Sub-advisor to the Masters’ Select Equity and Smaller Companies Fund
The opinions and conclusions expressed herein are those of Litman/Gregory Fund Advisors, LLC and Dick Weiss at the time the material is written and may not be reflective of current conditions.
Dick Weiss is a sub-advisor in the Masters’ Select Equity and Smaller Companies funds. Weiss is Executive Vice President and Portfolio Manager at Wells Capital Management, Inc. and has been in the investment business since 1975. He has been the manager or co-manager of the Strong Common Stock Fund since 1991. Weiss has managed a portion of Masters’ Select Equity Fund assets since the inception of the Fund in 1996 and a portion of Masters’ Select Smaller Companies Fund since its inception in 2003.
Two things. First, the job entails constant change, and there’s always something new to learn. Second, in this business you don’t have to rely on anybody else to measure or judge your performance, you can always see it yourself.
I’ve always had a preference for buying what I consider to be good companies. Starting in the business in 1975, at the end of the secular bear market of 1973-74, there were all sorts of stocks selling at very cheap prices. On the other hand, certain companies that everybody said were the “quality” companies, the old nifty-fifty, were selling at as much as 2 to 3 times higher P/E multiples. This disparity taught me to judge companies by the quality of their management and strategic positioning rather than paying up just because “Wall Street” liked the story; some of the nifty-fifty were good companies but the majority were just over-priced favorites. My initial research responsibilities were the media stocks. Many of these stocks did not produce a high level of reportable earnings, and I had to look for other methods of determining value. What I found was that these companies were building value for private buyers (if not the public market) by generating substantial cash flow and earning high returns on incremental capital investment. This insight led me to the private market value basis of valuation. Private market value tries to determine what a buyer would pay if they could control the stream of cash flow being generated by a company. As my career progressed beyond the media area, I found that, while you have to value various industries differently, the concept of private value method could work with all businesses.
It starts with looking at a universe of good companies that are growing. Then we apply the private value analysis to tell us when to buy, because the value of a company doesn’t change nearly as much as the stock price. If you can ascertain what the private market/takeover value of a company really would be, you have a real leg up when things get bad in the market and the stock price drops to 50-60% of your estimate of value. If you’re right on the value, you’re pretty safe buying the stock. Of course, at the very instant when you should be buying, most people are selling so the emotion of the market is running against you. Finally, it is important to know your own strengths and weaknesses when you’re buying a stock.
I think that I have a good imagination, I’m good at reading management and I have an intuitive feel for valuation. I have a very good sense of what business strategies make sense and can see whether or not they’re being implemented. I’m also honest with myself about myself. I think it’s more the qualitative side that has made the difference as opposed to the quantitative.
I do a fair amount myself along with Ann Miletti, but as our team has grown and matured over the years, my role has evolved. It is now focused primarily on new idea generation as well as stocks that are doing really well or really poorly. I am always involved in new ideas through the reviewing of our private value analysis to make sure they seem reasonable.
There are a number of sources. We always meet with the management, then try to cross check their statements with competitors and suppliers. We like to come up with our own ideas and don’t want to become reliant on the “street” as a source of ideas. The street does act as a monitoring device. I think imagination is critical to be able to see what could be as opposed to what is.
I think the only difference is that with a bigger portfolio, because of the size of the positions we have to buy, we might be a little more forgiving of a stock that had performed well even if it was likely to languish for a period of time. If we liked this stock for the long term, we would stick with it because of the risk that we could never get back in the stock. With Masters’, since we don’t have to buy that big of a position and are limited to 15 names, we might sell that type of stock because it wouldn’t be as hard to buy it back in three to six months. By doing this we’ve avoided holding some names that we thought were going to be flat but ended up going down. On the other hand, our turnover has been quite low.
Neither the information contained herein or the opinions expressed shall be construed as an offer to sell or a solicitation to buy any securities mentioned herein. Click here to view the most recent portfolio holdings of the Equity fund and here to view the most recent portfolio holdings of the Smaller Companies fund.
The fund may invest in foreign securities, which exposes investors to economic, political and market risks and fluctuations in foreign currencies. The fund will invest in the securities of small companies, which subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies.
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