, you know, value in the mind of the consumer.

You know, I, I, I, I think if you went for a walk with Brunello Cuccinelli and then went for a walk with this, this fellow who used to run Renault, it’s going to be a very different type of conversation, right?

1:02:37

And you know, Brunello, Brunello is, he’s brilliant, you know, very few executives and we’re, we’re, we’re not shareholders.

I would love to be an owner of his business, but he is one of the few people that is incredibly talented in terms of product design, product awareness, customer awareness and understands how to run a business very, very well and think about the long term.

1:03:05

That’s very different than, you know, an auto, you know, your average auto and miss fellow might be a very good, I don’t know him, he might be a very good auto executive, But I, you know, that’s an experiment and we’re we, we don’t want to be involved in an experiment like that.

Yeah, well, it’s interesting.

1:03:23

Steve Clapham: I’m doing a webinar for AlphaSense to sponsor the podcast the on, on Wednesday with a luxury goods expert just looking, looking at it and it is a very interesting case study.

And obviously, so, you know, the brands suffered very, very badly and it’s going to take, I think, quite some time to rebuild.

1:03:46

David Samra: So 1, you know, we can I, I, I like these things.

You know, I’m not under pressure to invest.

When you’re a practitioner, you don’t really have the luxury of observing something that unless you can see an investment case for it within a reasonable time.

1:04:03

But for me, I can, I can look at these things.

You know, it might be, it might be informative, Steven, to use caring as an example, because it is, you know, if, if you if you normalize the margins at Gucci, which is their big problem product, you know, there’s no question that the stock is cheap.

1:04:23

There’s no question, right?

And as a result, you know, the register is packed with value investors, right?

There’s no question that the acquisition track record of this company is not very good.

There’s no question.

1:04:39

If you go back and you look at the last five or six deals, they look terrible.

And there’s no question that there’s a lot of debt on the balance sheet.

And there is no question that if they get those Gucci margins back up that that stock could be a rocket.

And so why am I, as a value investor sitting on the sidelines?

1:04:58

Why?

Why aren’t I involved?

Well, we have 4 key criteria that we look for.

We look for an undervalued security, OK, check.

We look for a good business.

Inherently, this is a pretty good business.

We look for a strong balance sheet.

1:05:13

Does this company have a strong balance sheet?

Not in not in the way that we think about balance sheets, no.

And four, we look for a good management team and we just don’t like the evidence is there that this company has historically not done very well, right?

1:05:29

And and it’s still controlled by the same family, right?

It doesn’t mean that they won’t fix it, but they just hired a, an auto executive it you know, it’s it And so it, it doesn’t fit the profile of the type of business that we’re looking for.

1:05:45

But we’re not saying that, you know, as a value investor, this might not fit boxes.

It it the, the, the share register is loaded with value investors, right?

But it’s not the type of investment that we’re interested in, right?

We own Richmont, also another family controlled company, but one where, and they’ve had issues with acquisitions in the past, but they, they run it with a big net cash position.

1:06:10

You know, the, their, their jewelry businesses are far better and well curated than any other jewelry businesses in the world.

The acquisitions that they make are small and they’re buying brands that can grow in the same way that they have grown Van Cleef and Arpels over the years.

1:06:34

So you’re, you’re, you’re spending a small amount of money on the prospect that you create over, over decades, much, much larger brands.

So they’re doing that now with another jewelry brand called Buca Latte and you know, and, and you’re not paying anything for that, right.

1:06:53

And so we’re in the same business, but we’re in it in a very, very different way than most of my competitors are in it.

And so that is, you know, we, we have these four key criteria and you know, that’s where perhaps we might be differentiated and caring is a good example.

1:07:14

Doesn’t mean it won’t work out.

It doesn’t mean my competitors won’t be doing a victory lap a year or two from now.

They could be, but it’s not, it’s not what we do.

We do something that’s that’s different.

Steve Clapham: It’s interesting.

No, it’s interesting. Thank you for explaining that.

1:07:30

I Just want to touch on Artisan because Artiasan’s not a very well known firm in this side of the pond.

I mean, it’s it.

And I just wanted to to sort of take you back to 20 odd years ago when you first started because you’d been at Harris Associates, you had mainly been an analyst.

1:07:50

You hadn’t been a portfolio manager for that long.

What gave you the confidence to take on the role of running your own place?

And what gave Artisan confidence enough to give you the trust because you didn’t have the track record.

And normally you would imagine that would be the first, you know, you’d be talking about how to judge management.

1:08:12

David Samra: You talk about track records.

And it’s even more so for a fund manager.

Right.

You know, I meet a lot of people that say that they know what they’re doing, right?

And, you know, I was 37 years old.

I’ve been an analyst for 10 years.

I had a kid on the way and I said to my wife, you know, I got to see if I’m good at this, right?

1:08:35

Because when you’re an analyst, you know, you can see the investments that you’re making, but you’re working for somebody and somebody else is making the final decisions or influencing you there.

There are other analysts that you work with that influence you in many different ways.

1:08:52

And so you don’t really know until you know, until there’s a, a collection of your own investment decisions.

And so I needed to know I had, you know, I, I, I said to my wife, I, you know, I have to leave.

And I don’t care if I’m working in the trust department of a bank, but I need to know that I’m good at this because otherwise I need to, you know, I would have become a marine biologist or something.

1:09:19

And so Andy Ziegler, the founder of Artisan, who’s no longer involved with the company, but I’m still very good friends with he saw something, you know, 10 years worth of experience.

1:09:36

So when when we had joined Harris, so we meaning that we had a team of of four analysts that worked for David Harrow, who I’m still very good friends with.

You know, we started to move this philosophy that I have of owning good businesses.

1:09:55

You know, came from a guy named Joel Stern, who was a management consultant, who taught, who was an adjunct at Columbia Business School and taught me, you know, also listening to Buffett Munger and taught me, you know, the, the wealth creation potential from owning superior businesses.

1:10:13

And the strong balance sheet comes from Ben Graham.

I mean, you know, you don’t have to be a genius.

All you have to do is read his book and he, you know, if you’re, it’s, it’s, it’s another odd thing that’s out there in the world is sorry to sort of, you know, get off base a little bit here.

1:10:31

But, you know, I always say to CEOs, why do you see the most simple competitive advantage that you could possibly have?

And they said, what’s that?

It’s like a strong balance sheet.

You know, you’re you’re constantly, you know, getting pushed into having this, you know, notion of a of an efficient balance sheet, but that’s garbage.

1:10:50

Like, why not have superior financial strength and give yourself a competitive advantage over other companies?

So we try to push that agenda.

You know, Andy was an entrepreneur.

They already had an international manager who’s still with us, Mark Yaki, and he was fantastic, but they didn’t have a product in a category that he thought was going to be very big, which was international value.

1:11:33

And, you know, the number of managers that were operating in the in, you know, what is a pretty well defined niche was pretty small.

And, you know, after interviewing, you know, sort of at, at my, I had sort of executed getting the other three team members.

1:11:59

There were 4 analysts in front of Andy.

He had turned them all down.

And then I had a conversation with him and, and he hired me and I had, I had, you know, I had no prospects on my own.

I didn’t have that much money.

You know, I didn’t have a track record, as you mentioned.

1:12:19

So Andy took a risk.

I was the only manager that Artisan has ever hired that didn’t have a track record.

And now, you know, between, you know, this is kind of funny the way things work out, but between the 50 billion that I manage and Artisan also has a global value product, which I started was in my group and now I spun it out to one of my Co managers who came with me from Harris.

1:12:43

He manages a little over 30 billion.

So that’s 80 billion where half of the assets of Artisan.

So why did I go there?

I mean, it it, you know, Andy gave me a shot and I wanted to see if I was any good at this before I got too old.

1:13:04

And you know, the rest is the rest is kind of history at this point.

Steve Clapham: How does it work?

I mean you look after the investing and they look after all the all the back office and the administration.

David Samra: Yeah.

I mean, you know, if I own the business 100% it would be way better economically, but I don’t know that it would be, you know what it is if I had owned it because, you know, hiring a running the operations would be a, a fairly significant distraction.

1:13:31

The way Andy set it up was brilliant.

You know, he, he hires managers, he puts them in an office, he gives them a directly linked incentive that aligns the managers incentive with the clients and leaves them alone and lets them operate.

1:13:51

And, and you know, I, I go into the office, they’re my people, they’re my clients.

It’s my research, it feels like.

And, and you know, when I’m generate the returns, because I’m investing right alongside my clients, you know, I’m making money for myself along with my clients and the business makes money and I get paid off the business.

1:14:22

And so the incentives are all aligned.

And, and you have to, you have to focus on the long term because you know, you can try to jam investment returns in the short term.

1:14:38

You know, there are all sorts of tricks to do that sort of thing, but if it’s the long term, there’s a lot more value in a in a long term cash flow stream there is than there is in a short term cash flow stream.

Steve Clapham: Absolutely. I just wondered why, you know, it’s obviously worked very well for you.

1:14:57

I just wondered why it wasn’t a more popular construct. You would think it would be quite an obvious thing.

I mean, I’ve seen a number of people, mainly here in the UK, you know, like starting hedge funds and it’s started by two people and one person takes care of the operations, one person takes care of the investing.

1:15:15

And that removes a lot of the distraction if you’re trying to run a business and run a portfolio, it’s a huge mammoth task. And it just seems to me a logical split.

And I just wondered why there hadn’t been more people following the art as an example, because it seems like a good way of running fund management firm.

1:15:38

David Samra: Well, I think generally speaking, you know, it is and other people have tried and some, some have been successful, but I think, you know, we’re, we’re an active management firm and well, the vast majority of money is no longer going into active management.

1:16:00

I mean that’s been going on for decades and there’s a lot of fee pressure.

It’s a tough business.

You know, one of my kids said to me, hey, I’d love to manage money, you know, I want to try to replicate what you’ve done.

I would say don’t bother.

1:16:15

The vast majority retail wealth is invested in commoditized products at low fees.

That’s where the business has gone.

I don’t think it’s great.

You know, it’s probably good if you’re an average investor and you don’t really know money managers.

1:16:36

Like buying an, an S&P 500 index fund, as you know, Warren Buffett has pushed over the years is perfectly fine.

But if you’re hiring a financial advisor whose job it is to give you good investments and then they start shoving ETFs down your throat, why are you paying that person?

1:16:53

You know, I, I think it’s just generally bad for the investing population, you know, in the way that this industry has evolved and it it makes it tougher and, and artisan is artisan is reasonably successful.

1:17:09

It’s not Fidelity or Black Rock or T Rowe Price.

It’s a modest sized asset management firm that hires a collection of boutique ish money managers you know who are trying to provide actively managed excess returns over a long period of time.

1:17:28

Some are more successful than others.

Steve Clapham: So having discouraged any young person listening from thinking about a job in asset management, I’m going to finish by asking my usual closing question, which is is there a book or a practice?

1:17:45

A book would be a nice thing to that you recommend to young person thinking about a career in asset management.

David Samra: Well, I think building up the tools in your tool chest, you know, are really important in the basic tools.

This is not going to surprise you.

The basic tools that that I usually talk about in terms of books would be, you know, the money masters by John Train, right where you can, you can learn about investing generally and the styles of different investors and how that’s worked over time.

1:18:22

Of course, as a value investor, I recommend the intelligent investor, where I think a lot of Benjamin Graham’s principles still very much apply to the way that the stock market works and long term investing.

And then I think, you know, some refinement in terms of the way to but to think about businesses over a long term comes in Phil Fisher’s book common stocks and an uncommon, uncommon profits, right.

1:18:50

And so, you know, there’s no, there’s no magic here.

I think a lot of people probably talk about these books, especially value investors, but the one book that they don’t talk about, which has been, and I mentioned it earlier, there’s a book called Quest for Value that was written by Bennett Stewart and Bennett Bennett was a management consultant.

1:19:12

This is a textbook.

So it’s kind of a hard read.

He was a management consultant along with Joel Stern, who was that adjunct professor that I talked about earlier.

And in there they’re the folks who coined the phrase Eva, which stands for economic value add.

1:19:29

And really what that gets at is, you know, how much capital does an, a, a business have invested in it and what’s the, the return on that capital?

How much value are they creating?

And that’s a really interesting way of learning the difference between a good business and a bad business.

1:19:50

It is also a very interesting way to sort of create incentive schemes for people that are, that are running businesses.

And it helps you.

It’s, it’s, it really is an insightful tool that helps you understand from a financial standpoint, what what is it that’s really making this business tick.

1:20:15

You know, where’s the money going into the business?

What types of returns are coming out and how much does that money cost?

Right.

Because money’s not free.

So it’s, you know, I think if you put those four tools together, it, you know, as an enterprising young investor, you know, that’ll get you, that’ll get you pretty far.

1:20:39

Steve Clapham: Well, that’s a brilliant way to end it.

If you are silly enough to want to get into the very difficult world of professional investment management and trying to beat an S&P 500 index.

1:20:54

Of course, you might find it less, less challenging than your domestic counterparts because their passive wave is a bit lagging, I guess in international markets.

But David Samra, it’s been a real pleasure talking to you.

1:21:10

Thank you so much.

David Samra: Stephen, I very much enjoyed our conversation, so thank you for having me.

Steve Clapham: Well, I bet after listening to that a few company CEOs might be wondering why I didn’t title this the Active Investor.

I was fascinated listening to how Samra agitated for change at Danone.

1:21:31

He has some great catch phrases. One he didn’t use is good things happen to cheap stocks and I shall be watching closely to see how he reallocates cash from some of his existing holdings which he no longer regards as cheap.

1:21:47

I always thought that running a fund of that size must be incredibly difficult, but I think Samra has cleverly turned this to his advantage, having to be as close to 100% sure as possible before pulling the trigger on a new position, and having to be slow to exit positions and enter new ones.

1:22:07

I hope you enjoyed this conversation as much as I did.

David and I actually carried on for another 20 minutes after we stopped recording and I wonder if I should occasionally make this podcast longer.

Let me know what you think.