Manuel A. Salceda is an investor, property developer and hotel owner. He is an ardent follower of Buffett and Munger's principles. He is interested in small companies at or below intrinsic value with little or no debt. He likes businesses that are easy to understand and not related to a rapidly changing enviroment (like technology).
1. How and why did you get started investing? What is your background?
I am a hotel developer and operator. My parents emigrated from Spain without any money, so I was raised in a "work and save" environment, which served me well. I started investing in 2001 in private investments and in 2007 in the stock market.
2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?
I invest in companies that I consider will be worth more tomorrow than they are today. I try not to have more than 10 different companies in my portfolio since tracking more becomes harder. My valuation method is very simple: I ask myself how much money "available for distribution to shareholders or for growing the company" do I think this company is going to make. If the answer is much more than what the current share price recognizes, then I consider investing. My ideas come from a lot of places. Blogs, visiting businesses, WSJ, Barron's, Fortune, Forbes, 52-week lows, etc.
3. What drew you to that specific strategy? If you only had three valuation metrics what would they be?
I only need one, owners earnings: money generated and available for distribution to shareholders or for investing in growing the company.
4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? What investors do you follow today?
Warren Buffett (Trades, Portfolio) changed my way of viewing the stock market and life. The books that most influenced me are "Buffett: The Making of an American Capitalist" and "The Intelligent Investor." The most important lesson I learned is that shares are parts of real businesses and not mere blips and tickers on a screen waiting to be traded.
5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
At least for a year. I never invest thinking about swapping it fast. Among my six current holdings, I have one that I have held for almost 10 years (Berkshire). Knowing if I am right or wrong my take a few years, though it is usually clear in a year or so.
6. How has your investing approach changed over the years?
A lot! I am more patient and controlled. I no longer panic when some big guru thinks differently than me. I have learned to think by myself and for myself. The incentives of many investors are not always correctly aligned with those of the companies in which they invest, so it is important to discern among opinions.
7. Name some of the things that you do or believe that other investors do not.
I have no intelligent answer for this.
8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?
Whole Foods (WFM, Financial), Chipotle Mexican Grill (CMG, Financial) and Mattel (MAT, Financial) are among my current holdings and favorite brands. My favorite CEO is by far Warren Buffett (Trades, Portfolio). The most well-run company in the world is Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), but Google (GOOG, Financial), Facebook (FB, Financial), Amazon (AMZN, Financial) and Apple (AAPL, Financial) seem also very well managed (I have no investments in any of those). The quality of management is very easy to judge. If they accomplish the goals they set and do not change route every quarter, then I consider them competent. If they also treat shareholders fairly and invest wisely, then I consider them of quality.
9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
I do not. I follow a few companies I like and wait (for years) for the stock price to get where I think is the right entry price. I usually get new ideas in blogs or magazines.
10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
I do not look for any specific trait. A high-quality company is usually one with predictable sales and earnings in a not terribly cyclical industry. A bad investment is one where management has a bad reputation, when the company loses money more often than not or when there are lots of "non recurrent" charges that recurre more often than not. The perfect company would be Google with Buffett at the helm, investing any free cash produced after reinvesting in new ventures for growing the business and maintaining competitiveness.
11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard cut rules?
I have a checklist I use for detecting some easy red flags. I do have a very simple process based on available information filed with the SEC.
12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
SEC. I usually do not talk to management.
13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some of examples.
Owners earnings (cash available for shareholders or growing the business after reinvesting all that is necessary for maintaining the competitive advantage currently held by the company). This is the only metric I value. I consider it cheap when owners earnings are higher than what the market recognizes in the stock price. A good example of a high-quality company with a high price is Amazon. It is an amazing company with a great competitive advantage, but the current stock price asumes higher owners earnings in the not so distant future, something I am not willing to bet on with my money.
14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?
Retail is currently a sector where there are a few reasonably priced stocks, but there are not many bargains nowadays. I avoid cyclicals or industries where I am a total outsider with no insight.
15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
I think that as a whole it is not cheap, but there are a few names that are actually cheap. I am not very concerned since many tech behemoths like Amazon, Apple, Facebook, Google and Microsoft (MSFT, Financial) are the ones driving the indexes to new highs. There are a lot of non-tech companies at decent valuations.
16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?
I am currently reading "Sapiens."
17. Any advice to a new value investor? What should they know and what habits should they develop before they start?
Think independently. Read "The Intelligent Investor" and be cool when the hard times come, and they will!
18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
I have nothing intelligent to answer and I do not coattail.
19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?
I have never made a terrible mistake. My worst mistake was not investing in Google when I considered it fairly valued during the Great Recession a few years ago.
20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
It does not affect me at all.
21. How does one avoid blowups in value investing?
Never put all your money in one company (unless it is Berkshire) and never invest in turnarounds since they rarely turn.
22. If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investing-wise compared to the indexes?
Berkshire Hathaway- a great company, spectacular management, wow moat and very well diversified).
Whole Foods Market - a great brand, good locations, amazing concept, good execution and pricing power. Going through a rough patch though.
Mattel- great proprietary brands and good execution, but going through some troubles with a few of its key brands.
Chipotle Mexican Grill- great brand, tasty food, trendy concept with pricing power. Going through what I consider a temporary problem.
Bed Bath & Beyond (BBBY)- good management, shareholder oriented and good capital allocators. The market thinks this kind of company is going to disappear, I do not!
Compagnie Financiere Richemont SAÂ (XSWX:CFR)- the owner of what I consider wow luxury brands like Cartier and Mont Blanc, among others. Decent valuation at a moment where the market expects Asia to stop buying.
I have had a much better return than the SPY or Berkshire during the last five and 10 years.
23. Here is a fun one - What stock would Warren Buffett (Trades, Portfolio) or Benjamin Graham buy today if he were you.
No clue.
24. What is the most contrarian investment you have ever made? Why did you make it and how did it turn out?
Banco Santander (BSBR) when the world thought all the financial system were going down, more so the European banks. I made it because I am from Spain and I knew Santander was not going anywhere and the valuation was ridiculous. I tripled my money in a very short time, but it was a very tiny position.
25. If most fundamental investors study the greats (e.g. Buffet, Klarman, etc.), then surely value investing is no longer a 'contrarian' investment strategy?
It will always be since it goes against human nature!
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