“You got to go against the crowd, think and act differently”.
This ‘Masters in Business’ Bloomberg podcast is definitely worth listening to, where they interview Adam Karr, Portfolio Manager and Head of Orbis U.S. which holds 37 billion in assets. The central theme of his investing style is staying rational, running counter to the prevailing market wisdom and the sentiment of the herd. For Karr, whose investing passion began cleaning the floors of banks and observing the pages of the Wall Street Journal during nightshifts, investing success is boiled down to four key principles:
His focus is on “intrinsic value”, not just “price to book” but the long-term business DNA that will generate meaningful returns. Karr notes several examples where his investment team noticed the herd was running in the wrong direction or in Warren Buffet parlance: the party was about to turn into “pumpkins and mice”. The first clear example was in the 1990s when Japan was 45% of the world index, of which Orbis had “zero exposure…on the view that it was extreme and grossly overvalued”. Then to the “dot-com bubble” of 1999/2000, which Orbis was “on the other side of”, fearing a pullback that did eventuate.
When asked about the current market, Karr notes some initial signs of euphoria, when referencing the John Templeton line: “Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria”. He notes the high levels of activity in the U.S. SPAC market, the “IPO frenzy”, the level of retail engagements, “margin debt levels”, the “Robin Hood tribe” and even the S&P equities trading at ten times revenue.
Karr is of the view that markets are inherently cyclical and as the sentiment that “value investing is dead” grows in popularity, it's actually a characteristic of the “late stages in the cycle”. Finally, Karr discusses his change in style that came later in his investing career. While early on he focused on distressed turnaround investing, looking for “hard assets and downside cash flow”, he later focused on the returns generated by “phenomenal companies that compound over time”.