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Graham Griffin
Graham Griffin
Articles (195) 

Value Investing Live Recap: Richard Simmons

Key questions and takeaways

GuruFocus had the pleasure of hosting a presentation with Richard Simmons, the portfolio manager of Derby Street. Simmons started Derby Street in 2013 and has over 22 years of investment experience.

In 2001, he was authorized by the FCA via Credo Capital, a multibillion-dollar wealth manager in London, to become a professional money manager, and prior to that Simmons was investing on his own and for friends and family accounts.

Simmons started his career in commercial banking in 1986 and his positions included head of Bank of Ireland's Corporate Banking centre in London and assistant director of Henry Ansbacher, the merchant bank. Between 1997 and 2001, he was a non-executive director and a lecturer at Cass Business School and Imperial School of Management.

As his career became deeply focused on equity investing, he was commissioned by Financial Times/Longman to write one of the first academic studies of Warren Buffett (Trades, Portfolio), "Buffett Step by Step."

Simmons graduated with an MA in philosophy, politics and economics from The Queen's College, University of Oxford and holds an MBA from Cass Business School.

Simmons was born in 1964 and lives in London with his wife and two children.

Watch the full presentation here:

Key takeaways

Simmons kicked off his presentation with some brief background on himself and how he came to start Derby Street. He explained that during his time in banking, he was able to recognize what types of companies did not make the lenders a lot of money. From there, investing took off as a personal interest and he became focused in learning as much possible from the legends of the field.

This interest would eventually culminate in his book, which he described as an attempt to reverse engineer the thought process of Buffett.

From there, Simmons jumped into a description of his investment strategy and process. He explained that the short and simple answer is that they use a value strategy. More accurately, he believes they are modern value investors. He believes using a basic strategy of buying companies at a price that is less than its present day value of future cash flows.

There are three key themes that arise during his investment process. These are liquidations, discounted assets and growth. Each of these themes represents a different type of investment opportunity for the team that are all approached with a long-term strategy.

This strategy employs a long research process and quick investment decisions. Simmons explained that he usually reads through most, if not all, new reports on U.K. and European companies on any given day and continues to do so until he feels confident in a company.

By maintaining a smaller set of funds, Simmons believes that his team is able to access opportunities that are overlooked by larger asset managers. Additionally, they are able to maintain a high cash balance to jump on exceptional opportunities.

Stocks

During his presentation, Simmons provided examples for each of his three investment themes to give viewers a look at real investments. These examples included Northern Investors Co. PLC (LSE:NRI), B.P. Marsh & Partners PLC (LSE:BPM) and Impax Asset Management Group PLC (LSE:IPX).

Simmons also went in-depth looking at the second-largest position of their U.K. fund, Naked Wines PLC (LSE:WINE). He explained that they were lucky enough to sell off their stores just prior to the pandemic and have since seen massive growth. He described it as a "low-touch" business with investment mainly going towards IT and advertising and that a growing subscriber base provides good capital.

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The second stock that Simmons spent time on was an investment he had made in the last week. He described Morses Club PLC (LSE:MCL) as a hidden value case where you have to dig deep to find value. Due to the pandemic, share prices had collapsed, but there is a great deal of room for making profit according to Simmons as the core business returns to normal profitability.

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Questions

Kicking off the questions from the audience Simmons explained the difference in reports that are made for U.K. companies compared to U.S. companies. He explained that reports are made in the U.K. twice a year, but companies regularly post trading statements on approximately a quarterly basis.

Simmons believes that by looking at the entire history of information available for a given company he is able to determine whether it is a good investment. Over time, this makes it so that quarterly information is less impactful on his overall decisions.

Another question came in asking about shorting stocks like those that have taken off in the technology sector. To answer this question, Simmons provided a two-part response.

First off, he explained that shorting companies takes guts and can really affect how you sleep at night. It is not a proven source for returns and he believes that even some of the most successful shorters over time eventually remarket themselves into a different strategy.

The second part of his answer looked at the rising level of technology initial public offerings that have emerged in recent months. He explained that he feels these companies are becoming increasingly complex and, therefore, more difficult to understand. This makes it increasingly difficult to generate an accurate valuation and Simmons believes that valuations are extremely high to begin with on these types of companies.

Disclosure: Author owns no stocks mentioned.

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