Alan Kohler speaks with SGF's manager

Prominant financial journalist Alan Kohler recently spoke with SGF's Portfolio Manager, John Sampson, about the benefits of global investing and unique approach to investment taken at SGF.

Some highlights of the chat included the following:

Alan Kohler on SGF: "You seem to, in many ways, be similar to Warren Buffett’s approach to investing, particularly with your approach to cheapness and value and so on."

Alan Kohler: "You say that in your investment process it’s quite different to other value – you’re a value investor but you reckon you’ve got a different way of approaching it to most other value investors who work backwards from finding something cheap.  Explain how you operate."

John Sampson, SGF: "We flip around what the average value investor does.  The typical value investor will screen on the numbers, they’ll do a statistical screen on the numbers and find things that have say, low price to book, low price to earnings.  Then they’ll have to work backwards to say, well why is this cheap? That will sort of tell you that the security is cheap but it won’t tell you why. We flip that around. We don’t do number searches.  We do a lot of word searches. We look for areas of the market where we think we will find companies that are misunderstood. That could be for us typically an event, so we’re looking for events.

The event could be an oil spill in the Gulf of Mexico, it could be a disaster in Puerto Rico.  But it could also be something corporate related – a large company decides that it doesn’t want to own a small division and so it spins it off, so we track spin-offs from companies.  We track companies coming out of bankruptcy. Anywhere where we think that there’s sort of a heightened level of uncertainty, it could be a country no one wants to touch or a currency collapse, the idea is to come after the event.

We find in those situations you typically find that the normal investor – it’s a bit too hard for them, it’s a bit too tricky.  So, we then conduct our in-depth research, we pull apart the company and work out, well we expect it will be misunderstood. Then we’ll value it and then we’ll look at the price it trades at.  We’ve always found if you don’t value it before you look at the price, the price it’s trading at and the market will influence you whether you like it or not, you’ll sort of anchor to that price."

Alan Kohler: "What are your positions at the moment?  What do you own at the moment and tell us about them?"

John Sampson: "We have got a few interesting ideas at the moment.  As you’ve gathered, we are global investors. We’d love to own more things in Australia but we don’t have any Australian ideas at present.  We find it’s quite an expensive, well-covered market. We like to sort of look for niches further afield.

One interesting idea we own is Genworth Financial in the US. Genworth is subject to a takeover offer from a Chinese group.  What’s really interesting here is that after the takeover bid got announced, long term holders of the stock sold.  The company will not be listed soon so long term investors have abandoned it. As a result, the current price is trading at about 2.8 times earnings for a good business. On a sum-of-the-parts basis we get a valuation of about $8 so our ideal situation would be the takeover bid actually falls away. But should the takeover go through we make 80%.  It’s sort of, heads, we win, tails, we also win. We think that’s an amazing situation so that’s one of our larger holdings." 

The full interview can be found here (subscription or trial required):

John Sampson