The Next Generation of ‘Would-Be Buffetts’

The Next Generation of ‘Would-Be Buffetts’

The era of traditional value investing is undergoing a sea change, a good time to look ahead to how the next generation of investors are managing their money. This according to a recent article in Barron’s.

“Value investing is about looking at things differently, and recognizing quality amid detritus,” the article states, noting that Barron’s took a similar approach when looking for today’s best value investing minds. The article highlights seven, a group it describes as “patient and disciplined as past generations” but “more flexible in how they think about value:”

Pierre Py, the 44-year-old co-founder of Phaeacian Partners, described as an “unapologetic value investor.” Py’s approach has been influenced by the veterans he has worked with (i.e., Oakmark International’s David Herro and FPA veterans Bob Rodriguez and Steve Romick). The article notes that Py built a team with “backgrounds and interests beyond finance, such as art and architecture.” According to Py, “It’s about culture,” and having “the means, knowledge and experience to understand the world around us, and where it is going.” He focuses on corporate culture and, like Buffett, believes the biggest risk to a business is bad leadership.

Mark Cooper, 52, who co-founded MAC Alpha Capital Management in January 2020 is a “fixture in the traditional value investing community and isn’t shy about his value bona fides.” Cooper has been teaching the next generation of value investors at Columbia Business School for 17 years, integrating lessons he learned in a career managing money at Omega Advisors, Pimco and First Eagle. Cooper reportedly “leans more toward Buffett in his preference for good businesses at fair prices than the cheap stocks associated with Graham,” and concentrates on smaller, obscure companies that he will often “follow for years before investing in.” According to Cooper, strong performance is achieved through the “trifecta of cheap business seeing internal improvements that also gets a boost from the macroeconomic cycle or secular changes.” In his words, “You can’t be an ostrich and say you only dig under the sand for ideas.”

Samantha McLemore, 41, spent her entire career working alongside famed value investor Bill Miller (first at Legg Mason and now at Miller Value Partners). The article describes McLemore as “comfortable being the odd person out, attending a Southern college as a Northerner and making her way in a male-dominated industry. Both offered a good setup for value investing.” According to Miller, McLemore embodies the characteristics Buffett would look for in an investor including independent thinking, emotional stability, and a keen understanding of human behavior. Last year, she launched her own investment firm, Patient Capital Management, and still co-manages the $2.7 billion Miller Opportunity Trust. Like Buffett, the article says, McLemore is willing to pay closer to fair value for a company if she’s confident in its long-term prospects. She also believes that investing in what you know must be accompanied by expanding your “circle of competence” to consider how the world is changing.

Clare Hart, 50, lead manager of the $45 billion JPMorgan Equity Income fund, began her career as a public accountant. Since 2004, she has been described by Morningstar as “the best in breed,” and over the past 15 years has returned an average of 9.2% annually, beating 88% of the fund’s peers. The article notes that Hart “isn’t the type of value investor whose approach has been shaped by Graham or Buffett,” adding that deep value stocks don’t appeal to her. Instead, she favors “quality” businesses that may be pricier but could look cheap in hindsight as their earnings meet or exceed projections. She favors free cash-flow yield as a metric—it requires fewer long-term assumptions than discounted cash flow models (popular among traditional value investors) –and is quick to sell when her assumptions prove wrong. “Just because it’s in your portfolio doesn’t mean you have to retrofit your investment thesis,” she says, “If you’re wrong, you’re wrong.”

Henry Ellenbogen and Anouk Dey of Durable Capital Partners “aren’t your typical value investors,” the article says, describing their approach as one that embodies flexibility, willingness to embrace disruption, and a long-term view. The team looks for “compounders”—smaller public and private companies that demonstrate the potential to become much bigger and generate total returns of 20% annually (on average) over a decade. “But the path is rarely linear,” the article adds, citing data that shows compounders suffer a one-year stock decline of 60%, on average, in any given 10-year period. Durable typically makes 10 new investments each year in the hopes that two or three will become compounders over the ensuing decade. They seek management teams with an owner’s mindset, focused on improving their core businesses and investing to extend their competitive moat.

Laura Geritz founded Rondure Global Advisors in 2016 after a decade of building an outstanding record as a globe-trotting investor at Wasatch Advisors. She describes herself as a “quality contrarian” aligned with Buffett’s value approach. Her team reportedly begins with 1,000 of the strongest companies across the globe, looking for those that can generate double-digit returns after stress-testing for “a host of scenarios.” She takes what is described as “an out-of-the-box approach to opportunities and risks.”