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Holly LaFon
Holly LaFon
Articles (9592)  | Author's Website |

Ask Arquitos Capital's Steven Kiel Your Investing Question for GuruFocus Q&A

Outperforming value fund manager ready to answer your question ahead of his talk at GuruFocus' annual conference

March 15, 2019 | About:

Steven Kiel, founder of Arquitos Capital, will speak at the GuruFocus Value Investing Conference in May alongside investors such as Mario Gabelli (Trades, Portfolio), Francisco Garcia Parames (Trades, Portfolio) and Chuck Royce (Trades, Portfolio). But ahead of that, he is taking GuruFocus reader questions for a Q&A.

To submit your question for Steve, simply post it in the comments section below. We’ll send the questions and publish the responses soon.

About Steve and Arquitos

Since starting New York-based Arquitos in 2012, Steve has achieved returned of 21.3% annually after fees, beating the market’s return by almost 10% per year. Before launching his hedge fund, he had a career as an attorney and served in the Army Reserves.

Investing approach

Arquitos focuses on 12 to 18 holdings of primarily North American companies within its concentrated portfolios. Because of his emphasis on conviction, the top five holdings often account for up to 75% of the fund. The typical holding period is three to five years, or longer.

As a value investor, Steve seeks stocks that trade below their intrinsic value. Key items he requires for investment companies are strong balance sheets with low debt and “incentive alignment,” meaning high insider ownership, share repurchases and shareholder-friendly policies. He also likes companies that have strong balance sheets but that are transitioning into becoming strong free cash flow generators.

Avoiding any leverage, a misaligned investor base and unsuitable temperament help him minimize risk.

“Successful investing and risk management is overwhelmingly a psychological exercise where self-awareness, intellectual honesty and an understanding of and interest in avoiding biases is required,” he said in an investor presentation.

Holdings

Arquitos prides itself in investing in names that are not well known. One of Kiel’s primary ideas of 2019 is investment company Westaim Corp. (TSXV:WED), a specialty property and casualty company that is up for sale. In a recent presentation, Kiel noted its 20% discount to book value, shareholder friendly culture and experienced management. Read more about it here.

Steve also likes MMA Capital (NASDAQ:MMAC), a niche asset manager trading at 70% of book value. He has praised its high insider ownership, consistent share buybacks and significant tax loss carryforwards. In December, he said he anticipated a 40.4% rise in the stock within six months to a year.

Questions

Don’t forget to ask Steve your question by posting it in the comments section below!

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


Rating: 5.0/5 (1 vote)

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Comments

1989value
1989value - 1 month ago    Report SPAM

Two questions. 1. Do you feel the same way about MMAC now that the price has gone up so much recently. 2. What about NOLs? Why do you like those kind of companies? Thanks

bryand24
Bryand24 - 1 month ago    Report SPAM
I have two questions, 1. In the early days of the Buffett Partnership he was known to scour the pages of a Moody's Manual or S&P Stock Guide to source ideas. What methods do you use today to procure investment ideas? 2. Sitestar has an Investment Management division where one of the funds is a Select Fund. This Willow Oak Select Fund takes the best ideas from investment managers and puts those picks into one fund. My question is this. During the most recent Daily Journal meeting, Charlie Munger (Trades, Portfolio) mentioned an exact situation where an investment shop took the best ideas from talented and smart money managers and they failed miserably. They tried it again and failed once more. What makes you think that the Select Fund will have a different outcome?

Slava Vershkov
Slava Vershkov - 1 month ago    Report SPAM

Mr Kiel,

1) how do you attract new clients (is it just the word of mouth?) and how do you manage your client base so that the largest investor's liquidity needs do not seriously affect the portfolio (is it just a coincidence?);

2) are your long-term holdings more about the price or the business? Will MMAC, for example, be around 10 years from now earning much more than today or is just the price still below intrinsic value (estimated at some multiple of book value)? Are you going to sell when the two match each other?

3) Arquitos has an exceptional track record but it has been operating through the bull market of rare size and longevity. 2018 was more volatile and put pressure on results immediately. Do you think a bear market of meaningful amplitude will drag on your performance and turn investors' long-term returns more back to average?

Russell.K
Russell.K - 3 weeks ago    Report SPAM

Dear Mr Kiel,

Q1) Do you prefer to use asset-based intrinsic value calculations like Walter Schloss or earnings-based ones?

Q2) Do you care about ROIC versus the WACC when analysing businesses?

Q3) What got you started as a value investors and any book recommendations to people who aim to be like you (i.e. top fund manager), especially for young people like me (aged 13)?

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