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PJ Pahygiannis
PJ Pahygiannis
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20 Questions With Spanish Value Investor Paco Lodeiro Amado

'The discovery of value investing was like an epiphany for me'

Paco Lodeiro Amado is a 32-year-old value investor from Coruña, Spain. He teaches value investing on his website, Academia de Inversión, which is one of the most respected and well-known value investing websites in Spanish.

1. How and why did you get started investing? What is your background?

I started investing, like many other people of my age, during the dotcom bubble. My first stock was Terra Networks (TRLY), the biggest Spanish dotcom company known for its acquisition of Lycos, which it paid $12.5 billion for but ultimately was worth almost nothing. As you can imagine, I lost most of my money. However, I learned an important lesson: never invest without an adequate financial education.

After that, I invested a lot of time and money in trading courses and books focused on trading systems to earn very high returns in short periods of time. The reality was different though, as their systems based on technical analysis were a fraud and a complete waste of time and money.

I discovered value investing nine years ago while I was finishing my college education. The discovery of value investing was like an epiphany for me. Something clicked inside my brain. Since then, I have been trying to improve my investing skills and become a better value investor.

While studying value investing in my spare time, I also completed a business degree from University College Dublin – CESUGA, a master's degree in finance from Michael Smurfit School of Business and a law degree from Universidade da Coruña.

I am also a member of the European Financial Planning Association and the Economists Association of Coruña.

2. Describe your investing strategy and portfolio organization. What valuation methods do you use?

I like to invest in high-quality companies with strong moats. However, I also invest in lower-quality companies if the risk-reward ratio makes it worth it.

I use both relative valuation and DCF models depending on the characteristics of the business.

3. Where do you get your investing ideas from?

I get investing ideas from many different sources, including financial blogs, interviews, mutual fund's portfolios and from my day-to-day experiences.

4. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

I find it a very profitable strategy and it also helps to minimize the risk of financial losses.

If I only had three metrics, they would be EV/free cash flow, return on capital employed (ROCE) and free cash flow margin.

5. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them?

The first value investing book I read was “The Intelligent Investor” by Benjamin Graham. It really helped change my way of thinking about the stock exchange, from the perspective of a stock trader to the perspective of a business owner.

6. What investors do you follow today?

I follow well-know international value investors such as Warren Buffett (Trades, Portfolio), Charlie Munger (Trades, Portfolio), Howard Marks (Trades, Portfolio), Mohnish Pabrai (Trades, Portfolio), Guy Spier, David Einhorn (Trades, Portfolio) and Bill Ackman (Trades, Portfolio).

I also follow investors from Spanish value investing mutual funds such as Bestinver, Metagestión, azValor, Magallanes, True Value and Valentum.

7. How long will you hold a stock and why?

My holding period depends on the relationship between the price of the stock and its intrinsic value. It is impossible for me to know how long I will be holding a stock beforehand.

8. How has your investing approach changed over the years?

When I started investing, I focused my efforts on looking for cheap stocks. My investing approach evolved and now I am more focused on finding high-quality companies.

9. Name some of the things that you do or believe that other investors do not.

I believe that beating the market is a very difficult task that requires a lot of effort. If you want good returns, you need to invest a lot of time analyzing companies and trying to improve as an investor and as a rational human being.

10. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies?

My favorite company is Alphabet's Google (NASDAQ:GOOG)(NASDAQ:GOOGL). It has one of the strongest moats in its industry, which is based on its technology, brand and corporate culture.

In relation to brands, I think Coca-Cola (NYSE:KO) is one of the best examples of how a brand should be managed and how to create a strong durable moat.

My favorite CEO is Warren Buffett (Trades, Portfolio), who I had the honor of seeing last year at Berkshire Hathaway’s (NYSE:BRK.A)(NYSE:BRK.B) Annual Shareholders Meeting. There are very few companies in the world more profitable and robust than Berkshire Hathaway.

11. How do you judge the quality of the management?

I judge the quality of the management mainly by analyzing what they have said and what they have done in the past.

I also analyze their compensation scheme, their reports to shareholders and their interviews in the media.

12. 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.

In my opinion, the ideal company would have these characteristics:

  • Net cash position
  • High ROCE
  • Profitable growth opportunities
  • Strong and durable competitive advantages
  • Loyal customers
  • Pricing power
  • Low capital expenditure
  • Honest and capable management

That said, it is important to pay an adequate price for it. A high-quality stock could be a bad investment at a high price and a low-quality stock could be a good investment at a low price.

13. 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 made my own checklist with more than 100 steps that I use every time I analyze a company. It helps me avoid missing any aspects that could be potentially crucial in the valuation process.

This checklist is regularly updated in order to improve it.

14. What kind of bargains are you finding in this market?

It is not easy to find bargains in this market. However, I have found some interesting investing ideas in Spanish small-cap stocks with no analyst coverage.

15. Do you have a favorite sector or avoid certain areas, and why?

I do not have a favorite sector.

I avoid banking, insurance and biotech because they are out of my circle of competence.

16. What are some books that you are reading now?

I am currently reading “Fooling Some of the People All of the Time” by David Einhorn (Trades, Portfolio). It was recommended by Jesús Domínguez and Luis de Blas, advisors of Valentum Fund.

17. Any advice to a new value investor? What should they know and what habits should they develop before they start?

My main advice is to invest in financial education before investing in the stock market. This is crucial in order to avoid making mistakes that could potentially cost a lot of money.

I would also suggest focusing on the long term and never giving up. The learning process takes time, effort and determination. I assure you, it is worth it.

18. What are your some of your favorite value investing resources or tools?

I use GuruFocus and Morningstar as my sources of financial information. I also use Google in my research process.

19. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

Downs, crashes and corrections and similar short-term fluctuations are not a problem for me at all. I see them as presents Mr. Market gives us to profit from.

20. If you are willing to share, what companies do you currently own and why?

One of my latest acquisitions is Altia Consultores (XMCE:ALC), a microcap in my city, Coruña. It is a small player in the IT consultancy sector and is superbly managed by its owner, Tino Fernández, president of the FC Deportivo soccer team. The company has been growing in a very profitable way and is expanding its business internationally.

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Comments

morgan  palmer
Morgan palmer premium member - 1 month ago

Hay muy buenos inversores y gestores en España, un saludo Francisco.

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