My friend Amit Wadhwaney, whom I have now known for almost a decade, and who until recently was Portfolio Manager with Third Avenue Managment, delivered an excellent talk to my students in MDI. Here is the link to the video:
And a link to his slides:
Amit’s style of value investing is quite distinct from mine (he focuses on net asset values, I focus on moats). One of the things I had told Amit was that by now, my students at MDI were probably fed up of hearing about moats from me and he should not use the “M” word in his talk. Rather, he should talk about his own style of value investing. He did that brilliantly, of course, and ended up using the “M” word only a couple of times!
As you watch Amit speak (sometimes you’ll have to strain your ears a bit— Amit is so soft spoken that even the microphone had to strain its ears to hear him), you will witness his adventures in value investing in multiple countries ( the example about his investing in Pakistan was my favorite) and how bottoms up, macro-myopic investing into “safe and cheap” businesses works in the long term.
A great way to learn from Amit is to read his letters written to the shareholders of The Third Avenue International Value Fund. In almost every letter, he picks up a topic related to value investing and puts down his thoughts on esoteric concepts like “Catalysts, Value Traps and the Like,” “Holding Companies in the Fund,” “Some Thoughts on Buy Discipline,” “Sell Discipline Revisited,” “Accounting Substance or Accounting Form,” and “Some Thoughts on Uncertainty.” I have enjoyed reading those letters over the years and I am sure you too will. You can get them from:
http://www.thirdave.com/reports/third-avenue-funds-letters-reports-archive/
Amit learned value investing from his teacher Marty Whitman— the legendary value investor who founded Third Avenue Management and who has authored many excellent books on value investing. My favorite is “The Aggressive, Conservative Investor“. Marty sent me a signed copy of this marvelous book in mid 1990’s when I had written to him as a student.
Both Marty and Amit have influenced me a lot in developing my own investment philosophy. By studying Marty and Amit, I have ingrained in my own investment thinking, important concepts like OPM (Other People’s Money), OPMI (Outside Passive Minority Investors), Resource Conversion, Positive Cash Carry, and the Primacy of Balance Sheet.
I have learnt much from Amit and I hope this video will encourage you to do that too.
Fundoo Professor 
Thanks for the link Professor! Appreciate your effort in adding all the Lecture details on your blog.
Thank you Professor for sharing such valuable n priceless lectures. One day I hope to hear your lecture(s) too.- Ganesh Raao
Sir,
Net asset value based investments are hard to find. You now focus on moats and would pay up for quality. My question is – do you approach your investments using a single refined valuation approach or on case by case basis?
To me the alternatives are: (they keep on expanding as I learn)
1) Book value based approach – take adjusted book value (accounting for ads, R&D capitalised) and rest is margin of safety.
2) Adjusted book value (as above) plus earnings power value (owners earnings discounted at approp. rate with zero growth) – zero growth and growth being margin of safety (of course the moat needs to be there so that growth is value adding)
3) Use current price to see what growth the market is pricing and judge how absurd that is and use methods to refine your valuation.
4) Take owners earnings (one can adjust for one-offs that have been recurring, ads, R&D etc) and apply a multiple (5-10yr fwd) you feel is right (requires very strong company/sector knowledge/feel and lots of experience)
So should one use a hybrid of all these to ascertain the intrinsic value range? How do you go about it?
Part of the answer is contained in the last 10 minutes of the lecture. Amit talked about “recurring liabilities” and I talked about “maintenance capex”. He recognises that liability by capitalizing it and putting it on the balance sheet before estimating net asset value. I deduct maintenance capex (and maintenance working capital) from operating cash flow to estimate owner earnings and then capitalize that to determine fair value.
The two approaches are functionally equivalent. And Amit too agreed with this particular point towards the end of his lecture. So we now have a way to connect the idea of Net Asset Value in Amit’s and Marty’s mind with fair value estimates (or expected return estimates- see my lectures on Relaxo) under Buffett’s framework.
As you study the work of many successful investors I think its inevitable that some ideas will particularly appeal to you more than others. You will tend to apply them in your own work. You will start seeing connections…
Those ideas combined with your own experiences will also help you adapt. For example Amit’s thoughts on holding companies have helped me adapt and eventually avoid walking into value traps.
Over time, the ideas of your successful peers and seniors (not stock ideas but the thesis behind those stock ideas) combined with your own experiences (good and bad) help you develop your own investment philosophy. And if you end up becoming successful, only you’ll understand the truth behind my friend Shane Parrish’s recent tweet.
🙂
Thank you, Mr Bakshi.
I have his podcast from Manual of Ideas. This is even better; thanks for sharing this
Amit Wadhaney wrote the best letters while he was at Third Ave. Unfortunately, Third Ave funds have become inferior since he left. What is Amit doing now?
Thanks for the article and the link to the fund 😄 started reading them and impressed with their views…
On the point of cash in the portfolio I believe being prepared with cash gives courage to invest during sale…
Leverage even for housing kills this courage and cost huge in terms of opportunity costs… Lesson from 08-09 crash
Thanks
Jai