I was inspired by a recent article about Francis Chou, described as the “great unknown Guru,” to write one about another relatively unknown Guru, Zeke Ashton.
The founder of Centaur Capital Partners, Zeke Ashton is a Texas-based value investor who has capably realized annualized returns of 16% since the inception of his hedge fund in 2002. He started Centaur with less than $1 million as capital which he has converted into over $110 million in matter of a decade. He outperformed the market during the financial turmoil of 2008 and was among the few hedge fund managers to beat the market by a wide margin in 2009.
Zeke Ashton is a name still unfamiliar to most; however, his performance in the financial world has received the attention of one of the most renowned investors, Whitney Tilson. Tilson, the founder of T2 Partners, along with his partner Glenn Tongue approached Zeke Ashton in 2005 to launch the Tilson Dividend Fund. Recognizing Ashton’s expertise in risk management and investment in general, he was appointed as the manager of the fund. Whitney Tilson has no active role in the management of the fund despite the name.
Below is brief performance data for the mutual fund (the hedge fund data is much harder to come by).
Performance of Tilson Dividend Fund
|Year||Return (%)||S&P500 (%)||Excess Gain (%)|
Prior to adopting investment as a profession, Ashton started off his career at a financial software company as a consultant of treasury and risk management systems for large banking institutions. At the time he believed in and aimed at become a risk manager for a recognized insurance or banking institution. What changed the direction of his career was Warren Buffett’s Berkshire Hathaway letters. The letters reinforced his interest in the stock market and provoked his need to establish his very own hedge fund. During the same time, he was also a devoted follower of The Motley Fool. Fortunately enough, he was able to land a position as their investment writer in 1999 which he continued till 2001. The two-year experience of researching and writing for The Motley Fool provided him with the opportunity to learn and refine his investment philosophy.
When talking of his investment style, Ashton says “boring is beautiful.” However, his investment approach is far from boring. Despite being a value-oriented investor, Ashton’s approach still has something unique which sets his it apart from that of other typical value investors. He recognizes investment opportunities in stocks which fall in the category of growth and value. However, typically he invests in such stocks which do not grow fast enough to attract growth investors and are not cheap or undervalued enough to attract deep value investors, so his style would be more described as regular value.
However, he does invest in some deep value stocks like Calamos Asset management (NASDAQ:CLMS), which has hidden value due to the complex corporate structure. I did a write-up I did on the company you can read here. Like many value investors, he believes in maintaining a long-biased concentrated portfolio, but extreme concentration is something he does not prefer. In most cases, he invests in 15 to 20 stocks of companies which have high liquidity with a high cash reserve and consistent future cash flow.
Zeke Ashton does not limit his investments depending on the market capitalization like some value investors do. Along with the small- and mid-cap companies mostly preferred by value-oriented investors, Ashton also invests in large-cap companies. The only thing which is of his concern is value and the safety of the investment.
Another aspect which sets him apart as an investor is that fact that he is a generalist. As a generalist he believes in establishing a framework which speeds up the process of becoming familiar with a company or an industry. According to his, there are not more than a dozen of basic business models. Therefore, establishing a framework which helps identify the business model, which usually are a variation of the basic business models, gives them an edge over other investors. As can be seen at the bottom of this article, Zeke also buys and shorts currencies (through ETFs in his mutual fund), and makes wide use of options.
I heard that Zeke Ashton keeps a list of every stock he ever sold. Zeke is not a trader but he is not an ultra-long term investor like Warren Buffett or Tom Russo. This probably gives Zeke an edge because he can pick up companies he is familiar with even after he sold them if they reach a cheap valuation. This gives him the edge on Buffett, who has a deep understanding of companies that he has owned for decades, without having to hold stocks that long.
Furthermore, an essential part of research prior to investing in the company is studying the macro environment of the business. Ashton’s emphasis on the importance of macro environment is the reason he was able to outperform the market during the financial crunch of 2008.
Zeke Ashton had a better performance in his mutual fund than most long-short hedge fund managers had. David Einhorn, one of the greatest investors ever, was down 17% with his shorts, while Zeke was only down 20% without using any shorts.
During the period of mid-2008, he took into perspective the lack of bargains and ultimately decided to leverage financial institutions. This very practice of taking into consideration the macro risks prevents Ashton from permanent capital loss. His large holding of cash, which is now 20% and was higher at the time helped produce far lower losses than the S&P 500 and even many long-short hedge funds.
Below are Zeke’s top ten holdings:
Disclosure: Long CLMS