On Friday February 26th I had the privilege of attending the Columbia Investment Management Conference. I attended the event as a seeking alpha reporter.
My journey there was quite scary. I literally almost died several times on my way there. The roads were still bad from the huge snow storm that had struck New York the previous two days. Had I known that the roads were still so bad I would not have attended. However, I gained a lot of valuable information from the conference. I also saw some colleagues of mine who I had not seen in a while.
For people in the value investing world this conference is like the pillgramage to Mecca. The only event that can compare to the Conference is the yearly pillgramage to Omaha for the Berkshire Hathaway meeting. The conference is run annually in the winter by Columbia’s Business School. Columbia is the home of value investing. Some of the greatest value investors/ thinkers teach there including Joel Greenblatt, Bruce Greenwald, Paul Sonkin and others. Some prestigious investors have graduated from there including Warren Buffett and Mario Gabelli.
The conference always has an all star line up. Not only are the speakers great but even some famous investors are in the audience. Paul Sonkin and Whitney Tilson were both in attendance as is where many other prominent value investors.
The key note speakers this year were legendary investors David Dreman and Martin Whitman. In addition there were three panels, however they were off the record and I cannot report on them. However there was an all star line up for all three panels. The morning panel discussed Lessons Learned: Investing Through a Financial Crisis and was moderated by Bruce Greenwald. Black Doll of Black Rock for the panel but unfortunately he could not make it due to the snow storm that had struck New York the previous day. I was supposed to interview him after the panel but since he did not make that obviously did not end up happening.
The second panel discussed Distressed Investing: Maximizing Returns with a Margin of Safety. I only wish Marty Whitman was there for this panel since he is an expert in distress investing. The third panel discussed Mental Models in Investing – A Discussion of Investment Philosophies with Practical Examples. It was a big disappointment for me that Bruce Berkowitz of Fairholme Fund could not make it for the third panel due to the weather. However, there were other notable investors on the panel including William Browne of Tweedy Browne & Co. and Michael Mauboussin of Legg Mason Capital Management.
Let me get into some of the specifics of the parts of the conference I am allowed to report on. As I noted above Martin Whitman of Third Avenue Funds was one of the key note speakers. Martin Whitman discussed the importance of balance sheets in the field of security analysis. Whitman noted( as he does in several of his books) that a stock is not a good buy just because it is “cheap”, a stock must be backed by a strong balance sheet. A stock could have a low P/E, or trade at a low value relative to its free cash flow however without a strong balance sheet it might not be a prudent investment.
David Dreman gave a presentation on the financial crisis. He detailed the causes of the crisis starting from the mid 90s and reaching a peak in late 2008/ early 2009. One point he really stressed was how dangerous leverage is. I have heard this many times but Dreman really struck the point home. Most of the investment banks had a ratio of around 35:1. Dreman presented a chart( I wish I could obtain a copy of the chart) demonstrating that with leverage at these ratios, if housing prices fell by only a tiny amount it would wipe out the entire equity of the company. If it fell by 30-40% then it would be an absolute disaster.This is exactly what happened as the case shiller home index declined 32% from May 2006. Of course all the “experts” predicted housing prices would never drop so all these numbers did not matter.The rating agencies were earning 35-40% of their revenue from rating CDOs. And the risk models of both the banks and the rating agencies were absurd.
I was lucky enough to get to speak two of the value greats Bruce Greenwald and David Dreman. Below are pictures of me with them.