C (2:51)

Thank you. Thanks for having me.

B (2:53)

We always start with some biographical details of our guests to get to know them a little bit better.

C (2:57)

So tell us a little bit about

B (2:58)

where you grew up and was there any inkling about your future in investing in your youth?

C (3:04)

I grew up in Bombay, India, known to most people these days as Mumbai. My exposure to finance at the time was de minimis non existent. Really. I mean, sensing that I had sort of an aptitude for things quantitative, I was pointed in the direction of the science extreme in high school. So nothing could have been further from my mind than finance or matters of commerce. This is complete terra incognito for me at the time.

A (3:26)

Anyway, can you tell us a little bit about how do you get to Concordia? How was your path then?

C (3:32)

I started at the University of Minnesota, intending to get a degree in chemical engineering. I found it way less engaging. Mathematics, on the other hand, was great fun. So I did a second degree in mathematics. That sort of kept me sane. I was already there, so why not? At that time, a career in pure sciences was probably in the cards. Probably. But nothing so far pointed out in the direction in finance. Now the first baby steps towards finance took place when I moved to Montreal to finish up in Minnesota. My day job. I had evenings off. It's just ridiculous to have something that's circumscribed by a 9 to 5 kind of schedule. But it happened at that time in my life, which is a great thing.

A (4:13)

What was your day job at that time?

C (4:15)

As a chemical engineer, I was writing patent applications for a research center. It's highly unstressful. It's very, I'm not saying predictable, but it's generally circumscribed in terms of its time demands. So you had lots of time. I mean, there was a year I studied some Japanese, which was fun. And then I just happened to take a course in economics and it suddenly was my first course and I fell in love with it. I said, my God, this is good stuff. But three Years later I graduated with a bachelor's degree and a master's degree in economics I think was lucky I was working full time and doing this in the evenings. It was great fun. I quite, quite, quite enjoyed it. These just quantitative sort of things. There's lots of econometrics, lots of mathematics and that was the sort of way I was going. Now starts this succession of random events. While I was there, I suppose I was keen on the subject. So there was a publication which I'm sure you all know about, the Journal of Economic Literature, which summarizes recent developments in economics. But therein I read an article, a book review. It was a review for a book written by a famous mathematical economist, a game theorist called Martin Shubik at Yale. And so Martin Emmy said I certainly know Martin Shuping and my God, he wrote a book about investing that should be interesting, an adjustment published with 79. I took it out of the library and I thought this is a strange book. The book is totally user unfriendly, the prose is totally, totally unfriendly. And I was nonetheless you get fascinated by the book. Now the problem with the book was it presupposed you knew a bunch about accounting and finance. I knew neither of the two things, so it was a bit mysterious but nonetheless it was a pretty engaging book. As it turned out, the co author of the book was none other than Marty Whitman, a person I knew nothing about. I wouldn't have known Martin Shubik. I knew something about Marty Whitman I did not know anything about since I lacked a rudimentary understanding of accounting or finance. I mean, there's a lot that I glossed over, a lot that made no

A (6:14)

sense to me because both of them were at Yale. If I'm not mistaken, Martin Shubik was at Yale Econ Department before Marty Weidman was at the School of Management.

C (6:23)

Correct. Marty was a professor. He taught at Yale for a number of years. Martin Shubik's name was known to me. As I mentioned, I have this very vaguely quantitative bent which I will not admit to anybody at this point in my life. I knew about it. That's what caused me to read the book, enjoyed it, but I wasn't sure I really quite grasped it but it was very, very engaging. After the Master's in Economics said what do we do next for fun? I want lots more economics. I wasn't sure I wanted to become PhD in economics and become resident Economics. I had seen academics is great as long as you wind up at the right place doing the right thing.

A (7:01)

You can be honest, I meet with us.

C (7:03)

Oh no. So I said why not? Why not do something, some hybrid, take a course, a master's, an MBA for example, which is very, very heavy with economics. I thought of two schools, two sort of different schools in terms of doctrine, MIT and Chicago, and formed Phobic. So I applied to one, I got in. Now that was Chicago. Then followed what was, I think kind of an influential part of how I learned to think about what I like and what I don't like was how do you fund this? Because they had scholarships and I wasn't getting one. I was working in Canada, getting a Canadian salary as an engineer, paying Canadian taxes at a Canadian exchange rate. And that is a nightmare of nightmares. I want to go to Chicago, but I can't afford it. Well, the first thing is how do you A reduce costs and B realize assets? The one thing I did figure out that one could do with a bit of maneuvering is you could squeeze the program into roughly one year. It's doable but very painful as I found out, but it's doable. So that's part of it. So that reduces one set of fixed cost living expenses and so forth. Those are time dependent. The second, of course you can't change is tuition. Now the tuition of course is an invariant. You have to sort of start figuring out how you fund that. And funding for Canadian studying for masters in the United States was very limited. Just for context, this is taking place in 1980. 1980 was a period of very high interest rates. It was also a period when Quebec, where I live, Montreal, had its referendum. Assets were being sold willy nilly, real estate was being sold. It was absolutely crazy. I said, well you know, I'm going to live here. Buying an apartment or house cheaply is an excellent thing. So I bought a slice of a multi unit dwelling with this idea of living in it. And then I get into Chicago and they said, now what do I have that's not nailed down that I can sell? Now this now be a post referendum against Chicago. Now it's 1981 and of course the environment has changed. Amazingly enough, I was able to sell that place for probably about 120% more than I paid a year and a half earlier and that paid for one of my years of my tuition. This would be an interesting way to make a living. There are times of distress when people are losing their marbles if you don't lose yours and can calmly buy something. And that of course points to my views of debt aversion, leverage aversion you can't have a margin call on this moment. So you buy, you buy and you sit and you can do quite well. That was a part of the learning. One was reading this book with Martin Shubik and Marty Whitman which talked about how they invested. The other was his actual real time experience. I go to Chicago, I have my good hefty dose of economics, finance and accounting. I return now. I said, well, this education is quite the opposite of what I read in the book. You return to the book with some knowledge, hopefully you'd understand a bit better what you're reading when you read it. It still was a very unusual book. It was a very, very unusual book. It was written from a very different perspective and so on and so forth. So that was my introduction to Marty Whitman originally, separately. Now we are now talking. 82, 83, 84. I get to know the firm M.J. whitman, the predecessor to 3rd Avenue. It was a broker dealer. I got to know them. I was not quite in the world of finance yet other than being their client. I wound up working at a sell site firm in Montreal as an analyst focusing on pavement force product securities. Two years into that, I inquired if there was some interest in doing something with me, for me I could do something at M.J. whitman. And they said sure. So I joined M.J. whitman in July 1990, ironically, Canada Day. That was my starting point in my education, so to speak.

A (11:12)

You arrived then start working before it became 3rd Avenue.

C (11:17)

Correct. Initially it was just MJ Whitman. They were managing what was called Equity Strategies Fund, which was subsequently liquidated. Equity Strategies Fund was a closed end fund that he took over the management contract, hostile takeover and open ended it. It became an investment vehicle. The only problem with the investment vehicle was they made an investment in a company called Anglo Energy, which later turned into Neighbors, which is an outrageously successful investment. And Marty being Marty said, I don't think I should sell it and I will not sell it. And of course in the process he blew through all the diversification requirements of the 40 Act. It ceased to function as a mutual fund. And it's late in 1990, which was the first year I started there, started in July. In late October, early November, they started the 3rd Avenue value fund which was run by Marty. That was the flagship fund of the firm for a number of years.

A (12:16)

If I can dwell a little bit on Marty Whitman because he's one of the giants in the value investing community, I got to know him once when I was being trained to take over the center. Bruce took me to Meet some investors of whom one was Marty Whitman, must have been in 2008, 2009. I remember that conversation very well because the man left an impression on you. The rock you there was quite evident. But I want to ask you something about his biography as an investor, if I may, given that you had a front row seat there. He started as a distressed bankruptcy investor and then he made the transition as an equity investor. I don't know if you know this Amit, but one of the first things I did when I took over the center is to add a credit track to the program on value investing. And it's kind of like the Marty Whitman career in reverse. And I wanted to ask you about that transition in Marty Whitzman's style of investing. You go from thinking about, I can see the connection with you, this emphasis on assets, this emphasis on the downward protection. But how was that transition for Marty Whitman from being bankruptcy to being an equity investor?

C (13:33)

Just a nuance here. Bankruptcy investing is a much more high profile thing. There's lots of posturing, bearing of teeth threatening each other. That goes on. It's a very public, noisy kind of thing. A bit of a zero sum game that a president plays. But seriously though, Marty always invested in equities. There was no question. For example, I mentioned Anglo Energy which was this incredible investment. The company was a land driller which blew up in 85. It was recapitalized twice through two bankruptcy proceedings and emerged with a completely debt free balance sheet. And with equity. The equity was created at a very, very, very low price, probably at 50 cents on the dollar. This thing went over 60, 70, whatever price dollars a number of years later. But he was a great debt investor and was known for that because that's a much more high profile activity. It's much higher profile. But there was always equity investing along the way. Equity investing, I mean Even in the 70s and 80s, apparently the foam MG Whitman was running those years, they'd be buying things like Tokyo Marina and Fire in those days because there's an ADR over here and it's also a fabulous company. It was also very cheap. Equity investing has always been a part. Now the connection between the two is sort of as follows. If you think about bankruptcy investing, and this is my sort of very naive, very high level take on it, is what you have is a business on one hand, the left hand side. It's probably a functional business of some sort. Hopefully it is good to decent and average business. It's the right hand side which needs work. The right hand side Again is often highly leveraged. There's different categories. There's a whole pecking order. There's a seniority all the way down to the bottom. The bottom is this poor little thing called equity which is of course vulnerable to everything else that goes above it. You obviously have to pick the correct fuckum security to be able to garner a serious payoff in a bankruptcy reorganization. If you think in those terms you are buying as an equity investor which he was a good part of the time buying the junior most security. Hence there was, I don't want to use the word persistent paranoia but the fear, the concern that you would be steamrolled by the people above you. It's more than just that. And be it more sort of worry about more than just the capital structure. There's a whole bunch of business related things that concern us typically when we buy things. His mindset, he called it the primacy of the balance sheet. When he talked about equities as opposed to thinking about earnings. That is something that we have. I don't want to use the word refined because I think that'd be self adulatory. We think of it as our asset based approach to investing. You think about assets and you think about the capital structure of the business. Marty spent a lot of time on the right hand side. We spend time on actually both sides. Being mindful, this is something I learned from dire experience. By observation and experience I suppose is balance sheets morph over time. The same balance sheet, a snapshot at one point in time. At a different point in time. In one point in time it's a thriving company. Another point in time it is a company that has an unfeasible balance sheet. Something that's not workable.

B (16:57)

Can you just tell us a little bit more about your career in 3rd Avenue? And in particular we're curious about the expansion into international markets. You were responsible for founding Global value emerging markets. International value funds. Tell us a little bit about that process and evolution.

C (17:14)

Nothing is linear in my past. One was I owed Angel Whitman. That was in 1990. That was in July 1990. In October, late October, early November, the 3rd Avenue Valley Fund was founded. This fund was run by Marty and uniquely by Marty. I was an analyst sidelines. But the one thing that was obvious to me was that what we did in this fund could be pursued outside the United States. Now Marty was a very US centric fund. All of us come with a personal baggage or personal experiences, our knowledge and so on and so forth. The fund was very US focused, US centric. I Wonder, wouldn't it be great to do this outside the United States where there is a lot less competition? Most people do not think quite so much in terms of balance sheets. People tend to think much more in terms of earnings based valuations and so forth. So there's a big, large, gaping, yawning, open opportunity for us. And, and I tabled this to Marty on various occasions and his comment was the same each time. Look, the SEC isn't there. I don't want to go there because everything had to be, I don't want to say litigated, but everything had to be either arbitrated or the rules and so forth. It is true. There's a lot of stuff that the SEC requires investors to do and companies to do. There are many measures that are protective of investors. However, I think with careful work and careful security selection and, and a careful analysis of the know how, the lay of the land and so on and so forth, one could actually do quite well. So I said, well look, I love what I do here, but I really do need to follow my own dream here. With Marty's Blessing, I left 3rd Avenue MG Whitman at the time and I want to build a firm called Karl Marx. It's C A R L M A R K S, not the literary giants that we know. Karl Marx knew Marty very well. In fact, Marty used to manage one of the funds for the Marx family. The Karl Marx's history was similar to Arnold and Bleischroeder who I'm sure you'll know about very well. So Arnold and Reichstroeder were market makers originally of non US securities, as was Karl Marx. Karl Marx sold their market making business to Smith Newcourt which was then taken over by Merrill Lynch. It turned into basically a family office and they had some pools of capital they managed for the family and outsiders. They had a distressed death special situations fund which Marty was for a number of years co manager of. So they knew me at MJ Whitman as a director of research. I collaborated with them on projects and they said why'd you start a fund investing outside the United States here? So I did. It started September 1996. It was a small fund and it stayed a small fund which being a scale business, it was not too late. They said well, I think you should probably wind it up. And I wound up taking it with me. Returning to now what was 3rd Avenue, myself a little fund in tow which was then called Karl Marx Global Value Fund. We returned to 3rd Avenue with a number of the limited partners, most of whom notably were actually people in the industry, people who were investors, professional investors themselves. So, I mean, they said, this is ridiculous. You're one down year and you're a small fund. Over time you will grow and we'll come with you. And so they did. That was my return to 3rd Avenue. I returned both as a manager of this as well as working as an analyst for a number of the other investments that Marty had. For example, I mean, there are areas that people perhaps weren't so keen on working on insurance. I mean, insurance is something I've always enjoyed. In fact, the first things I worked out when I joined Marty, he thrust me into the world of life insurance. There was a big meltdown going on at the time. In 1990, Drexel was blowing up, and that's where the opportunity lay. So that's where he said, you will work at all these insurance companies. There was a number of things I could contribute to. So in 2001, we completed five years for this fund, which is now called 3rd Avenue Global Value Fund LP. And they said, gosh, you can do it. So why don't we have a mutual fund? That's how the 3rd Avenue International Value Fund was spawned. The business sort of flourished after that over the years. I mean, we did what we did. It seemed to work. We had a reasonable record. People seemed to like it, and the funds grew. We were the largest and the manager of institutional funds within the Third Avenue at the time when I left.

A (21:50)

It's a fascinating story. And I didn't know that episode in your biography, the Karl Marx advisory. Going back to 3rd Avenue and bringing some expertise too, probably with that team that you brought to 3rd Avenue, which is one of the questions that I had for you. There's always a difficult question that Michael and I always ask to our guests when they leave the firm where they grew. Why did you leave? And we don't want, like a complicated story, you know, what is that you felt you needed to accomplish on your own? What were the things that you thought you could not accomplish inside 3rd Avenue that led to the founding of Mueros?

C (22:29)

As I mentioned, I was in 3rd Avenue in his predecessor in two stints. The first one was 1990-94, was about five years. The second one was from 99 to 2014. In aggregate, more than 20 years is a totally fair question. It's a totally reasonable question. Third Avenue, it was a great place. The first stint was wonderful. The second one was great. I was much more on the asset management side, managing investments for variety of different portfolios. It Was a dream in the early years. It was small, collegial, very much a meritocracy, and was very focused on investment management. Success happened with success. Some things change, people want more and more. And with that the culture morphs also. And the problem with being less of an investment focused firm, more an asset gathering firm, the culture changes. And again, we were doing many, many different things. We had debt funds, we had small debt partnerships, and there was this desire to start a very large distressed fund. There was a whole slew of efforts that went on. So it became a large multi sort of headed beast. Culturally that changed and it changed enormously. Well, there was clearly some level of unhappiness amongst the people. My team at that time. In 2013, five people in New York. Of the other four in 2013, three of the four resigned. One each on a successive week. I was theoretically losing three of the four. The quality of what you do is very much a function of the team. You have, how they work together. And the thing about us was two who started in 2003 and four another one who started in 2007 at 3rd Avenue. And so now we are in 2013. What we did and what we do now is not sort of off the shelf discipline. It's not a plug and play kind of thing. So finding somebody, training somebody, I mean because of finding somebody, this is a six month process. Mentoring somebody will take at least a year, possibly more. And maybe she or he may or may not succeed, we don't know. But that said, there's a tremendous risk that you take with you start off with somebody in terms of education helps, but learning by doing helps even more. There's a way we do it, the way we think about things, which tends to be a bit different. It's not conventional, it's not what one encounters. In fact, just for what it's worth, the youngest member of our team graduated from cbs, I think about a year within the last year.

A (25:18)

Gabriel?

C (25:19)

Yes, Gabe? The thing is, to find three people at that point was not a budgetary issue. It was just there was not enough time and the risk of doing it was enormous. Either the team stayed in place or I just moved on. The team members, one of them said, I will absolutely not work here. And the other two came back for a while as consultants and we transitioned the assets to another manager. One of our colleagues was staying on and we moved on. That was the end of 3rd Avenue. I wasn't really quite sure I want to do it all over again because there's investing and there's a business of investment management. One is fun, the other is much less. So I was persuaded by my two colleagues that perhaps we should start a firm now. The firm would be a very narrowly focused firm, relatively few people and not a large firm, both in people and the aggregate amount of assets. We would not have constraints operative on us in terms of what kinds of investments we could make, where we could make them, and being mindful that we were few people, all focused on doing one very coherently well defined strategy, it would become quite scalable. That could be interesting. Morris was launched as a firm in 2015. The fund itself was launched in 2016 because of the commitments I made to my previous firm. So we started that in 2016. But we decided that we were going to be very narrowly focused. Maybe we were going to be global, we were going to deep value and we were going to do just that. We were not going to slice and dice them. We're not going to emerging market portfolios, we're not going to EFI portfolios. We were just going to be. Let's sort of go anywhere, starting as a global firm. One thing that happened since the day we started, there were a few items. One, securities in the US markets were at the expensive end of the spectrum and they got more and more and more. So progressively, of course, we had less and less and less. In the us, people said, you're not running a global fund, you're running an international fund. They said, but call it what you wish. So, of course, now we've been categorized as an international fund. The second we arrived in, I suppose, I don't want to say a perfect storm for value investing. It was quite. The early years were difficult years, and we said, well, we'll just soldier on. I've seen this before and we saw it in the 1998-2000 period. That was the time I was running away small portfolio. We actually did not lose any money during that time period, which was surprising. It was good. But we started this thing and we just said, we'll soldier on. And ultimately, what we did, five years only goes back to 2000. You remember 2000 itself was not a great year. 2008, of course, everybody tends to pick, oh, my God, you were down that year. Indeed, we were down that year. There's no question I will not represent. We do not go down, but we do not have, shall we say, permanent impairments of capital. We've been striving to do that and we've tried to continue doing that, be persistent. We've operated the business With a long term focus. Everybody is with time a principle. Everybody shares in the good days and the bad days. That's the way we worked. We aspiring to have a very flat structure with tremendous intra company transparency.

B (28:45)

So Amit, can you give us a brief summary of your investment process? You've dropped a little bit of nuggets along the way here, but how do you find securities? Where do you look for them? What are your criteria for selection? You described yourself as deep value. You mentioned looking at the left hand side as well as the right hand side of the balance sheet. But things like competitive advantage and cash flows and ROICs and redeployment and all these other fun topics. How do you think about if you're explaining to a potential partner how you think about going about finding opportunities, there

C (29:13)

are really three interlocking characteristics. Valuation, safety of your capital and then there's the long term time horizon. The three things are actually quite related. We do not think of ourselves as capable of forecasting things macroeconomic again and again. Correctly enough that we risk capital, our capital and our partner's capital. I can't do that. So how do we think about things macroeconomic? And this will frame the rest of my comments. Especially if you want to own things for a long period of time, if you could own things for say three to five years or more, a lot of stuff can happen. Now if you're a trader, you're going to own something for say six months, a lot less can happen. A lot less probably will happen. You have to have some sort of expectation that bad stuff can happen and pretty bad stuff can happen. So you start with this idea that it's a bottom up process. You study a business, you learn about what affects the business, its operating performance, its financial performance, things that are top down factors, be it interest rates, inflation rates, exchange rates, these are sort of generic kinds of factors that would affect the business effectively. Think in terms of adversity. How would this business behave under adversity? And adverse moves in these macro variables, if there's any sort of possibility of existential risk because of adverse moves, we just don't do that. Because I don't know what the macro economy is doing. I don't want to go there. So macro is a disqualifier, not a qualifier for inclusion within a portfolio. Now that's a sort of starting point. Now valuation because we don't make projections of the future. What's the best piece of information that we have about the business? The here and now. The here and now typically draws from if you will, the balance sheet. Now when I talk about balance sheet, I don't mean a sort of accounting balance sheet. You use the accounting balance sheet to get an economic balance sheet, so to speak, economic variables and economic values. And you try to do it in a very conservative manner. Conservative both in terms of methodology, preferably liquidation, wind up kinds of methodology and conservative assumptions. You don't have some hockey stick projections of course, embedded in your expectations of valuation. So you value the assets, you try to disaggregate the left hand side of the balance sheet, try to value them conservatively. The right hand side of the balance sheet. Well there's on balance sheet, there's off balance sheet liabilities, there's stuff that actually doesn't turn up off the balance sheet. Now just let me get a quick explanation of what I, where I'm going with this. As a paper analyst in my youth, one of the things I learned, paper companies are horrible businesses. They're absolutely horrible businesses. Even I will admit to them being horrible business because they're highly cyclical, they're very capital intensive, they require recurrent inputs of capital, dollops of capital to just keep moving forward. And if you don't do it, you postpone capital expenditure, it's going to catch up with you, it's either going to be environmentally related or it's going to be upgrades, it's going to be maintenance. Sometimes you wind up with companies, paper companies have great balance sheets. The reason they have great balance sheets is because they haven't spent any money and this comes and bites them. When you learn about a business, learn about the capital needs of the business so that you are not going to be so tripped up by these sudden capital demands. So you try to bring these non off balance sheet liabilities into your valuation as you learn about the business. And then of course there's a typical standard thing, you always add a charge, you capitalize on running operating expenses of the future, left hand side and right hand side, you come up with a net asset value and so to speak nav because you've been very careful, conservative with your left hand side and you fully loaded your right hand side, you went up with a very conservative estimated nav and you should buy a discount to that. Now what is an adequate discount? That's of course one could argue about this until, well, blue in the face. But there's a couple of simple rules of thumb. One is if it's an industry which is capital intensive, cyclical, fragmented, you need a big discount. Conversely, if it's an Asset light. It's an industry which is consolidated and there are fewer and fewer players. You can get away with a smaller discount. It's a judgmental thing. So we've done as much as 60, 70% discounts down to 20% discount. The second part is risk. Risk avoidance for us is not the day to day stock price volatility. Risk avoidance is anything that could impair, impinge, diminish the value of the business. Because ultimately what you had to do is buy a business cheap, cheaper than what anybody else in the business who lives in the industry is willing to pay for that business in a cash transaction. Of course we don't want funny money called equity, overpriced equity being used in a transaction. The kinds of risk that we deal with, there's the risk internal to a business and external business. We have written a couple of essays under Investor Memos on our website. One is internal business could be self serving management, dishonest management, that kind of stuff. Then there's leverage. Balance sheet leverage should be viewed in the context of the business. Some businesses look great at some points in the cycle and look horrible not to throw stones at anybody. Glencore, Glencore. When it came public, I think it was in 2011, thereabouts. 2011 is the hottest thing ever. A great balance sheet roaring, chugging out huge amounts of cash. Fast forward, commodity prices fell and of course suddenly they discovered they were wildly over levered and had to do. The emergency equity issue. You have to view a balance sheet in the context of its business. You have to have a sense. Exactly. You cannot have wildly cyclical cash flows and assume that a certain static liability structure. The third internal business concern would be something a business model. And this has saved me for many, many, many times. One business model I tend to have a fear and loathing of, for lack of a better term, is a business that requires access to capital just to keep the business moving ahead. It's one thing if a business needs dollops of capital to make an acquisition, but to keep the business going. There are businesses, unfortunately there are. And business models accommodate them. But that's not what we tend to do. Is for example, Bear Stearns, Lehman Brothers in India, great credit rating. Absent the credit rating, they couldn't issue commercial paper. And that was curtain time for them. And that's the kind of business I worry about. You worry about the business model to see if it's sustainable in good times and bad times. And those that are so fragile that in a bad time they crumble. I think that's going to be more and more important in our current environment as we continue. But those external business could be other things like the risk of government meddling, industry structure. There's a lot of elements to thinking about risk, but none of them really relate to day to day stock price volatility. Stock price volatility matters to us in so much as we want to buy something or sell something at the extremities of stock price volatility. Finally, long term horizons, you buy things really cheaply. Something has happened, something's bad has happened to the company, to the industry, the geography, capital market prices, who knows? But it's bad. It's something that causes something to be cheap. It takes time for that to be resolved. So when we invest, we typically think in terms of three to five years, possibly more. The time can vary. It could be more, it could be less. What happens is because of this, there are a couple of things that matter here. As a long term investor, you better be sure that your company has inner resilience, survivability to make it through this long holding period. The second thing, and this is another aspect about long term ownership, if planning to buy things for the long term is there's not a whole lot of people, the fewer and fewer people fishing in the long term, that end of the swap, long term investors have been sort of bit by bit by bit becoming, I don't want to say endangered species, but there are fewer and fewer of them. So it can be an opportunity, rich area. That is how we do it. What gives us opportunities? Well, as I mentioned, I mean a company could slip on a banana beel, a good company, bad things can happen and you might be able to get it cheaply. Second, you could have some problems in the industry or the geography. You could have a capital markets crisis someday. There's always a crisis looming in some form or another. Depending on the geography or depending on the industry. There are opportunities. You just had to be awake and you had to be careful to pick your spouse. But there's a more, shall we say, benign form of opportunity. Sometimes stuff slips between the cracks. Sometimes people just don't have a sharp enough pencil and paper at hand. And opportunities happen. You just have to be there to grab them.

A (38:09)

Yeah, I want to pivot a little bit, I mean, to the issue of how do you think about portfolio construction and risk management before that, and I think it's related. I was reading your latest semiannual letter which I recommend to everyone. It's really a wonderful review of what you guys do and how you See the market and how you see these opportunities. You have a big exposure in the material sector that has done very well for you guys. Now that's a sector that benefits from particular events in the market, let's put it this way, that have a very macroeconomic flavor to them. And I realize that you guys look deeply at the specific companies that you're investing because it's kind of the interaction. But how you think about the performance, for instance, of this sector to which you have a lot of exposure in the context of say, what is going on in this sector, what's going on with gold and with other things that are taking place in that space. Can you walk us a little bit about that issue of risk management concentration,

C (39:06)

portfolio construction after the global financial crisis 20089 I thought the wildest option around the world was insurance companies. So we wound up with insurance companies in Japan, in Germany, in Finland, in the UK and in Bermuda. There was this big heading of insurance companies and people said, my God, you've got a lot of insurance companies there. I do worry about risk aggregation. However, insurance companies in each of these different markets which are segregated and separated from each other are the Japanese insurance companies live in a parallel universe to the ones in Germany and so on and so forth. These are different segments. But I cannot make the same comment about materials because of course they're common driving forces. But let's pick gold for example, because gold is like a unitary commodity because the other ones have odds and ends of other stuff in them. So gold. Take from memory the three gold companies sitting there. India's supposed to love gold. I don't. It's very expensive. And gold stocks are damn expensive. They're terribly expensive. And who the hell knows what gold does? But be that as it may, it has this mystical premium attached to it that people who believe in it. I'm not so sure I've quite wedded to it. But we have gold related companies. So how does this come to be? When we started Moeris, one of the areas that was unusually cheap because gold prices were doing terribly, mines were doing terribly, were gold related companies. And we actually found Grahamite net nets. Yes, that is ridiculous. A Graham and Dodd net current asset kind of company with an operating business thrown in. And the amazing thing was it was a real business. The money was redeployed into higher yielding business assets. And of course ultimately the company was taking away the multiple of its initial purchase price. Really what we're trying to do is buy a business. The commodity is a part. I'm not saying it's a sideshow. We will do better if gold prices go higher. However, if gold prices stay put, we will probably do just fine. We have three gold related companies in our portfolio. The oldest one going back to probably 2016. 17 when we first started the Morris Worldwide Value Fund, the mutual fund or a bit earlier, when we started the Morris Global Value Fund was a company called Wheaton Precious Metals. Business here is streaming. They basically provide funding to a specific project in exchange for that when the project is completed, for the life of the mind, for the life of the project, they will get a certain percentage of either the revenue or the output, depending on the contract, the output volume at a massively discounted price. This is a compounder. The thing about this business that people love and have loved for years and has caused this area to be an absolutely wildly expensive place to be has been the business model it is. Once you make the investment, you're not liable for any more capital investments, anything. Rate of mine, you just keep collecting. If the mine life expands, you have many more years than you planned for. If the prices are higher, you make even more money. It is a beloved model. What made it uniquely cheap in that year was horrible gold prices. They had problems at various of their mines and of course the stock was cheap. We bought it, we sat on it now for the better part of a decade and it's still there. So that's one and it continues. It compounds. They reinvest the excess cash into new projects. And of course the business actually is, I hate to use it, but a compounder of some sort and does. The second is more to our sort of style. There's been such a long pause for exploration and drilling for mines. The drillers are the ones going out of business. There are fewer and fewer and fewer and fewer drillers. So there's one which is called a major drilling which we own very, very good balance sheet. People tend to focus on earnings and of course in bad times, earnings for companies providing services, cyclical businesses such as these, earnings kind of disappear and you can buy the assets very cheaply. And that's how we were able to buy major drilling way, way, way below its price. Again, there was no question of it going bust. Many of its peers, especially in Australia, went bust. And bit by bit they've been expanding their footprint by buying up some of the troubled ones, buying up some of the marginal ones, consolidating them. And they're expanding Latin America quite, quite, quite successfully. To be fair. The current environment is you're gradually seeing money Flowing into the coffers of the junior drillers of the junior mining companies which employs services of their drillers. Maybe at some point this company will make money and we'll make money. The last one is a funny one. There was a company called Dundee Corporation. The Dundee Corporation was a massive conglomerate.

A (44:01)

This is the Canadian company, correct?

C (44:03)

Not Dundee Precious Metal, but Dundee Corp. It was run by a very, very well known investor, Ned Goodman. He bought all kinds of things. I mean the thing had cattle farms, had fish farms, it had oil assets in Chad. It has investment in a private company which is in the world of Alzheimer's looking for Alzheimer's cures. It has many, many, many, many things. Ned passed away and the last few years were pretty bad because Ned was not doing well. He too had Alzheimer's at the time, but still clung onto it. His son John Goodman took it over just for context. It used to be a 10, 15 odd dollars stock Canadian. By the time he stumbled on it it was probably around a dollar. Now it was very asset rich. Now a bundle of assets, disparate assets is for me it's like a dream because if you have a committed manager, a committed owner manager in which his son John Goodman was, he was a big shareholder as well as I'd known him from another life. He's a very, very good mining engineer and a financier. So it was a very potent combination. Procedures start methodically selling off the assets. By the time we got to it, the thing was yet another net net. Here we are, I mean he's selling off these assets, paying off all those preferred shares, no liabilities, shrinking the cost structure and you wind up with a company which was probably A$1,40 per share price. It had three odd dollars per share of net current assets. That's good. Assuming you do something good with those net current assets. Obviously that journey sort of continues. It has in this environment done well. Its MO is to fund younger mining companies, be the precious metals or be their base metals, whatever they are. And he has a long history of having done that and done that successfully. That's the third notice. There is no overarching theme or call on commodity prices per se. At a point in time there are factors that cause us to find a business attractive. We buy as cheaply as we can, prudently can watch it like hawks to make sure that the company doesn't zig when we think it's going to zag, that is the lever of the balance sheet or do something stupid which obviously scare us out of our wits and we wait.

B (46:23)

So Amit, can you tell us a little bit about your portfolio construction? For example, what is the number of stocks of companies that you hold on average? How do you size your positions, for instance, and what is the typical turnover? You mentioned one of your pillars being a long term horizon, is there a typical turnover?

C (46:38)

For example, we think in terms of a portfolio, an ideal portfolio between 15 to 50 securities. That's the most diverse portfolio. We do run bespoke supply managed accounts where we constrain to say 20 or sub 20. There was one which was a 3 to 10 stock portfolio. So it really, really varies. But the most broad based portfolio, the mutual fund and the limited partnership is 15 to 50, I think about around 40 or so at the present time. And that varies. It's typically been about 30 to 40. Nothing magical about that. The sizing of individual positions is dictated by a few things. One, there's obviously inherent attractiveness of the business as a business, its valuation and how it fits into the portfolio. Sometimes you can go crazy. For example, in Q1, 20, 20, oil stocks were so cheap, oil became negative, they got cheaper and cheaper and cheaper and cheaper. The entire portfolio, theoretically, if you had a lapse of sanity, would be in oil stocks. But you don't do that. There is a judgmental common sense limitation on how much risk aggregation you wish to engage in. As I mentioned earlier, the example of insurance companies, it may have seemed tremendous about risk aggregation, but given that they operated in completely different regulatory environments with completely different economic dynamics, there wasn't that kind of risk aggregation. In the case of things like resources, we have a meaningful exposure to oils, but not in the way one thinks about them. If anything, I would love for a period of protracted low oil prices because two of our companies are in the oil service business and both of them are contracting this contracting field of players in each of them. So notwithstanding lower and lower oil prices, the risk aggregation is there, but it is not quite working quite the way you'd expect it. The day to day stock price volatility will be affected by oil prices. But that said, you do try to have a modicum of common sense as opposed to rules based, numerically based in that it probably will not do what Marty did, for example, when neighbors went up, up, up, up, up, up and he had closed down the fund because he blew through all his diversification requirements. We do have diversification requirements which are mandated by the sec. But that said, we tend to typically cap things out below 10% if that it's not a hard and fast rule, but it has never yet gotten there, unlikely to get there. I suspect my colleagues will all lean heavily on me if it did get there.

A (49:12)

It comes up in class all the time when we're talking about big international value funds, which is the issue of currency expulsion. How do you think about that and how do you guys approach it? Do you hedge it? Do you just live with it? You have a view on this.

C (49:25)

Each of these things that we're buying is a business, individual business. A business comes with its own inherent internal currency exposures. So for example, companies that produce gold, iron ore, copper and so forth sell the product in US dollars. So in my mind I think of them as US companies. You don't need to hedge them. They can be traded in Hong Kong, they could be traded in China, they could be traded in Canada, but they're US dollar companies. They're off the table. The second set of companies that you have to think long and hard about hedging, because it's hard and it's quite expensive, is emerging market companies. Emerging market currencies often have very, very high hedging costs. So think hard if you really want to hedge those. It's a cost. So now what about this big vast middle? Big vast middle. You're talking about companies that are not US dollar companies, let's say Japanese non life insurance companies, Japanese banks, or you could have Swedish banks, that sort of stuff. Or Italian bank, which we own. Italian bank, owned it now for about almost a decade. The question you ask yourself, the answer is going to be very unsatisfactory, I warn you is is this currency expensive versus the US dollar or not? For example, owning an Italian bank, would you deem the euro to be expensive versus the US dollar? If the answer is in the affirmative that the euro is expensive versus the US dollar, you should contemplate hedging. Unicredit bank, which is the one we have, does not have inherent internal hedging of its capital value. For a US based investor, the bulk of its exposures are euro based, aside from the exposure in Eastern Europe and Russia and so forth. But it is largely a euro based bank. So you are taking on euro exposure. So you have to answer the question, is the euro expensive? If you deem the euro to be expensive, you should probably hedge it. And historically when we hedged it, what we've done is we bought out of slightly out of the money, European style, put options to hedge against the capital values. As I said, hedging is expensive. It'll cost you money. In some cases it's non economic. Now, just one other sort of caveat to this. You could have companies operating other currencies, other economies which have US dollar based balance sheets. Case in point is Despicarpunto. Com.

A (51:52)

Let's move into Despegarpunto. Com, which is an interesting company that has come up with my students on occasions.

C (51:58)

There were really two companies perceived to be Argentinian companies that we've owned. One was a purely Argentinian company, Grupo Financier Galicia. The plotline there is roughly as follows. Argentina has been run, I mean, for lack of a better word, for many years, irresponsibly. It's madness how it's run. It is what it is and people make their choices and they live with it.

A (52:23)

That's very delicately put, I have to say.

C (52:25)

The thing about it is periodically you get investment opportunities which are absurdly cheap. I mean, there have been times that this is not our first thing, this is probably a third, maybe fourth. I mean, the first time was after the big collapse in 2002. I mean, it was wonderful. There were opportunities galore. But that's another day, another period. There are different plot lines. The most recent one, they're coming off a long period of Peronismo, which was completely a reckless monetization of the deficit. It ran out of money and wild subsidies that had to be paid. It was madness. Very, very high inflation, rising inflation. In comes Mr. Milei, promising, well, some might say the moon, but promising. And I would argue that if he were to be successful, the early years of his term, taking the inflation from almost 300% to say 200 or 150 would be good. I would call that a low hanging fruit of the administration. And that's the way I approached it. We start out our investment Galicia, which is an attractive business, to be fair Latin America, the banking system in most countries is extremely concentrated and the banks, they don't want to use the word extort, but they do. They earn fees. Spreads are massive and they have to have massive spreads because stuff that goes on there and they also have very good balance sheets. However, they operate in places like Argentina. So in more sort of same places, Chile, Brazil, Colombia, transactions take place in multiples of book. Galicia acquired, I'm going to pull this from memory, acquired HSBC's business for about 40% of book and about two and a half times pre tax earnings. Galicia had a very large footprint. It had became an even bigger footprint after this. It was already the largest private bank in Argentina. Separately parallel around the same time, Banco Macro, another similar bank, large bank, they're all very well capitalized. Germany bought Itau's franchise in Argentina. And again this became another big player. When people are leaving a place en masse, that clearly rings the bell. I said, well, this is the flavour de joux. Listen, run away from Argentina. And meanwhile, Mr. Milei is coming into power, the elections are coming here. We have a group of financier, Yo Galicia, trading at what looks like five, six times very depressed earnings, about 50% of book. So why are the earnings depressed? Banks are cyclical businesses. They're better times, worse times. And specifically what happened was no one was borrowing. Consumer lending had just died out because no one was going to get mortgages. These outrageous prices businesses were not worrying because given this variability in the day to day affairs of Argentina, no one wanted to invest there. So. So the banks were very under leveraged. They were the most underleveraged set of customers in all of Latin America. And all of Latin America. If something sensible happened in the prospective election, it would be quite something. Well, it sort of played out reasonably well. Milei was elected after a few iterations. There was a primary, then the ultimately run by the runoffs and he finally won. And he proceeded very rapidly. Squeeze and squeeze and squeeze the economy and just squeeze. Now all good interest rates reduced, the mortgages being written soared. Businesses you intently began to spend. So Galicia's business just really, really picked up. It picked up very, very well. So a purchase was made in probably Q3, Q4, 2023, around the time of the elections. Now the problem with this squeezing and squeezing, squeezing out inflation. Remember you're coming from a very high inflationary period. The tolerance of people with very high inflation is limited. And of course they were willing to suffer for a period of time. You've squeezed people for over a year. The squeezing continues. People, jobs are slashed and so on and so forth. It becomes really, really difficult. Now starts the politically unsavory part of the term. The currency began to get overvalued. Sign of that, one of the companies we own is Latam Airlines. Latam Airlines is one of the very large carriers within Latin America and overseas. Argentinians were busily traveling big time to be Chile to go shopping, to New York to come shop, because the currency had become wildly overvalued, artificially overvalued. I said, well, this is going to crack. And we left, we left at the beginning of this year. So that was a holding period. And I got three, four fold, which is ridiculous. We just sit here with awe and shock. What's going on here. And so that was the end of our experience. The currency went from being wildly undervalued. I literally remember Gabe, as a part of cbs, went to Argentina for a week or someday some time. Everything was very cheap. I went about, I think, two, three months later, I thought, my God, this place is expensive. It can vary and vary enormous separately. This way. I put the. Com. Its head office is on Buenos Aires.

A (57:43)

Just so that our listeners know, it's an online travel agency.

C (57:46)

It's the largest online travel agency in Latin America. It was a creature that was funded by a number of private equity firms. It was brought public, I think, about a couple of years before the pandemic and the 20s and into the 30s. The position is extraordinary. It spans most of the countries in Latin America. Now, here comes a pandemic. All travel between countries just ends. It just stops, with the exception of Mexico. The thing about Despicar, there's no revenues to speak of. If anything, they had negative revenues because they refund the cash that came in from various clients. So you have a situation where this company has zero revenues, briefly, negative revenues at the beginning of the pandemic, and the stock obviously crashes. And, of course, there's sort of no end in sight to this horror show. Well, what's interesting about this is the following. It's just a few numbers to sort of frame this. It costs 1.5 to $2 billion to build the IT infrastructure for this online travel agency. That's the sort of baseline there. The equity market capitalization was about $420 million. It had about $225 million of cash. No debt on the balance sheet. So $195 million enterprise value. So for what you're paying $195 million enterprise value, you were getting a $2 billion company. The company had a very clean balance sheet. They squeezed on the cost quite severely the beginning of the pandemic, and they renegotiated a deal to buy one of Mexico's largest travel agencies. No cash down will pay you after the pandemic. So here you were. You had a situation where at some point this would end, planes would fly. Maybe revenues slowly start to pick up. And it was. It's been slow. Just for context, the cash was kept not in Argentina. It was in US Dollars outside Argentina, as most rational people do. I mean, Argentina. I mean, bonus size is good for a lifestyle. You protect your assets. You hold them elsewhere. The 60% plus office revenues came from Mexico and Brazil. The remaining 40% came from Colombia, Chile, and Argentina. It's a pan Latin company. Really.

A (59:55)

So you would be amused to learn perhaps that during the pandemic, in order to have a bit of fun in what was a very trying period. Of course, one doesn't want to make light of that. We had all the students thinking about the tourism industry. So that's how I came to know. So we look at the hotels, we look at the OTAs, we look at the airlines, we look at the amusement park companies, we look at all those things and that's how we got to know the spr, which is no longer listed, Right. It was acquired, correct, that process.

C (60:25)

So it was acquired in May 2025, about 1950 a share, I think.

A (60:30)

So now it's the listed, you can no longer buy it. But it's very interesting business with big moats. Those businesses have.

C (60:37)

Oh yes.

A (60:38)

We're getting to the end of our conversation, which is a fascinating conversation. Michael and I always close these conversations with the same question. Let me ask mine, Michael will follow with his. And I want to ask you what worries you? What keeps you up at night with fear or excitement? What is that thing that your mind goes to naturally when you have that idle moment?

C (61:00)

There's lots to layer on the worry side of the ledger. It's not just taps. This is already an added burden to start with, but it's also the frequently changing nature of the rules. I learned something years and years ago in a world of highly changed economic variables. Years ago we were trained on the Phillips curve. Low inflation or high inflation, low unemployment. Argentina defied all that did hyperinflationary depressions. What she thinks changes so rapidly from day to day that people cease to produce. So you start to see that it's not just a tariff but highly varying nature of the rules. We may have seen the first crack in the first brand's operation because they complained that the changing nature, highly changing, rapidly changing nature of the regulations made the customers pull back in decision making and spending. And that is something that we may well see more of. If this uncertainty is a protracted one, that's one. First you go bankrupt slowly, then you go quite rapidly and you see these things start accumulating quite rapidly. There's another thing that you think about. This is probably my peculiar set of values. I am not a fan of industrial policy for obvious reasons. I am not sure what gave these people particular pressures to be so brilliant. This is the second success of government which is throwing billions and billions and billions of dollars into what might very well turn to be misguided industrial policy. Only time will tell. But it is worrisome, it's expensive, and it has an effect. Unraveling it will not be easy. Second to last thing is immigration policy. It's broken. We know that. We know it's patchwork of things which are politically devised and done. Here is an opportunity to deal with it coherently, intelligently, knock it in place. We seem to be throwing out people at both ends of the skill spectrum and making it very hard. The problems with this will take time to surface in a meaningful way. The problem is human capital, as I mentioned earlier, is not fungible. And human capital people progressively will compete for against us. And you're seeing signs of that. And I think that might very well accelerate. That is very, very worrisome because what's made this country great has been the free flow of human capital coming here. Relatively free flow. You haven't jumped in many hoops to get, but you get here and they do. And I think that may have riled a lot of people. And finally, again, political decision making is sort of split down the middle in a partisan manner, which is very, very disturbing. God forbid we have a crisis when the two of them have to talk to each other. A crisis that needs resolution rapidly. Those are sort of things that worry me.

B (63:38)

Final question. What are you reading or listening to these days? And is there a book or are there books that you would recommend to our listeners?

C (63:46)

One is a book about rethinking about investing, how we construct portfolios as a personal basis and as a more institutional basis. It's. I think someone you may have interviewed, Ashwin Chhabra. His book, the Aspirational Investor, Bergenhoek. He wrote it when he was still Merrill lynch before he start to head up Jim Simon's family office. I think it's actually quite fascinating. His ideas how to devise a functional portfolio by dividing up into three buckets. Safety, market and aspirational, obviously exact proportions. The contents of these things will be totally determined by the needs and resources of the person. But I think it's a very, very interesting way to think about constructing portfolios both from an individual side as well as almost an organizational side. Organizations have needs, have time horizons. It's a very readable book. It's a fun book. I mean, I was surprised. I mean, the subject. The man's a quant too. He writes complete sentences. This is really nice. The second book actually comes from an FT writer. Her name is Gillian Tett. You probably know her. Gillian Tett. I first came to know her when she wrote the book Saving the Sun. That was about the Recapitalization Long Term Credit bank which became Shinse bank, which we at Morris owned before it was taken over. You would never know from that book and from the stuff she writes in the Financial Times that her background is an anthropologist. Her PhD is in anthropology from Cambridge. I did not know that. So she did a book called the Silo Effect. The Silo Effect, really? I mean, I think it's about segmenting knowledge. When I'm often asked how we think about Morris, I come down very firmly on the side that we should all be generalists. Siloing people. Separating people from being by geographies or parts of the capital structure is kind of dumb, for lack of a better term. You will miss both threats and opportunities that way. And I think silos in the name of specialization, people do it. I don't think it's a good thing, but that's me. And she certainly is much more articulate than I am about talking about this. All sorts of things that might have happened because of the siloing. And finally the last one, this one is an old one. It dates back to the late 1990s. It's written by a person called Suzanne Muchnick. It's called Odd Man In. You may or may not have come across this book. It's about Norton Simon. Norton Simon was quite an investor. He was a conglomerateer. You know him for various products like Hunt tomato paste and all sorts of things like that. He did very, very well as an investor. He was also a very discerning art collector. He collected with the same ferocity and intensity that he invested. And he assembled an amazingly good quality art collection. Not a huge one, but a very, very good quality one. After reading anecdotes of how he acquired his art collection when we tempted to visit it, the North Simon Museum very much exists in Pasadena. It's a small but a super herb museum. It's not very far from the Getty in Los Angeles. It's interesting to juxtapose the two. Getty had vastly larger amounts of money, wrote lots about his collecting, his art and how he made money and so forth. But the quality of art is very, very different. And getting long lusted after Norton Simon's collection. And of course periodically Norton Simon Museum had financial problems so they tried to buy it on the tree. Of course they managed to resist it. So far I still intend so. I think it's fascinating how people do things with their wealth. As a value investor, things happen.

A (67:16)

This has been a fascinating conversation. Thank you so much. For coming, Amit, and we hope to see you around the business school one of these days. So thank you all for joining us in this new edition of our podcast and we'll see you in the next one. Amit Route 1A thank you so much for coming to the Value Investing with Legends podcast.

C (67:36)

Thank you very much. Donald Michael Thanks a lot. Appreciate it. Thank you. Thank you for listening to this episode of the Value Investing with Legends podcast. To subscribe to the show or learn more about the Halbron center for Graham and Dodd Investing at Columbia Business School, please Visit Graham and Dodd.com thank.