David Winters Is Having a Ball
His new fund is up 30.7% for the year, 22.9% year to date. Assets are an impressive $1.34 billion. And he sees plenty of tempting investment opportunities. “We believe that there are fantastic opportunities outside of the United States,” he says. “We’re fishing all over the world.”
Right now, his portfolio is one-third in North America, one-third in Western Europe, and one-third in Asia.
He spoke the other day before the Financial Breakfast Club of Morris County in Morristown, N.J. His office is in the posh community of Mountain Lakes, not far away.
Winters is proud that his fund is different from most other funds, funds that quietly follow an index -- or trade like crazy. “We’re not an index hugger, and we don’t have a high portfolio turnover rate,” he said. “We don’t fit comfortably into anybody’s model.” In fact, Morningstar lists his fund as large-cap growth – when everyone knows that Winters is a value investor!
He isn't so much interested in what Ben Graham called “cigar butts” — troubled companies that can give you a small profit. “For those securities to be profitable, there has to be almost continual trading of the securities. We tend to be buy–and-hold investors."
On shorting stocks: “It’s overrated. No one on the Forbes 400 list got there by shorting. The math doesn’t work. It’s a hard way to make money. Most successful investors are people who have owned all or part of a business for a long time.”
What about activism – which Mutual Series has been famous for? Pressuring companies to forsake false trails and switch over to the paths of righteousness?
Winters doesn’t belong to that club. “Companies like long-term investors,” he says. “And it’s hard to persuade people to do things differently. We try to think and act as business partners, so as to create value for all shareholders. For example, with Consolidated Tomoka, we’re encouraging management to focus on developing their real estate rather than just selling the land. We have also added directors, who are not Wintergreen employees, to help guide the company.”
He looks for companies with pricing power, with a large free-cash flow, and where management “is pulling their oars in the same direction as shareholders.” He likes to get to know the management – to discover whether (1) they are just out to make money for themselves, or (2) they are committed to working on behalf of their shareholders.
He’s especially fond of stocks that most U.S. investors have never heard of, stocks that are tough for ordinary investors to buy – and where bargains may lurk. “We’re looking for niches.” There’s a fine Scottish company , Swire Pacific, where management doesn’t like to talk to analysts. Naturally, Winters loves that company.
One reason he’s fishing in such a vast pond is that today he believes that there aren't many undervalued U.S. stocks. “There aren’t enormous discounts here anymore. So we’re looking overseas.”
He decided to start a no-load mutual fund as the result of what he calls an “ah ha” moment — when it seemed that almost everyone from his generation was launching hedge funds and buying the same stuff. Running his fund, “We can go geographically anywhere, and buy almost any type of security. Our prospectus gives us great flexibility.”
What tempts him these days is timber – Weyerhaeuser. Watches, the only jewelry that men usually wear (Swatch). Consolidated Tomoka , which owns real estate in Florida . Anglo-American, a London-listed company dominant in platinum and owning 45% of De Beers, the diamond company. Natural gas, especially domestic. Japan , except for the banks.
He’s not especially fond of newspapers: “Kids don’t read papers.” Homebuilders haven’t sunk far enough for him to be interested: “It’s going to be a long, tough slog. But at some point, there’ll be something to do.”
As for health care, “It's no longer wonderful. Companies can no longer set prices.”
He talked about “wonderful companies” in Europe, especially in Switzerland. And Norway , with its oil and gas.
In China, “There has been a huge boom and prices are way up. It’s scary.” He's taking what he called the Levi-Strauss approach there: During a gold rush, avoiding gold and just selling jeans and pick-axes. (For example, buying a watch manufacturer.)
Speaking of gold, it’s something that he’s not especially fond of. He’s had mixed results. Many (but not all) gold mine s, he says, are just “a hole in a ground with a liar on top.”
His fund company has 10 staffers, and he regularly gets mounds of resumes in the mail. But he believes in keeping Wintergreen small. “Most successful organizations don’t have a lot of people.” He mentioned Berkshire Hathaway. (He’s a regular at the annual meetings, where, as it happened, I first met him.) “We want to be a think tank, not Noah’s ark. Many mutual funds have so many holdings that their portfolios lose focus.”
His fund is also unusual in that it doesn’t do any marketing. “We’re a pure investment organization. Most other funds are run mainly by marketing people. We focus on long-term value investing, not on marketing."
Right now he’s eagerly waiting for is “the next hiccup or panic,” when he can buy good companies cheaply. “We’re ready even if the next crisis occurs this afternoon.”
Winters had driven to our breakfast meeting, which ran longer than expected. He’s a stickler for details. At 8:58 A.M. he remembered that street parking was free until 9 A.M. -- and his parking meter outside had to be fed. One breakfast participant took care of the meter. “I don’t want a ticket,” Winters said. “I’m a cheapskate.”
That afternoon, I myself finally bought shares of the Wintergreen Fund.