.jpg)
Charlie Dreifus is a portfolio manager at small-cap equity specialist, The Royce Funds. He manages the firm's Special Equity mutual funds that attempt to combine classic value analysis, the identification of good businesses, and accounting cynicism.
In 2008, Mr. Dreifus was named Morningstar's Domestic-Stock Fund Manager of the Year and in 2009 he was a finalist for Morningstar's Fund Manager of the Decade.
Mr. Dreifus will share his expertise at the 2017 GuruFocus Value Conference.
1. How did you get into value investing?
I’ve been investing since I was very young but initially became interested in value investing when I was in graduate school (in a PhD program in business), where I studied with legendary accountant, Abraham Briloff.
2. Who inspired you the most in value investing? In which aspects?
Abe became both a mentor and friend to me, so I would list him as my greatest inspiration. He taught me the importance of deconstructing financials. Of course, it’s very helpful to know how financial statements are constructed, but the interpretation and understanding of the alternatives that companies could have taken in portraying their results and how that affected the outcomes is equally important, sometimes more so
3. What is the most important thing you look at in a stock?
It first needs to have an absolute attractive valuation. Also important, I think, is a company with a franchise or moat. It needs something that is protected or unique. The other elements—and all of these have been in my product throughout my career, both in small-cap and large-cap—have been free cash flow, the cash conversion cycle, and integrity in accounting and governance. Accounting issues have always played a very important role in my selection process.
4. What kind of companies do you avoid?
Companies with too much debt and/or leverage, primarily. I also avoid businesses that I don’t think I understand well because I need to have a good grasp of how a company works in order for the numbers to come together and really make sense.
5. How would you describe your investing approach?
I’d describe it as a classic value approach that looks for conservatively managed companies with transparent accounting that have a viable niche or franchise whose stock can be bought below its economic value. I’m interested in companies with superior balance sheets, sustainable returns on invested capital, and strong levels of free cash flow from operations, among other attributes.
6. What’s the one piece of advice you would give individual investors?
I’d advise them to think as carefully about preserving capital as growing is. I like what Will Rogers said about being as concerned about the return of his money as the return on his money. Investors understandably want growth, but they should be mindful how to prevent losses as well.
Register for the 2017 GuruFocus Value Conference here.
