What sort of financial regulation might help to prevent another financial crisis? How will financial markets ever wean themselves from government “life support?” What will happen if the Chinese stop funding America’s debt?
These were just a few of the weighty questions pondered by nine outstanding investment professionals during two days of presentations and panel discussions at the University of Virginia’s Second Annual “Virginia Value Investing Conference,” hosted by the McIntire School of Commerce and the Darden School of Business. The Conference, which was free and open to the public, was held Oct. 22 and 23, 2009, at the University’s Old Cabell Hall.
“The Value Investing Conference provides an outstanding opportunity for professional investors, members of the investing community, UVA alumni, and students to engage with one another on topics related to value investing,” says event organizer David C. Smith, Professor of Finance at the McIntire School and Director of McIntire’s Center for Financial Innovation, which sponsored the event. “It’s also extremely illuminating to hear from these top-line investors about the current state of the economy.”
Timely Topics
This year’s Conference was, not surprisingly, dominated by discussion of the ongoing challenges faced by financial markets and investors in the wake of the financial meltdown and subsequent massive government intervention of late 2008 and early 2009.
Commenting on current conditions, the nine participants [Lee S. Ainslie III (Engineering ’86), Managing Partner of Maverick Capital; James S. Chanos, Founder and Managing Partner of Kynikos Associates; John A. Griffin (McIntire ’85), President and Founder of Blue Ridge Capital; Carney Hawks (McIntire ’96), Founding Partner of Brigade Capital Management; Matthew Iorio (McIntire ’93), Managing Director with White Elm Capital; Paul T. Jones II (A&S ’76), Founder, Chairman, and Chief Executive Officer of the Tudor Group; Richard A. Mayo (A&S ’64, Darden ’68), Founder and Chairman of Mayo Capital Partners; Joel Ramin (McIntire ’00), Analyst at Bridger Capital; and Julian H. Robertson, Co-Founder of Tiger Management] agreed that the current financial situation is without precedent, analog, or, for that matter, many bright spots. “To me, our country and economy are in the worst shape they’ve ever been in,” Robertson opined, pointing out that much of the government stimulus money seems to have found its way into the stock market, perhaps replacing one bubble with another.
The Conference opened with a presentation entitled “Ten Lessons from the Financial Crisis That Investors Will Soon Forget (if They Haven’t Already)” by legendary short seller Chanos, who pointed out, among other things, the importance of unbiased and transparent methods of accounting; the “horribly conflicted” nature of ratings agencies; the perils of overreliance on mathematical risk models; and the dangers of enabling financial institutions to become “too big to fail.” Unfortunately, Chanos said, market memories are awfully short: When stock prices start rising, people quickly forget the things they vowed never to do again. Moreover, he warned, the opportunity for the government to make meaningful reforms to the financial system is quickly fading.
Alumni Value Investing Panel
Chanos’ presentation was followed by a panel discussion of investment strategies and tactics featuring Ainslie, Hawks, Iorio, and Ramin; Griffin acted as the panel’s moderator. The group discussed such issues as how the macroeconomic situation is affecting their respective investment strategies, how to know when to make a move in the market, and the sorts of questions to ask in determining whether a company’s business is likely to become obsolete.
The panelists also offered the audience some of their current favorite investment ideas.
Master Investors Panel
The Conference’s second day featured a Master Investors Panel, again moderated by Griffin, and composed of trading and investment superstars Ainslie, Jones, and Robertson. The panelists discussed at length the chaotic and uncertain nature of the current market, considering such questions as how massive infusions of government liquidity are affecting longtime stock pickers such as Ainslie; what effect such infusions will ultimately have on the long-term strength of the U.S. economy; and whether the U.S. is heading into a period of prolonged recession akin to Japan’s “lost decade.” “Today,” Ainslie said, “you have to be attuned to macro factors.”
The panelists also discussed some of the human factors associated with trading and investing, including the importance of keeping your emotions in check and loving the “game” of investing. Successful traders, Jones said, are typically high-energy, “Type A” personalities who are able to retain emotional balance when confronted with adversity. Moreover, he said, “they have to be unbelievably competitive all the time.”
UVA Value Investment Pitch Competition
The Conference closed with a presentation on value investing by Mayo, who discussed the asset classes he currently believes are undervalued. (Value investing, an investment paradigm pioneered by Benjamin Graham in the late 1920s—and arguably perfected by Charlie Munger and Warren Buffett over the last half century—involves the buying of securities whose shares appear to be underpriced according to the metrics of various methods of fundamental analysis.)
Mayo’s address was followed by presentations from the four finalists in the first-ever UVA Value Investment Pitch Competition. Open to students throughout the University, the finalists [individual Matthew Fedors (Darden ’10); the team of Mike Kochan (A&S ’05, Darden ’10) and Mike Ritzer (McIntire ’03, Darden ’10); the team of Manuj Jindal (McIntire ’10) and Rahul Gorawara (Engineering ’09, Grad ’10); and individual Kevin Mahony (McIntire ‘10)] presented their investment ideas to a panel of expert value investors. Winner Mahony, who successfully touted the stock of data center services provider Equinix (EQIX), earned a trip to New York City and lunch with Griffin, Robertson, and other financial luminaries.
“Clearly, the Virginia Value Investing Conference was a tremendous success,” said McIntire Dean Carl Zeithaml. “We were extremely pleased to host such an outstanding group of investment professionals who discussed topics of such vital interest, timeliness, and importance. We look forward to organizing another superb conference next year.”