Today, we are talking to intenational net net investor Evan Bleker. We talk about Benjamin Graham, balance sheets and net net stocks, as well as what opportunities he is finding internationally
1. How did you get started investing? What is your background?
For me it all started with a beautiful red Jeep Wrangler. Coming out of high school I was in love with that jeep, but I didn't have the money to pay for it. So, I took a job at a local shipyard to save up for it.
That job was absolutely brutal. The shop air was hot, choked with fibreglass dust which snuck inside our coveralls and embedded in your skin. I was pushing a broom across the shop floor 8 hours a day, 5 days a week, for months... it was terrible work.
But, at the end of the year I had more than enough money to buy the Jeep. When I looked at my bank account, though, and thought back to all the pain and suffering that I'd been through. I knew that the Jeep wasn't worth it. I knew that I had to put my money to work for me instead so I wouldn't have to work a job like that again.
2. Describe your investing strategy
I buy stocks below liquidation value, net net stocks. That's a very simple strategy that has been advocated for by Ben Graham, Warren Buffett (Trades, Portfolio), Walter Schloss, Peter Cundill and others with fantastic track records. Actually, Buffett was earning the best returns of his life with the strategy.
“The many dozens of free puffs I obtained in the 1950s made that decade by far the best of my life for both relative and absolute investment performance.” – Warren Buffett (Trades, Portfolio)
The foundation is sub-liquidation stocks, but there are a lot more things that I look for when buying a stock to make sure I'm decreasing risk and increasing returns. I've put these factors into a checklist I call my Core7 Scorecard.Ă‚
3. What drew you to that specific strategy?
The massive returns on offer drew me to the strategy - it's really that simple. No other value strategy with as high of a base return has been tested as extensively or used successfully as much in practice. It was really a no-brainer move.
4. What books or other investors influenced you?
There are a ton of books that I really like, but one of the books I've recently read is "Thinking, Fast and Slow."
The book lays out the culmination of nobel prize winning economist Daniel Kahneman's work on cognitive bias. It's really pushed me further towards quantitative investing.
Actually, I have 6 books that Ben Graham would recommend today if he were still alive.
5. How has your investing changed over the years?
Most people fall into the trap of trying to follow Warren Buffett (Trades, Portfolio).Ă‚
A lot of people try to do things that are pretty difficult. They try to predict earnings, assess moats, look at what growth rates will be going forward, etc. Most people are doing difficult things and this difficulty makes earning great returns hard.
I was no different, so my returns were rocky for quite a while. I was up some years, down others, but I just wasn't making progress. Finally I woke up to the fact that I could earn outstanding returns by managing a mechanical portfolio of net nets, so I made the easy choice to change.
6. Name some of the things that you do that other investors do not.
I buy stocks selling below net cash, cash on the balance sheet less total liabilities. There are a lot of these firms in the net net stock universe. I also routinely buy stocks that are trading at a 60%+ margin of safety; and, I don't put much stock in the firm's story. The returns have been great.
7. Where do you get your investing ideas from?
I run Net Net Hunter and we have our own net net stock screener covering eight countries.
8. Do you use any stock screeners?
We also have a shortlist of the best investment candidates to dramatically decrease the amount of time investors need to put together a high quality portfolio. I select my own stocks from our shortlists.
9. Name some of the traits that a company must have for you to invest in it.
A firm has to be cheap, have a very strong balance sheet (e.i. it has to be conservatively financed), have a low burn rate and have a tiny market cap. Actually, buying larger net nets is a major mistake that most net net stock investors make, along with buying firms in the Resource Exploration industry and Chinese Reverse Mergers. These are all mistakes that cost would-be net net investors a lot of money.
10. What kind of checklist do you use when investing?
I use my Core7 Scorecard to hunt for net nets. Actually, you can pick this up for free, here.
11. Before making an investment, what kind of research do you do?
The Core7 Scorecard is made up of both "core" and "ranking" criteria. We then run through the core criteria to make sure the stock is an investment that we are actually open to buying. If it fails on any of these, we pass on the stock. Next we look at our ranking criteria to see how the stock racks up against its peers. We then select the best of the bunch to buy.
As a safety check, I run through the firm's financial reports so I can see if there is something that disqualifies the company from being a net net stock. I make sure that there aren't large off balance sheet liabilities and that options aren't in the money before the firm's NCAV/basic share.
12. What kind of bargains are you finding in this market?
There aren't many good net nets in the US at all, but there are a lot internationally. That's why we focus on hunting internationally. Right now there are a lot of net nets in Japan, among other countries, and I'm mostly invested outside of North America in First World countries with dirt cheap stock markets. Yes, they actually exist.
13. How do you feel about the market today? Do you see it as overvalued?
The US markets are definitely overvalued by historic standards, and this is worrying. It's possibly that the market could tumble. On the other hand, both Canada and Australia are only marginally overvalued so investors in these markets will suffer far less in a downturn than investors will if they're invested in the US. You can't predict when a market will correct, unfortunately, but you can reduce your risk by investing in cheap markets. Canada and Australia have CAPES of roughly 16-18x. There are much cheaper markets, though. We're currently finding a lot of bargains in Singapore which has a CAPE of around 11x. That's much much cheaper than the US's 25x CAPE.
14. What are some books that you are reading now?
I'm just finishing up "Fortune's Formula"Ă‚ which was also recommended by either Buffett or Munger. It's a story about the Kelly Criterion, and how these math whizzes came up with a formula that supposedly reduces the chance of going bust and increases your long-term returns. Pretty neat stuff.
15. Any advice to a new investor?you
Read... a lot. Also, be honest with yourself. Circle of Competence applies to investment strategies and investment tactics as much as it applies to industries and companies. Most small investors can't match Buffett's decades of skill and experience, as easy as he makes it sound.r
Disclosure: No position in the stock mentioned.
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