GuruFocus had the pleasure of hosting a presentation with Joel Hirsch and Bryan Engler on Kovitz's Core Equity Strategy.
Hirsh serves as co-chief investment officer of the investment team in Chicago. In this role, he is responsible for leading the firm's equity research process, as well as developing portfolio construction for Kovitz's Core Equity and Hedged Equity strategies. He also serves as a member of the firm's fiduciary board and executive committee, supervising daily operations and business strategy implementation. Prior to joining Kovitz in 2006, Hirsh worked as an equity research analyst for KeyBanc Capital Markets, a Division of McDonald Investments, where he performed financial market analysis as a member of an award-winning basic materials research group. Hirsh has been published in CFA Magazine and featured in publications such as: Bloomberg, the Chicago Sun-Times and Value Investor Insight. He graduated from the University of Michigan with a bachelor of arts degree in economics. He is a CFA charterholder and member of the CFA Society of Chicago.
Engler is a member of the investment team concentrating on equities. His focus is on deep fundamental research complemented by a rigorous bottom-up valuation process. Prior to joining Kovitz, Engler was a senior equity analyst with Great Lakes Advisors for eight years and holds a BA in political science from Tulane University. He is also a CFA charterholder and a member of the CFA Society of Chicago.
Watch the full presentation here:
Key takeaways
Hirsh kicked off the presentation with a brief description of the firm. He explained that they are lucky to have just shy of $6 billion in assets under management and advisement through financial and wealth management and deep, fundamental investment strategies. The combined offering of these services has allowed the team to develop a long-term capital base.
Another defining characteristic of the firm is that 90% of all the investment team's liquid net worth is invested in their own strategies. By investing their own money, the team believes they prove to clients that the strategy is sound. Hirsh highlighted the investment team is intentionally kept small and that everyone has a voice at the table.
Engler took over the presentation and dove into the firm's investment philosophy based upon four key pillars. He explained that the firm operates under a private owner mentality that helps to keep the team's incentives aligned with their clients. The firm operates concentrated portfolios that take a long-term view to help with capital preservation. Overall, the team wants to grow clients' purchasing power at rates well above inflation.
Hirsh jumped in to emphasize that the firm does not believe they are smarter than any other investors. He explained that many of their competitors have been shortening their time horizons, while the Kovitz team is actually lengthening them. While some investments might look dangerous over short periods of time, they eventually result in profitable investments and this is where the investment team at Kovitz finds their competitive advantage.
Stocks
Engler explained that their portfolios are largely concentrated into their top 10 holdings, but that 2020 provided a unique situation to buy into many new companies. The firm acquired 13 new holdings throughout the last year that vary drastically. Engler explained some of the new investments such as Lowe's Companies Inc. (LOW, Financial), Hasbro Inc. (HAS, Financial) and Lockheed Martin Corp. (LMT, Financial) are what he would call classic value. These are all old industries that have been successful for a long time and could be purchased at a great price.
Engler also highlighted another group of investments that he called classic growth opportunities. These investments included Autodesk Inc. (ADSK, Financial) and Amazon.com Inc. (AMZN, Financial). These companies are either fresh to the market or have shown consistent growth over time. He explained the key point is that similar to the older industries, the growth companies are good companies that have solid management teams creating good investments.
Questions
One of the first questions that Hirsh and Engler took asked them to discuss how they measure inherent risk when looking at a given company. Engler explained he believes there is no mathematical way to look at risk. An investor will never be able to calculate an exact figure for risk in an investment. Instead, he chooses to ask himself how likely it would be that a given business would cease to exist in the next five years. There are many different factors that affect risk in an investment and, unfortunately, none of them "fit well into a spreadsheet," according to Engler.
Hirsh expanded further to explain that the volatility of an investment is largely seen after the fact once you have made an investment. The problem that arises is that the volatility that an investor could see would not be representative of the risk when the investment was made. Each situation will play out differently over time and an investor is more likely to succeed in investments when they are looking at companies with strong management and competitive advantages.
Another question asked the duo how they come to the decision to sell a company. Hirsh and Engler agreed that selling a holding is the hardest decision to be made in the investment process. Generally, the team ramps up research and the debates surrounding a company when it approaches fair market value. However, they are always hesitant to sell a company that is a high-quality business. Over time, the team has recorded their decision process and they hope that they can continue to learn and improve as they continue into the future.
Disclosure: Author owns no stocks mentioned.
Read more here:
- Steven Cohen Dives Deep Into Health Care
- Larry Robbins' Firm Buys Into HighCape Capital Acquisition
- Bruce Berkowitz Slims Out St. Joe Holding
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
