Mario Gabelli (Trades, Portfolio) is a legendary value investor who runs GAMCO investors, which has ~$9.36 billion in U.S.-listed common stock holdings as per its 13F filing for the second quarter of 2022.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Gabelli was born in 1942 and says he invested in his first stock at just 13 years old. He got his MBA at Columbia Business School before going to work for 10 years as a sell-side analyst at Loeb & Rhoades, covering a variety of industries.
During the economic downturn of 1969 to 1970, Gabelli managed to pick some undervalued stocks that did well. His next challenge came in raising money to set up his new venture. He tried to raise $1 million and only managed to raise $200,000. This wasn’t what he was after, but he realized that “cash follows returns” and thus started his firm with this.
Warren Buffett (Trades, Portfolio) speaks of a similar philosophy and has stated in the past that if a portfolio manager can generate solid risk-adjusted returns consistently, investors will “swim through shark-infested waters to invest." This stategy worked well for Gabelli as his strong returns managed to increase his assets under management well into the billions.
In this article, we will be taking a look at Gabelli’s story and his investment strategy through a couple of prominent interviews that he has given: a 2021 interview with Boya Value and a 2022 interview with CNBC.
Investment strategy
According to a 2021 interview with Boya Value, Gabelli aims to discover “the value of a business over time," then buy the stock when it becomes undervalued thanks to the mood swings of Mr. Market.
Gabelli believes it is vital to identify the reason a stock has declined. For example, if the company has just had a bad quarter or has temporary bad sentiment, but the long-term fundamentals remain intact, then it could be a value opportunity.
He refers to “daily focused client-specific passion” that aims to generate returns over time. Gabelli has a team of 40 investment analysts which help to leverage his strategy to cover a wide universe of stocks.
Gabelli’s strategy also focuses on financial engineering in areas such as mergers and arbitrage. He does this in order to highlight unique opportunities which can be driven by a catalyst. Gabelli has a strong specialty in media companies and the M&A activity in this industry. Legalized sports gambling is also an industry Gabelli is bullish on, according to the interview.
Portfolio construction
Gabelli has a stringent process before accepting large sums of money into his fund and creating a portfolio. He asks questions like:
- Have you been through a stock market crash before?
- How would you react during a stock market crash?
- How long was your time frame?
Depending on those answers, Gabelli constructs a portfolio that may have 10 stocks that would represent a quarter of the portfolio and between 70 and 80 stocks representing the balance. Usually, for most clients it takes between 60 and 90 days for them to be fully invested. Gabelli believes staying invested generates the best returns over time.
What has Gabelli been investing in?
In a more recent interview with CNBC in August 2022, Gabelli highlighted a few of his favorite investments and sectors. Gabelli said he was looking at strong sectors and interesting companies within those sectors. A particular favorite, he said, was agricultural companies such as John Deere (DE, Financial) and Case New Holland. He also said he likes Aerojet Rocketdyne (AJRD, Financial) because of its capabilities in hypersonics for the defense industry. He also said he finds Crane Holdings (CR, Financial) interesting and has been buying.
According to the second-quarter 13F report of GAMCO, other stocks Gabelli has been buying recently include Occidental Petroleum (OXY, Financial), which traded for an average price of $61 per share for in the second quarter. This is an extremely popular stock among gurus lately, especially Warren Buffett (Trades, Portfolio), who has been buying heavily and now owns over 20% of the company'scommon shares outstanding.
How to navigate market volatility in 2022
In his CNBC interview, Gabelli also provided his take on navigating the ongoing market volatility. He has been following the high inflation rates closely and believes its a good idea to focus on the nominal revenues of businesses. In addition, he has identified that inventories have gone up across the board, which usually reflects lower economic demand.
Gabelli suggests asking yourself, “How bad is bad? How long will it be bad? And How good is good?”With higher interest rates expected in the future, Gabelli believes that the valuation multiples will stay compressed and this should be taken into account. Capex should be also taken into account. For example, many oil companies have built out Capex before and thus will see a reduction in this in the future, which will cause a profit boost.
Final thoughts
Mario Gabelli (Trades, Portfolio) is a legend among investors. His investing strategy has been derived from solid value investing roots, and he also focuses on daily company news for his M&A driven investments. From buying his first stock at 13 years old to still investing at 80 years old, Gabelli is extremely inspiring, and I believe other investors can learn a lot from him.
