1. How and why did you get started investing? What is your background?
I am a 30-year-old Italian management engineer and founder of www.theValueInvestor.it.
I am not a professional investor, but investing is my main passion to which I dedicate my spare time every day.
I started to be interested in investing at a very early age because my father was an investor and we used to discuss companies together.
He told me to look at stock values as representative of company results.
I bought my first stock at 16 years old and I never stopped.
Since the beginning, I have been looking for ways to compare stock prices and company values. When I ran into the “value investing” theories about 10 years ago, I had my epiphany.
To me, it made all the sense I was looking for and I started to read as many earnings releases as possible and developed my personal checklists, watch lists and calculation spreadsheets.
2. Describe your investing strategy.
I stick to a pure value investing strategy.
I am constantly looking for amazing businesses with solid competitive advantages that are trading below what I believe is their intrinsic fair value.
Usually, this means buying companies that are going through difficult times for some reason and try to evaluate their figures on a long-term basis rather than focusing on the recent results only.
I learned the market tends to overreact to those situations and create remarkable bargains for value investors.
“We want to buy companies when they're on the operating table.” – Warren Buffett (Trades, Portfolio).
3.What drew you to that specific strategy?
When I first started to study value investing, I immediately had the feeling it was exactly what I was looking for. It was probably the need for quantitative certainties that drew me to value investing.
The recurrent calculation of the intrinsic fair value and the monitoring of the value evolution provided me the confidence I needed. On this basis, I managed to focus on a short list of stocks and to stay away from focusing on prices.
“Nowadays people know the price of everything and the value of nothing.” – Oscar Wilde
I definitely prefer concentration rather that diversification and, to do so, I need to experience a strong reliance on my estimation and figures.
“Keep all your eggs in one basket, but watch that basket closely.' – Warren Buffett (Trades, Portfolio).
Additionally, being a non-professional investor, I believe a long-term value focus strategy is the only possible strategy as I cannot spend my time looking at the price fluctuations.
4. What books or other investors influenced, inspired, or mentored you?
The three books that have influenced and inspired me the most have been:
- "The Intelligent Investor" by Benjamin Graham
- "50 Berkshire Hathaway Letters to Shareholders: 1965-2014" by Warren Buffett (Trades, Portfolio) and Max Olson
- "Security Analysis" by Benjamin Graham and David Dodd
5. How has your investing changed over the years?
I describe my learning curve as composed of three phases:
Phase 1 (unconsciousness / ignorance):Â At that time, I was looking for growth stocks. I was attracted by companies with a strong growth ratio and with powerful brands.
I used to predict future growth based on the past figures. This led me to make significant mistakes.
“See, when you drive home today, you've got a big windshield on the front of your car. And you've got a little bitty rearview mirror. And the reason the windshield is so large and the rearview mirror is so small is because what's happened in your past is not near as important as what's in your future.” -Joel Osteen
Phase 2 (discovering the value approach): I started looking for value companies, I learned how to compare price and value and I began to search for value stocks trading at a cheap price when compared to the fair value of the company.
Phase 3 (shareholders value approach): I am still loving value companies and cheap prices, but it changed the way I compare price to value.
Today, what I care the most about is the value I believe the company can transfer to its shareholders in the future. That is the value that should be bought as much for as cheap as possible.
I like companies that are able to efficiently transfer all the value they produce to the shareholders and that consistently make decisions that will maximize it.
“If the business does well, the stock eventually follows.” – Warren Buffett (Trades, Portfolio)
6. Name some of the things that you do or believe that other investors do not.
I focus on analyzing the old earnings releases (five to 10 years), verifying if what has been promised was actually delivered and how consistently the delivery meets the promise.
“I try to buy stock in businesses that are so wonderful that an idiot can run them because, sooner or later, one will.” – Warren Buffett (Trades, Portfolio).
I trust my checklist 100% and avoid any kind of deviation. My target is being able to say no to a stock in 10 seconds simply because it does not go through all my filters.
“Charlie and I have a number of filters that things have to get through before we’ll think about them.” – Warren Buffett (Trades, Portfolio).
I love declining companies. It is amazing how effective investing in companies that are facing a revenue decline can be.
The market tends to overreact to this scenario and, moreover, it is usually the moment when good management implements cost-reduction strategies and targets cost efficiency.
Once the storm is gone, the company might be even more valuable than before. It is a typical condition that creates significant bargains.
“You are looking for mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.” – Charlie Munger (Trades, Portfolio).
7. What are some of your favorite companies? Where do you get your investing ideas from?
Some of my favorite stocks are or have been:
- Munich Re (XTER:MUV2, Financial)
- International Business Machines Corp. (IBM, Financial)
- Rational AG (XTER:RAA, Financial)
- Gilead Sciences Corp. (GILD, Financial)
And many others.
8. Do you use any stock screeners? What are some methods to find undervalued businesses apart from screeners?
Yes, I have designed my stock screener myself.
I do not have any special methods to find undervalued business. I just try to read as much as possible. Newspapers, websites, forums, social media, etc.
I also find it beneficial to study different industries and position the most relevant companies within their industry.
Investing in leaders of profitable industries is usually a good starting point – of course, only when their price is fair.
“Discovery is looking at what everyone else sees, and seeing what everyone else misses.” – Kaufman
9. Name some of the traits that a company must have for you to invest in. What does a high quality company look like to you?
A company with high and stable returns on invested capital, strong competitive advantage, reliable management, correct allocation of earnings (dividends, buybacks), consistent results (10 years or more) and price is less than value on the assumption of zero growth.
In other words, I stay away from a company that would need growth to justify a value close to their current market price.
“Investors are usually too optimistic about fast growing companies and too pessimistic about slow/non growing companies.” – Jeremy Siegel
10. What kind of checklist do you use when investing? Do you have a structure or process that you use?
I use a checklist that I have designed.
Yes, I do have a validation process.
11. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
I study the old earning releases of the company and of its main competitors. I check results and try to evaluate past management decisions.
I run my checklist and use my value calculation formulas.
Unfortunately, I do not talk to management.
12. What kind of bargains are you finding in this market? Do you have any favorite sector?
I do find good bargains, but not many.
I am happy when I discover two per year.
Yes, I do have favorite sectors. Their traits are: high profitability and strong entrance barrier.
13. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
I have no idea where the market will go.
I see many overvalued companies, but also a few bargains.
My main concern and challenge is to sell at the right time. I judge selling way more difficult than buying.
“I make plenty of mistakes and I will make plenty more mistakes, too. That’s part of the game. You have just got to make sure that the right things overcome the wrong ones.” – Warren Buffett
“I want to be able to explain my mistake. This means I do only things I understand.” – Warren Buffett (Trades, Portfolio)
14. Any advice to a new value investor? What should they know and what habits should they develop before they start?
Be prepared for losses.
Developing the right habits includes accepting the market ups and downs.
15. What are your some of your favorite value investing resources?
GuruFocus is certainly the website to use.
Other resources I use are Twitter, newspapers and Bloomberg.
16. Describe some of the biggest mistakes you have made value investing. What did you learn and how do you avoid those mistakes today?
Buying an extremely valuable company but paying too much for them.
This has been my major mistake in the past. It takes time to recover from such an error because you basically pay the price that you should be paying in a few years.
“Look for more value than you are paying for.” – Charlie Munger (Trades, Portfolio)
This mistake drew me to focus more and more on the transfer of value to shareholders instead of on the pure value of the company.
“What counts in investing is not how much you know, but how realistically you define what you don’t.” – Warren Buffett (Trades, Portfolio)
17. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
I have trained myself to focus only on value.
It is amazing how it has changed the way I look at downs and corrections. Today, I see them only as opportunities.
“If you are going to eat hamburgers for the rest of your life, and you are not a hamburger producer, will you hope for the price to go up or down?” – Warren Buffett (Trades, Portfolio)
Of course, obtaining good results helped a lot in building confidence.
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