13 questions for asset value investor Joe Bauernfreund
In this series of short profiles, we ask top fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they would never buy.
Our interviewer this week is Joe Bauernfreund, CEO and CIO of Asset Value Investors, and fund manager for AVI Global Trust, rated 3 stars by Morningstar (AGT) and AVI Japan Opportunity Trust (ADD).
Which sector shows the greatest promise in 2022?
2022 is almost over and I don’t think we’re off the hook yet. So I would say cash! For 2023, I would say Ex US equities – unhedged.
What is the greatest economic risk today?
Recession – central banks are responsible for keeping inflation under control and it is extremely likely that by trying to get inflation under control they will slow down economies more than they want.
Describe your investment strategy
We focus on exploiting inefficiencies in listed markets by buying high-quality companies trading at discounted prices relative to their value. This is a very bottom-up strategy that requires diligent and thorough company research.
Which famous investor do you admire?
The late David Swensen. He was a pioneering investor who reshaped attitudes towards long-term investing and diversification. He had the courage to do what was different from everyone at that time. David was also an enthusiastic and generous person of his time, and I was fortunate to benefit from his guidance early in my career when he served on the board of AVI.
Name your favorite “Forever Stock”
AVI Global Trust. I believe in the phrase “The Boss Eats Here” and invest a substantial portion of my net worth in AVI’s products. AGT is therefore my favorite “eternal stock”.
What would you never invest in?
Growth or value?
I once wrote an article called “The Third Option” and argued that there is a third way between the two camps of growth and value. I will not invest in companies where I do not see the long-term potential for substantial growth in value. I want a good quality business that is trading at a discount, where I can benefit not only from the narrowing of the discount spread, but also from long-term growth. Value and growth investing is a nuanced game, relying on the research efforts, ability, patience and diligence of our investment team to find the right opportunities. A company undervalued by the market, but with a long-term outlook that would excite any hardcore growth investor is the archetypal “value-growth” stock.
House or Pension?
A home provides a sense of security and is not an investment decision that can be made without emotion. Whereas a diversified pension should be structured around long-term retirement goals.
Crypto: Brilliant or Bad?
Wrong. This is something most people don’t understand and just follow a mob mentality that doesn’t invest.
What can be done to improve diversity in finance?
Ask fund managers to visit local schools and talk to students about fund management opportunities and what a great career it is. Money management isn’t a tangible profession, like an engineer, teacher, or doctor, so kids don’t have a picture of what it means. Going to schools and bringing the profession to life will encourage students from all walks of life to consider pursuing a career in fund management.
Have you ever engaged with a company and been particularly proud (or disappointed) of the outcome?
We have been engaging with Fujitec, the elevator company, both publicly and privately since 2020. Most of the dialogue has been conducted in private and great progress has been made on several issues that we are proud of. However, Fujitec’s response this year to legitimate concerns about related party transactions has been disappointing and well below what we expect from a listed company. We maintain our dialogue with Fujitec and encourage the Council to rectify the situation.
What’s the best advice you’ve ever received?
Keep knitting and don’t worry about what other people are doing! If you focus on what you do best, you’re more likely to make good decisions.
What would you be if you weren’t a fund manager?
I’ve always been fascinated by the stock market and so it’s been my dream job since I was very young. I love planning vacations, so maybe if I wasn’t a fund manager, I might have been a travel agent!
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