FALL 2022

Doddsville

Jacob Rubin, Philosophy Capital — P. 5

CBS Students Investment Ideas — P. 16
Connor Haley, Alta Fox Capital Management — P. 20
Christopher Bloomstran, Semper Augustus — P. 32

Jake Wheelock, MBA 2023

Matt Keating, MBA 2023
Sean Spellberg, MBA 2023
George Randt, MBA 2024
Nick Stern, MBA 2024 grahamanddodd.com
csima.info
 Page 2

Welcome to Graham & Doddsville

We are pleased to bring
you the 46th edition of We continue to bring
Graham & Doddsville. you stock pitches from
This student-led invest- current CBS students.
ment publication of Co-
lumbia Business School In this issue, we fea-
(CBS) is co-sponsored ture the winner of the
by the Heilbrunn Cen- 2022 Kawaja Growth
ter for Graham & Dodd Stock Pitch Challenge,
Investing and the Co- Shalin Doshi (’23), for
Meredith Trivedi, Man- lumbia Student Invest- his long thesis on Con-
aging Director of the Heil- ment Management As- temporary Amperex
brunn Center. Meredith sociation (CSIMA). In Technology [CATL]
leads the Center, cultivat-
ing strong relationships this issue, we were (SZSE: 300750)
with some of the world´s lucky to be joined by
most experienced value three investors who We also feature the
investors and creating have plied their craft winners of the 2022
numerous learning oppor-
tunities for students inter- across geographies, Chicago Booth Invest-
ested in value investing. asset classes, and mar- ment Conference &
ket cycles. Competition, Alan
Leite (‘24), Thomas
We first interviewed Schlabach (‘24),
Jacob Rubin, founder Cheng Jiang (‘23), and
of Philosophy Capital. Matthew West (‘24)
We discussed Mr. Ru- for their long thesis on
bin’s path to investing, Planet Fitness (NYSE:
key mentors, how prin- PLNT).
ciples from philosophy
inform his investing You can find more in-
approach, and go over depth interviews on
several notable invest- the Value Investing
ment case studies. with Legends podcast,
hosted by Tano Santos
Next, we interviewed and Michael Mabuous-
Professor Tano Santos,
Connor Haley, found- sin, Head of Consilient
the Faculty Director of the er of Alta Fox Capital Research on Counter-
Heilbrunn Center. The Management. We dis- point Global at Morgan
Center sponsors the Value cussed Mr. Haley’s ex- Stanley Investment
Investing Program, a rig-
orous academic curricu-
perience launching a Management and ad-
lum for particularly com- fund, evaluating man- junct faculty member
mitted students that is agement teams, and at Columbia Business
taught by some of the dig into his long idea School. The new sea-
industry´s best practition-
ers. The classes spon-
on IDT Corporation. son of the podcast will
sored by the Heilbrunn launch on December
Center are among the Finally, we interviewed 16th.
most heavily demanded Christopher Bloom-
and highly rated classes
at Columbia Business stran, President of We thank our inter-
School. Semper Augustus In- viewees for contrib-
vestments Group. We uting their time and
discuss Mr. Bloom- insights not only to us,
stran’s investment phi- but to the whole in-
losophy, views on capi- vesting community.
tal allocation, and dig
into his long idea on G&D Editors
Paramount Global.
 Volume I, Issue
Page 23 Page 3

32nd Annual Graham & Dodd Breakfast

Todd Combs ’02 with breakfast guests Todd Combs ’02 and Michael Mauboussin

Mario Gabelli ’67 and Marc Mayer ’83 Bill Ackman asks a question

Value Investing Program Welcome Reception

Tano Santos and Matt Keating ‘23 Value Investing Program Students
Page 4

The 26th Annual

CSIMA Conference

Date: February 10, 2023

(8:00 am to 5:00 pm EST)

2920 Broadway (115th

Street)
Alfred Lerner Hall,
Columbia University,

www.grahamanddodd.com

Featuring:

Cliff Asness, AQR Capital Management

Thomas Gayner, Markel Corporation
Mason Morfit, ValueAct Capital
Jeff Mueller ‘13, Polen Capital
David Samra ‘93, Artisan Partners
Lauren Taylor Wolfe, Impactive Capital

Best Ideas panel

For inquiries, please contact: valueinvesting@gsb.columbia.edu

 Page 5

Jacob Rubin, Philosophy Capital

Jacob Rubin is the while growing the money in the Dot Com
Founder and team and capital base. crash. That didn't have
Managing Member of He traded bikes and any profound impact on
Philosophy Capital boats for trail running me, but it’s a funny
Management LLC. shoes and lives with place to start. My dad,
Philosophy invests his wife and three an assistant Attorney
long and short across children in the Bay General for California,
the capital structure Area. When not had a poker group of
with a value-oriented behind screens, Jacob guys who worked a
approach targeting can be found running range of professions,
securities with ultramarathons on doctors and lawyers and
asymmetric trails or guest accountants. At the
investment returns. teaching at Stanford table, they would trade
on subjects like game jokes – “have you heard
After graduating with theory, event-driven the one about the…” –
Jacob Rubin, a BA in Economics- investing, and and then they might
Philosophy from negotiations. mention a stock tip.
Philosophy Columbia University None of them knew what
Capital (2006), Jacob began Editor’s Note: This they were talking about,
his career with three interview took place nobody had training, it
years of banking on September 29th, was just a social thing.
(JPMorgan, 2022. Who knows, maybe that
Macquarie) followed put a kernel in my head
by an MBA at Stanford Graham & Doddsville about the stock market
(GSB 2011). During (G&D): being like poker. Aside
those years, he raced from that, the only part
bikes and I’m grateful you’re of my childhood that
accumulated a unique taking the time to speak proved relevant was the
collection of jerseys with G&D. It would be focus on math, which
as a reward for his great to learn about you, was driven by my mom,
efforts (the GFC-era your background, your who once tricked me into
Merrill Lynch- upbringing, and how you thinking algebra was fun
sponsored amateur kit became interested in with a game called
is a gem). He briefly pursuing a career in Algeblaster. I was
returned to finance at value investing. always a couple grades
Goldman Sachs only ahead and did math
to veer off course to summer camp for three
Jacob Rubin (JR): years; my parents made
further scratch the
Thanks for having me on a deal with me that if I
academic itch. He
earned an M.Phil in Graham & Doddsville. As wanted to go to tennis or
Economics at a Columbia alum, I’m soccer camp, I had to do
Cambridge University familiar with the math camp. Later, this
publication and it’s an evolved into Mathletes
(2013) while rowing
honor to be a part of it. and the American
Bumps for his college
My upbringing had Invitational Mathematics
in the M1 boat.
nothing to do with Exam. The relevant
Upon his return to the
investing. I grew up in connection to investing
States, Jacob found
California as a sports was just building
his calling at Lonestar
and math kid. I had a confidence in math and
Capital, where he
lawyer dad who worked creating an identity as a
spent six years
for the government and numbers guy.
getting at-bats,
a CPA mom. My life was
cultivating a network,
all about competition in
and developing
sports, but tempered by G&D:
pattern recognition.
parents who had a clear
Jacob hung the Looking through your
understanding that
Philosophy shingle background at Columbia,
academics was the ticket
just as Covid hit and you were an economics
to a better life. My first
spent the past few and philosophy major.
exposure to stocks was
years weathering It'd be interesting to
ironically my dad losing
endless “tail” events (Continued on page 6)
all my Bar Mitzvah
Page 6
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
learn more about how
you shifted from math
expert to liberal arts.
JR:
I started at Columbia in
the economics
department in 2002.
This was the result of a
lack of imagination.
Economics was a popular
major, I was in New
York City, business was
exciting, and I went with
the flow. In fact, the first
time I used my brain for
myself was when I
pivoted from economics.
I noticed that the
assumptions underlying
the models in lower-level
classes were not
realistic. I recognized
that people act
emotionally,
inconsistently, are prone
to bias or impulse, and
have blind spots. I was
preoccupied with the
applicability of classroom
learning and the
predictive power of
models. If something
was strictly academic,
that only went so far. I
wanted to ask questions
and poke holes. That led
me to the fields of
decision theory,
behavioral economics,
and game theory.
Curiosity helped me veer
into the philosophy
department. Ultimately,
I wrote a dissertation on
violations of rationality.
The focus was looking at
examples of seemingly
rational human beings
making irrational
decisions. And the point
of my paper was trying
to redefine experiments
to better explain results
without resorting to the
idea that people are
utterly unpredictable.
G&D: economics, and
Can you help translate philosophy, which feels
that for the philosophy as if this is the beginning
newbies? of a true value investor
education. How did that
shape your business
JR: school experience and
inform your career path
Sure, though it’s been
post-graduation?
decades! One example I
recall involved a fruit
bowl. People may state
JR:
explicit rank preferences
of certain types of fruit The business school path
over others, only to was boring: I was
violate those preferences following a plan I laid
in a seemingly out for myself years
inconsistent manner. But before. If you rewind the
rather than concluding tape, my parents grew
irrationality, it may be up with little and used
that the description of education to achieve
choices in the graduate degrees and
experiment doesn’t provide a better
capture an additional, opportunity for their
relevant factor (such as kids. My parents wanted
etiquette). Assume their kids to keep
there’s a bowl of fruit pushing forward and this
with oranges and pears emphasis on progress
and assume I prefer entailed planning.
oranges to pears. In a Coming out of college, I
normal scenario, I’ll take had a five-year plan:
the orange over the three years of “boot
pear. But if it's the last camp” banking, then a
orange, and it’s your two-year MBA. I was
fruit bowl, maybe I’ll fortunate to get into
take a pear to be polite. Stanford and returned to
A more fulsome Northern California.
description of the choice For MBA students with
(I prefer oranges to my background, the next
pears, unless it is the step was presumed to be
last one, in which case the buyside, but the fact
I’ll take a pear) is I didn’t have a new
preserves rationality and five-year plan yet. I
enhances predictability. I showed up with an open
also remember an mind, perhaps buoyed
example with a cocaine- by the idea that my
addled neighbor offering acceptance had
tea, but I’ll stop here. guaranteed a decent
Suffice it to say, I had worst-case outcome. The
no idea this background primary effect of my two
would result in a fund years on campus was
name. not tied to any particular
profession, but instead
much more general. A
G&D: great way to describe
what I got from business
Maybe to fast-forward a
school is to think about
bit, you’ve now spent
that section in Us
some time in finance and
Weekly called “They’re
then you decide to
attend business school. (Continued on page 7)
You’re combining math,
Page 7
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
Just Like Us!” If you’ve
ever been in the grocery
store and seen celebrity
magazines, there is a
section with photos of
Ben Affleck grabbing
Dunkin Donuts or Brad
Pitt taking out the trash.
The message to the non-
famous public is “Look,
they’re just like us!”
Stanford gave us a
parade of portfolio
managers and Fortune
500 CEOs. Burbank
talked about
commodities, Chanos
spoke about short
selling, and Mary Barra
discussed the future of
automobiles. Part of the
“But you see that in
place of magic, it’s a
cocktail of hard work,
a bit of luck, and long
years dedicated to a
craft. Stir it in a pot
and voila, they’re
speaking as a CEO.”
allure of a Columbia or
Stanford MBA is that
these institutions pull in
such successful leaders.
After class, you have
lunch with them, they’re
hanging out, they’re
feeling nostalgic and
telling you stories from
when they were
students, and you
realize, “Oh my God,
there's no magic here.” I
mean, don’t get me
wrong, these are
impressive people. In
place of magic, it’s a
cocktail of hard work, a
bit of luck, and long
years dedicated to a
craft. Stir it in a pot and
voila, they're speaking
as a CEO at Stanford
Business School. For me,
this was an ‘aha’
moment. If I went for it,
worked hard, had my
eyes open, and caught a
couple breaks, I could
become that person.
G&D:
In past interviews,
you’ve mentioned that
you began life as a risk-
averse person, which is
a part of your brain
you’ve had to rewire.
How did you go about
this transformation, and
do you think this
rewiring process is
replicable?
JR:
Yeah, that’s true. For
me, it was a conscious
choice. It wasn’t
happenstance and, to
answer the last question
first, I do think it can be
replicated.
There were three big
moments. First, my dad
got sick and passed
away during business
school. There’s
something about being
confronted with
mortality that is eye
opening. You realize
you're on this planet for
a while, run around, do
some things, then you
die and the world moves
on. A life takeaway is
that the most important
thing is who's around
you at the end. But
beyond that, his passing
made me want to swing
the bat harder because
“why the hell not?” At
the end of the day, who
is going to care if you
fall on your face? If you
put in honest work, what
do you have to lose?
That realization hit me
like a ton of bricks and I
made a few concrete
goals on the spot. The
second moment
happened a year later.
After Stanford, I was at
Goldman, the fog was
lifting, and I could tell
banking was not right for
me. I needed advice and
two friends offered an
idea and perspective,
respectively. The first
guy, Tyler, had done a
Gates Fellowship to
Cambridge. He and I are
close; he lost his dad
young, we both raced
bikes, yadda yadda. He
said, “go to Cambridge
and mix it up. Maybe
join the rowing team.”
The second guy, a much
older mentor figure, was
an early partner at
Montgomery Securities.
He broke it down like
this: “Say you have a 40
-year career. Consider
two scenarios. Scenario
one, you spend 40 years
cranking and retire.
Scenario two, you spend
39 years at work, but
somewhere in there you
spend a year on an
adventure. Which life
sounds more
interesting?” My decision
was made and I sent in
my acceptance to
Cambridge that day.
After Cambridge, I came
back and didn't have a
job. I found my way to
Lonestar Capital, where I
worked for Jerome
Simon. It was my dream
gig. But after a year in
the seat, and despite
doing solid bottom-up
research, Jerome said to
me, “You know Jacob,
maybe you're really
supposed to be a
consultant. Or in
research.” I’m not
trying to throw shade,
but for me, personally, I
took it as an insult, and
I'm pretty sure it was
(Continued on page 8)
Page 8
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
meant as an insult! His
point was that I was so
task oriented performing
analysis that I wasn't
wired for the goal, which
is to compound the pile.
I was going to lose my
job if I didn't figure this
out, so with my head on
the chopping block I had
to figure out what to do
to stay. This was the
final straw; out of
desperation, I had to
take calculated risk and
find the ability to pound
the table.
At this point I figured
out a useful formula for
success as a hedge fund
analyst. It’s a three-
legged stool. Leg one is
goal orientation and
recognizing that
investing is a
commercial endeavor.
Though it’s fun, money
management is neither a
hobby nor an intellectual
exercise. We aren’t
teaching. We are doing
this to grow a pile of
capital. This entails
finding things to invest
in. For an analyst, this
means getting efficient
with your time and
quickly determining the
probability of
actionability up front.
Then, you have to repeat
the process again and
again and never slow
down. There’s a phrase,
“keep pedaling the bike.”
You get kicked in the
face? Keep pedaling. You
have a homerun and feel
like doing a victory lap?
Keep pedaling.
Leg two is that you need
to learn to speak the
PM’s language. The PM is
like Congress and you
need to pass some
legislation. If you want
names in the book, if
you want your PM to go
down the sheets and
attribute names to you, legit batting average (or
you have to slugging percentage) to
communicate effectively survive, but to get there
and figure out how to I first needed conviction,
get the decision maker that's what I figured out
onboard. For me, I'd go to keep my job.
into Jerome’s office and One final note on
would have ten seconds Lonestar. Before this
of his attention. I would stop, when I was a
need to turn those ten banker, if the MD
seconds into two messaged on Friday
minutes and then get night, I’d be annoyed.
him out of his chair to Like, “where is your
the white board for work-life balance?” But
thirty. Then you got to with Jerome, he’d
know it cold – no notes, message all day,
no equivocations – and anytime, every day of
turn that white boarding the week. But it never
into a starter position bothered me! Jerome is
and the PM’s obsessed, addicted,
commitment to read a totally wired for
full memo. A benefit of investing – and it turns
this flow is that you out I am too. If I’m at
learn what matters and the airport and it’s full, I
how to get to the good ping our team about
stuff fast. Dufry (“DUFN SW”)
Leg three is simply your between changing my
track record. Either kids’ diapers. If that
you're making money or bothers you, if you’re
you’re not. You can see not obsessed, this job is
the inherent bias to do not for you.
something in those first G&D:
couple legs. But for me
at Lonestar, if there This sounds a lot like the
were too many losers, ‘What Matters’
I'd be gone. I needed a framework that Kian
Ghazi teaches at
“I figured out a Columbia Business
School, which is an
formula for success efficient way to boil
down the thesis into
as a hedge fund what actually moves the
analyst. It’s a three- securities. The goal is
not to write a book
legged stool. Leg one report, it’s to figure out
what the variant view is
is goal orientation and figure out what we
and recognizing that need to know to make it
a long or a short. It
investing is a would be helpful to hear
how you’ve taken
commercial getting pushed as an
analyst working with
endeavor...Leg two is
Jerome to becoming a
that you need to learn PM and implementing
that process within
to speak the PM’s Philosophy.
language...Leg three JR:
is your track record.” (Continued on page 9)
Page 9
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
First, any discussion
about ‘what matters’
should start with the
question, “is this
actionable?” It’s
annoying when people
on FinTwit or Substack
pitch incredible
opportunities that don’t
trade. If there is no
borrow, has a crazy rate,
is super illiquid, or has a
sky-high short interest,
don’t bother researching
the short. Waste of time.
That’s a big difference
between trading a
personal account and
running an investment
business.
Second, we start with
wondering, “does this
opportunity represent a
serious mispricing?” To
answer that, we look for
a few things. We might
think about abnormal
upside (75% or higher)
with reasonable
assumptions. You might
react skeptically, saying
“if those only grew on
trees, right?” But they
do exist. You don’t find
them often and it's not
without risk, but you can
find things that look like
they could double if
things break right. We
also think about
asymmetric skew. Think
about, say, the ‘net net’
concept by Benjamin
Graham, where
something looks like it's
covered by current
assets less liabilities.
Theoretically you make
money in liquidation, so
it feels like covered
downside. Of course,
you find this with
elevated uncertainty, so
on a related note, we
hunt situations with
ambiguity. No sell-side
coverage, obscured
assets, complex
financials, litigation, or
political risks. If there
isn’t any uncertainty, it’s
probably not a major
mispricing. If there is no
potential
misunderstanding, it's
probably not in our
wheelhouse at
Philosophy. There are
great, fairly priced
businesses that could
deliver an adequate
compounded IRR over
time with steady
execution. But that is
not what we do.
Third, if it's actionable
and we think there’s a
mispricing, we now ask,
“why is this mispriced?”
and “will this mispricing
persist indefinitely, or
can it be corrected?”
That is the crux of our
work. We are good at
finding things that look
cheap with explosive
upside. But the area
where we sharpen our
pencils is differentiating
between CFAR (cheap
“We are good at
finding things that
look cheap with
explosive upside. But
the area where we
sharpen our pencils is
differentiating
between CFAR (cheap
for a reason) and
TCTI (too cheap to
ignore).”
for a reason) and TCTI
(too cheap to ignore). Is
it a value trap? Maybe it
is cheap merely because
it is a dicey, commodity-
driven cyclical – a low
multiple is justified. If
you can actually
determine why it’s
misunderstood and that
there's a credible path
toward fixing the
disconnect, if you can
forecast a changed
narrative, you have
something.
Finally, we’ve got to be
able to make objective
and measurable
predictions that we can
track over time. This is
important because if we
violate the predictions, I
know to sell. That’s our
framework for individual
ideas. There is another
dimension when it
comes to portfolio
construction, how the
pieces fit together, factor
exposures, etc. But
that’s a different puzzle.
G&D:
You've touched on this in
past interviews, but you
mentioned Philosophy
likes to invest in broken
markets. It would be
great to hear about
which markets you’re
focused on, and maybe a
few examples.
JR:
We like investments to
fit into a fact pattern
with which we are
familiar. Examples
include ‘survival bets,’
‘free call options’,
‘broken tech M&A’. Not
to mention the
omnipresent leveraged
packaging company.
Beyond familiarity, we
typically aim for
significant or inflecting
free cash flow. If cash
flow is missing, it is
likely a distressed
situation where we're
thinking about
underwriting through
bankruptcy and thinking
through asset values. A
final component is
catalysts; mis-pricings
don’t tend to correct out
of thin air. Usually
(Continued on page 10)
Page 10
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
there's an event path for distressed guys, these
an about-face. As you situations trade with 10-
might imagine, efficient or 20-point gaps in
markets have lots of pricing, not point-by-
eyeballs, smart people point. Oh, and tax loss
with strong incentives, selling; it’s October as
combing over the we're talking, we're
opportunity set. The entering prime tax-loss
good news, though, is selling season. For tax-
that markets break down paying investors, you
all the time. Elections in can have big losers that
Italy and Colombia are get to a point where you
scaring the market, we'll can make 100% return
see what happens here on a realized tax loss.
in the US with midterms Even if you think the
and then 2024. ESG is stock’s a double, the
massive and not exactly benefit of the tax loss is
perfect fundamentally. certain. That quirk is tied
The spirit might be good, to the tax code.
but folks are taking
advantage of it, puffing
up bad companies and G&D:
harming some good You mention in other
interviews how
“We like investments important it is for
investors early in their
to fit into a fact
career to “be wrong” and
pattern with which to “feel wrong.” I’d be
curious to hear how
we are familiar. you’ve translated that
Examples includes into your success in your
career. Could you walk
‘survival bets,’ ‘free through an experience
that you had early on in
call options’, ‘broken your career, with an
tech M&A’. Beyond investment that made it
through all your criteria,
familiarity, we but didn't work out, and
what you learned from
typically aim for that?
significant or
inflecting free cash JR:
I can give a couple
flow.”
examples, both mistakes
and then successes.
ones. I’d also argue
small caps are becoming Back at Lonestar I
broken because they're invested in a couple air
not investable for the freight businesses, Air
increasingly large Transport Service Group
institutions that drive (“ATSG”) and later Atlas
flows. In credit markets, Air (“AAWW”). It was a
there are all sorts of classic levered value
technical issues. investment. This was
Whether it's CLOs who 2017/2018 and the
can’t hold stressed thesis was that AAWW’s
paper, or real money bad FCF was the result
PM's needing to offload of elevated capex tied to
stressed paper to the build-out of
Amazon's fleet. Atlas
claimed this cycle would
die down and the
company would gush
free cash flow and de-
lever by half a turn a
year. Atlas was
benefiting from secular
tailwinds like e-
commerce and just-in-
time delivery. It had
ACMI business (aircraft,
crew, maintenance,
insurance) with
guaranteed minimums,
lending stability to the
downside. A clear thesis
overall: capex cliff, de-
lever 0.5x per year,
stability to the downside,
and a cheap multiple.
Fast forward to August
1st, 2019 and AAWW,
the largest position in
my sleeve, which was a
trial balloon to see if
Jerome would back me.
Atlas whiffed hard, with
EBITDA -31% year-on-
year and below
consensus by -17%. The
stock fell 25% and kept
falling. Management
blamed tensions in trans
-pacific relations, but
this kind of result wasn’t
supposed to happen with
ACMI contractual
minimums. Moreover,
they didn’t de-lever at all
and when I asked them
about it, they said the
company did pay down
debt. I was confused
because the metrics
didn’t change, but they
said, “well, we drew the
revolver to pay down the
bonds.” I had to sell
because that was
disingenuous and my
understanding of the
business was proven
wrong. A small lesson I
learned is that
guaranteed minimums
are not a panacea.
Oftentimes, guarantees
are priced well below
normal run rate, so spot
(Continued on page 11)
Page 11
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
dries up completely and
the contractual bit falls
to the minimum and
earnings get smoked.
Sadly for me, the AAWW
mistake doesn’t end
there. It gets worse!
During COVID,
passenger flights were
decimated, which killed
nearly half the air freight
capacity that flies in the
underbelly. Ships were
backed up at every port
and supplies were
needed everywhere.
Atlas was in the perfect
place at the perfect time
– and I completely
missed it. I didn't revisit
it, I didn't get any
dollars behind the trade,
and the stock went from
$20 to $100. This ties in
another Jerome-ism:
“never take your eye off
a ticker.” Once you've
learned it and you've put
in that time, you can’t
forget about it. The
world is dynamic.
One more mistake.
Avaya (“AVYA”) is a
communications
company that ran into
big trouble. After the
stock plummeted, we
identified a trade tied to
an impending convert
maturity. There was a
small issuance due in
2023, but after that it
had four years until a
mountain of secured
debt in 2027-2028. The
company was in the
market raising $500
million to take out this
$300 million convert.
The books were covered
and even got upsized.
The explicit use of
proceeds in the
marketing of the deal
was to take out the
convert. We bought
converts at 88 cents
thinking that when they
closed the new money
deal, the converts were
good. Avaya closed the
deal, the converts
jumped to 95, and we
felt smart for about five
seconds. Unexpectedly,
a couple weeks later, the
CEO was fired, the word
“removed” was in the
press release, and
numbers were slashed
and abandoned. I felt
physically ill and
immediately realized we
were screwed.
Thankfully, it was sized
small and we took our
medicine fast. But it was
“This ties in another
Jerome-ism: “never
take your eye off a
ticker.” Once you've
learned it and you've
put in that time, you
can’t forget about it.
The world is
dynamic.”
painful!
In hindsight, I made
three mistakes here.
First, this was
asymmetric the wrong
way; we could make 12
points or lose 88, which
is awful unless the odds
are nearly certain and
I’m not someone who
underwrites to certainty.
Second, we made money
on our core prediction –
job done – and yet we
decided to hang on for
five more points. The
math was even more
asymmetric the wrong
way and we should have
called it a day. Finally, I
had not adequately
scored the downside
case. If things fell apart,
our convert was
unsecured and the fact it
was first in time would
not protect us. We were
below $2 billion of
secured debt. While the
events that occurred
were somewhat hard to
predict, this was not bad
luck but, rather, a series
of mistakes.
G&D:
That's a helpful
overview. The Avaya
trade reminds me of an
experience I had where
I've learned to not buy
2nd liens because of a
similar dynamic. I’d be
remiss if I didn't give
you an opportunity to
talk about a successful
investment.
JR:
For symmetry I'll give
you two. We had a good
investment in
Bombardier (“BBD/B
CN”), which went from
27 cents CAD to about
$2. In 2020, the stock
got killed on Covid and
kept falling without
respite during tax loss
selling season. It was
just getting slammed
every day. But we
realized that Bombardier
had a catalyst on the
immediate horizon.
Namely, the company
was selling its trains
business to Alstom. With
the sale, Bombardier
would shed a complex
minority interest, a
bunch of debt, and
pension obligations.
Plus, there would be a
sizable cash infusion and
the creation of a pure-
play private aviation
business. This catalyst
would change the
narrative and buy four
years for optionality. We
ran a Black-Scholes
model where we looked
at in-the-money call
(Continued on page 12)
Page 12

Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
value for six months feeling giddy. It had Team’, and ‘C Team’
versus four years and chartered business, performing players. New
sixth months. Four years asset value covered by investors who can be
of runway was worth scrap, and management great at business and
almost the entire stock that seemed better than fundamental analysis
price. (And yes, I used others in the space (low might be missing this
the “runway” joke many part of their skillset,
times in LP meetings. “I had this mantra which is an ability to
Sue me.) We bought the that the number of evaluate the
stock as a survivor bet, performance of
but also picked off front folks who have done management teams.
end debt in the 70s. And well in shipping is What’s your criteria in
then the fun part was as weighing that?
we moved past the “not many” and, well,
trains sale, we realized this was art versus
Bombardier was a JR:
secular winner in a world science, and “art” told The first ingredient is
where commercial travel me to get out.” access to management.
felt unsafe. Sure At Philosophy I am
enough, they boosted bar). We had a small trying to instill a culture
orders and people got position before COVID- of not being shy. My
excited about the 19 and thankfully, unlike guess would be that if
optionality. Atlas, we put the pieces you talked to the
Another fun one was together fast. We made management teams
shipping broadly. I the position bigger post we've invested behind,
remembered that in my Covid and the stock shot they would probably
banking days from 2006 from $3.60/share to laugh and make a joke
– 2008, shipping was over $100. We didn't about how persistent
fantastic and every bank hold it all the way, but (annoying?) we are. We
had its own shipping suffice it to say we did have lots of calls, lots of
teams. But good times well. Interestingly, in meetings, we share our
led to oversupply and January 2021, an Israeli work to let them know
decade-plus period of shipping company called what we're thinking, and
nasty supply/demand. Zim (“ZIM”) IPO’ed. we offer “suggestivism.”
Everyone invested lost Danaos had a large We're not afraid to go
their shirt. I read a fun stake in Zim, which into boards or executive
book about a hedge fund caused us to take a look. teams and we try to do
PM risking everything on When the IPO broke so intelligently. For
shipping, The Shipping price, we built a position example, junior analysts
Man. But in 2019, I which also had a need to learn that if you
realized that there was meteoric rise. Colored by write cookie-cutter
nobody to talk to about the horrors of the past, messages like, “hi, I'm
shipping. It was dead. both fictional and real, from so and so, a fund
No more banking we erred on the side of that manages X dollars,
coverage, nothing. caution and sold our this is our mandate, can
These ships have 20 positions at the end of we please have a phone
year lives but tend to 2021. I had this mantra call?” then management
float even longer. Excess that the number of folks will ignore you. They are
supply loitered on the who have done well in human beings and that's
water, just wouldn't shipping is “not many” what human beings do
clear out, and every and, well, this was art to boring emails.
investor in the space versus science, and “art” Instead, make it more
sounded suicidal. But we told me to get out. casual, to the point, and
discovered one of the G&D: ideally have something
cheapest stocks that is in it for them.
You’ve discussed Then, boom, a meeting.
anywhere, well before investing in businesses
COVID-19, called Also, this is way better
with different ‘grades’ of than using an expert
Danaos (“DAC”). It was management, splitting
0.7x PE. I remember network. I went away
between ‘A Team’, ‘B
seeing that multiple and (Continued on page 13)
Page 13
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
from those services
because the serendipity
in the process of getting
to people is so valuable.
You just don't know
where it's going to go,
but all those calls usually
produce something
unexpected, and if you
just lazily have someone
scheduling expert calls
for you, you miss out on
that element.
Once you have access,
it's just reps, at-bats,
and years in the seat to
help you distinguish
between good and bad.
At first, all
managements will sound
compelling but over time
you appreciate the
difference. In addition to
how they sound and
what their background
is, you can look at
incentives. You want
alignment from an
ownership perspective.
You can do checks on
them and ask around to
find out if they are well-
regarded. Listen to see if
they sound capable,
they're articulate, they
don't repeat themselves,
they don't resort to
generic language but
instead get right into
specifics. A mistake I've
made is overlooking
problems with
management. If there's
a governance problem
and management is not
trustworthy, if you get
checks saying they're
crooks, get out. Crooks
gonna crook. They know
how to do it and if
they're an executive at a
publicly traded company,
they are probably good
at it. You need to
respect that reality and
get away from it. It's too
unpredictable.
G&D:
You’ve mentioned these are bad businesses
Philosophy looks at the and once you learn that,
hairy stuff that’s out of it goes in your toolbox.
favor potentially for a Going forward, the bar
reason. How do you go
about determining which “Part of this process
investments should fall
into the too-hard pile,
is accumulating
versus digging in and battle scars...As far as
really trying to do some
creative work? One deciding if something
example is an is uninvestable
Engineering &
Construction (“E&C”) broadly, we always
business like a ask the question, can
McDermott. This was not
a good business model, this be corrected? Can
and it was going through what everyone is
a tough time of overruns
and delays. It wasn’t seeing today be
bankrupt yet, had flipped around...We
runway and liquidity,
and the debt looked get it right some of
covered on asset value the times, wrong
and was yielding a juicy
coupon. It became clear other times, but when
the business was going we get it wrong, we
bankrupt. I did a ton of
work to underwrite ask ourselves why
owning it into and fill up our
bankruptcy, but it
proved to be a gigantic ‘Lessons Learned Scar
waste of time. I’m Tissue’ bucket.”
curious how you all think
through that process and to convince me of an
what makes you decide E&C long is going to be
it’s not worth the brain awfully high. Another
damage? consequence of this
learning would be that if
something looks like an
JR: E&C business, and is
Part of this process is cheap as a result, but in
accumulating battle reality is not such a
scars. You say business, then that is a
McDermott and I recall reason for cheapness
Chicago Bridge & Iron, that could pique my
Babcock & Wilcox, and a interest.
few other E&Cs. At some As far as deciding if
point, trying a cheap something is uninvest-
E&C feels like a right of able broadly, we always
passage. You get killed ask the question, can
on spiraling cost this be corrected? Can
overruns; you see what everyone is seeing
management teams today be flipped around?
confidently stand behind What you described with
increased cost estimates McDermott was clearly
– “the last time, we cheap for a reason –
promise” – and then nothing about it was a
they blow past them the
next quarter. You learn (Continued on page 14)
Page 14

Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
mispricing. It's cheap for density and the full is triple-exposed to
clear reasons. We get it impact of supply chain rising rates: 1) the
right some of the times, ecosystems. Everyone factoring business
wrong other times, but points to solar, wind, benefits from spreads
when we get it wrong, and batteries, but they blowing out due to
we ask ourselves why neglect the rare earth increased time value of
and fill up our ‘Lessons mineral mining or how money, not to mention
Learned Scar Tissue’ you tackle the waste or the benefits of factoring
bucket. old panels or turbines. in a more uncertain
G&D: Anyway, the place that world; 2) BFF has a 6
feels interesting and billion EUR loan book
Coming off the tech early, to me, is nuclear. tied to Italian sovereigns
bubble boom and bust But we also look at LNG where 5-yr spreads are
between 2000 - 2001, as well as the fat tail of blowing out and they
many investors swore off classic oil and gas. have near-term and
investing in technology. Traditional oil and gas floating exposure that is
That myopic view was companies are so going gangbusters; and,
obviously proven wrong. unloved, they trade at 1- 3) BFF charges late
Do you think there are 2x cash flow. payment interest at a
similar sectors where the statutory floating L+800
market is meaningfully Another area of change
is that we just had a rate. So, BFF is triple-
mispricing risk today? exposed to rising rates
decade-plus of falling
interest rates or interest and as long as the entire
rates pegged to the country of Italy can fund
JR:
floor, not to mention hospital bills and the
I can think of a couple. like, it will be a major
negative in Europe. Now,
When you're doing a top beneficiary of this
rates are rising and
-down analysis, you’re environment. That’s just
regardless of when the
looking for a paradigm one example of
Fed pivots, or to what
change, for multi-year Philosophy looking
extent they turn dovish,
trends that reverse. You around an area of
the fact remains that
try and think “what are change and not knowing
rates are off the floor.
the implications?” One what we’ll stumble on.
What’s more,
area of change today is
Quantitative Easing is
energy transition. We
turning hard into G&D:
think about the
Quantitative Tightening.
proliferation of ESG In the Winter 2009
It's not just coasting in
funds and what that Graham & Doddsville
neutral; it's actually
means for longs and edition following the
reversing 180 degrees.
shorts. We think about Great Financial Crisis,
When you jam the
the dynamic problems Bruce Berkowitz stated
brakes and throw it in
that are being tackled he believed investors
reverse and interest
from governments and were “focused on most
rates rise, what
businesses globally. of the ways in which you
happens? We are asking
Power demand is only can die, which is a great
ourselves these
growing, with both signal for the future.
questions all the time
demographic trends as What is happening
and we've uncovered a
well as the need to today, as in most bear
few interesting
digitize developing markets, is that people
investment
economies. Meanwhile, either don’t have the
opportunities.
classic fuel types are cash or they don’t have
killing our planet. So a For example, there’s a the stomach – hence the
wave of fund flows flood factoring business in low valuations.” The
the market trying to find Italy, BFF Bank (“BFF draconian risk during the
clean energy solutions. IM”), where the Italian GFC was the potential
But you need to think political backdrop and for total collapse of the
about complex scientific what's happening in capital markets, but the
problems, like European equities has fear in markets today
distribution, punished stocks and appears to be a scenario
transmission, energy hidden a few gems. BFF (Continued on page 15)
Page 15
Gavin
Jacob Baker,
Rubin, Atreides Management
Philosophy Capital
where high inflation and
slow growth create a
decade of stagflation.
Layer in a growing lack
of confidence in central
banks and sovereign
debt issuers, and it’s a
nasty cocktail. At the
same time, sentiment
across retail, business
leaders, and investors is
quite poor. Do you see
any corollaries between
the post-GFC era and
today? Are we closer to
the ‘Roaring 20s,’ the
1970s, or the Great
Depression?
JR:
One of the most
important risk
management priorities
right now is
understanding your
factor exposures. And
not just Fama French
stuff. If Putin is taken
out tomorrow, how is
your book going to
perform? If escalation
happens with China and
Taiwan, how are you
positioned? Corporate
leverage? Wage
inflation? You need to
think about if you are
balanced or imbalanced
on all these dimensions.
If you are imbalanced,
you have to know
whether that’s
something you want by
design because you
believe in it. If not, how
can you achieve better
balance? Philosophy has
a lot of tools we use to
think about hedging and
we tend to find creative
ways to offset all sorts of
risks. Peace might ding
our energy book, but
travel stocks probably
rip. Etc. etc.
As far as facts on the
ground, two things are
true simultaneously.
One, it's a bad macro
setup. Geopolitics is a
mess, we have social copious cash flow.
efforts distorting This sounds self-serving,
markets, we are coming but if you add up the
off free money fueling two facts I mentioned –
idiotic bubbles, we have the existence of cheap
a brutal combination of securities tied to
high inflation with strong businesses that make
employment, which cash and want to give it
gives the Fed cover to back, against a tough
jack up rates. We have macro-environment with
the reversal of lots of risks looming – I
globalization, which is think you need a long/
inflationary. It’s a tough short strategy. Further,
backdrop when you add you want a low net, you
it up. This is consensus, want some cash on the
but that doesn’t mean sidelines, and if you
want to make it really
“One of the most
interesting, you want the
important risk ability to go after
management distressed credit if we're
heading into a cycle.
priorities right now is
G&D:
understanding your I couldn't agree more. I
think that's probably a
factor exposures. And
great place to leave it.
not just Fama French Jacob. Thank you so
much for your time.
stuff. If Putin is taken
out tomorrow, how is
JR:
your book going to
perform? If escalation You’re welcome, thanks
for having me.
happens with China
and Taiwan, how are
you positioned?
Corporate leverage?
Wage inflation? You
need to think about if
you are balanced or
imbalanced on all
these dimensions.”
it’s wrong. Two, there
are businesses
generating cash that will
prove resilient. I think
the idea of capital
allocation is front-and-
center, more than it has
been in the past. You
can find management
teams that appreciate
the importance of capital
allocation that have
cheap multiples and
 Page 16

Contemporary Amperex Technology Ltd. [CATL] (SZSE: 300750) - Long

First Annual Kawaja Growth Stock Pitch Challenge (1st Place)

Shalin Doshi ´23

SDoshi23@gsb.columbia.edu
Shalin is a second-year MBA
student at CBS and part of
the Value Investing Program.
He started his career as an
Recommendation:
Equity Research Analyst at JP
Morgan, covering Consumer Long CATL with a Dec 2024 price target of ¥863, representing 100% upside or an IRR of 37%.
sectors. This summer, he
worked with Whale Rock
Capital, a Boston-based long- Background:
short equity hedge fund. CATL is a manufacturer of lithium-ion batteries for electric vehicles (EV)
Shalin graduated from the and energy storage applications, and is the leader (33% share in 2021) in a
Indian Institute of Technolo- concentrated EV battery market (top 5 players hold ~80% share). EVs rep-
gy Madras with a Bachelors
and Masters in Technology,
resent a majority of global lithium-ion battery demand, with a large, growing
and is a CFA charterholder. TAM driven by increasing global EV penetration, which is expected to rise
from 8% in 2021 to 23% by 2025. I believe CATL is the best way to bet on
the EV growth curve.

Investment Thesis:
1. Underappreciated growth levers and market-leading positions
Expect ~10% pt. upside to Street’s FY22-25 revenue CAGR estimates
• Supplies nearly every OEM across all regions, standing
to win irrespective of which player gains share
• Retains 50% share in China, which will remain the larg-
est + fastest growing EV market this decade
• Well-positioned to grow ex-China share, the next
lever of growth, with plants in Europe, Asia, Mexico
• Pack innovation leadership (CTP) allows multiple
chemistry use-cases, growing both NMC and LFP
• ESS represents a call option, with sodium-ion a potential accelerator; low street expectations

2. Unique competitive advantages allow industry-leading margins

Expect ~250bps upside to Street’s FY24 EBIT margin estimates
• Benefits from economies of scale clearly exist in battery
manufacturing, with CATL also benefiting from large
govt. subsidies, no longer replicable
• Strong negotiating power vs supplier base, steadily built
over a decade, allows superior cost profile, with feed-
back from multiple suppliers indicating favorable fee
structures; CATL represents >50% of revenue for many
of its suppliers
• Shrewd investments in critical raw material supply
(lithium and cobalt mines, cell components) removes
bottleneck to expansion, with research indicating persis-
tent lithium undersupply till 2030
• OEM contracts were renegotiated to favor battery makers, with OEMs having high switching costs

Sources: Company Reports, Bloomberg, CapitalIQ, EV-volumes, GGII, Broker Research, Expert Network Transcripts. Pricing as of 13-Oct-22.
 Page 17

Contemporary Amperex Technology Ltd. [CATL] (SZSE: 300750) - Long

3. Product innovation leadership ensures CATL remains ahead of the curve

Key driver against substitution risk in a rapidly evolving industry
• Highest R&D spend (another scale benefit) + top talent allows best product quality every
year; expert feedback suggests quality gap keeps increasing
• Ability to get a new product to market as quickly as within 2 years is well above peers
• Encouraging chemistry development pipeline, with progress being made in LMFP, Na-ion,
cobalt-free, and silicon anodes; represent optionalities
• Well-regarded management with expertise, relationships, and skin in the game - the
Chairman/CEO is the largest shareholder with a 25% stake

Valuation: 67% upside to FY25 consensus EPS; cheap P/E given growth
• Expect volumes, gross margins, and operating margins to be above consensus estimates for
FY24-25
• CATL offers the best value for growth among battery comps (see table below)
• Assuming a conservative 25x P/E multiple on base case FY25 EPS; multiple should arguably be
higher given 40% EPS growth CAGR expected over FY22-25
• Stock has historically traded in a wide band of 30-100x NTM P/E;
current multiple (22x FY23) is near all-time lows since IPO
• Reasonable downside protection in the event of weaker-than-
expected volumes and margins, with the current share price imply-
ing persistently low multiples and much lower EPS growth

Risks and mitigants: Concerns around margins, oversupply, geopolitics

• Geopolitics to limit global expansion: Plausible risk, not in company’s control. Recent contract wins in US (Ford, Tesla com-
ments) suggest OEMs have bigger issues. CATL’s Mexico plant could technically be eligible for IRA benefits. But US is a small
part of CATL’s story, with no US contribution at worst a 10% hit to EBIT. Strong relationships with European OEMs with large
capacity expansion projects in Germany and Hungary suggest Europe will ensure international remains a key driver by FY25.
• Margin weakness due to high raw material costs: Starting from Apr/May 2022, raw material costs have been completely passed
through to OEMs, with EV makers confirming this in subsequent earnings calls.
• Market oversupply & competition from Tier 2 players in China: On the contrary, EV makers have struggled with battery shortag-
es since last year. Conversations with battery heads at OEMs suggests they prefer battery makers with scale, high utilization,
access to raw materials, and best-in-class tech - for all of which CATL is a league above its peers.
• EV (and battery) demand falls off a cliff in a recession: EV adoption could slow temporarily, but the structural trend is unlikely to
change on a medium term time frame. Demand outlook in China remains robust, supported by favorable regulations.
• OEMs start making batteries in-house: Battery manufacturing has huge barriers to entry from capital requirements, chemical
engineering expertise, and different manufacturing capabilities vs car-making. Product cycle development takes years.
• Substitution risk from new battery technologies (read: solid-state): Any groundbreaking technology is unlikely in the near term,
as per numerous industry experts, with solid-state particularly unviable. Product innovation is likely to come from CATL itself
than any other player given its massive R&D spend.
• Low utilization rates given expected global lithium undersupply: CATL’s investments leave it better placed vs other battery mak-
ers in securing lithium supply.

Sources: Company Reports, Bloomberg, CapitalIQ, EV-volumes, GGII, Broker Research, Expert Network Transcripts. Pricing as of 13-Oct-22.
 Page 18

Planet Fitness, Inc. (NYSE: PLNT)

2022 Chicago Booth Investment Conference & Competition (1st Place)
Recommendation
Long PLNT with a 3-year target price of $102, representing an IRR of 18%

Alan Leite, CFA ‘24
ALeite24@gsb.columbia.edu
Alan is a first-year MBA student at CBS. Prior
to business school, he worked as a Proprie-
tary M&A/VC senior associate at Nubank in
Brazil. Before that, Alan was as a private
equity associate at Carlyle. Alan graduated in
engineering at the University of Sao Paulo.
Company Overview
Planet Fitness is the largest gym franchisor in the world, with 2,324+ units, Current Price ($BN)
where 90% are franchises and 10% are corporate owned gyms.
• Founded by the Grondahl brothers in 1992 in Dover, New Hampshire
• Chris Rondeau started working at the front desk of the first ever Planet
Fitness and became CEO in 2013.
• Planet Fitness present in all 50 states in the U.S., and started to expand
to Canada (~50 units), Mexico (~16 units), Australia (~8 units), Panama
(~6 units), and Puerto Rico (13 units).
• Planet Fitness has a market share of 9% in the U.S. in terms of net revenue, and international sales account for 3% of
Planet Fitness’ net revenue.

LTM 2Q22 Net Revenue Breakdown

Franchise Royalties and Fees Corporate Owned Stores Equipment Sales

42% 36% 22%

Investment Thesis
Planet Fitness is well-positioned to drive significant growth beyond current market expectations, and it is trading at an at-
tractive valuation
I. Favorable Industry Tailwinds:
Thomas Schlabach ‘24 • U.S. gym market is large ($37 billion) and is growing at 4% per year.
TSchlabach24@gsb.columbia.edu
• The COVID-19 pandemic resulted in the closure of about 10k gyms (~25% of total number of gyms in the U.S.),
Tommy is a first-year MBA student at CBS
and AVP of CSIMA Conference. He served
and during this time PLNT did not have any store closures.
for 12 years as a US Navy veteran. He is now • International markets are an opportunity of more than $9 billion, with similar trends to those of the U.S.
a large cap strategy intern at Diamond Hill
Capital Management. • Strong performance during the 2007/2008 GFC shows Planet Fitness as a recession proof business.

Number of Gyms in the U.S. (thousands) Change in Number of Gyms by State (2019 - 2022)

Cheng Jiang ‘23

ChJiang23@gsb.columbia.edu

Cheng is a second-year M.S. Financial Eco-

nomics student at CBS. His previous experi-
ences were in FOF research and business
analytics. Cheng graduated magna cum laude
from Rensselaer Polytechnic Institute with a
B.S. in Computer Science. II. Strong Business Model with Competitive Advantages:

Matthew West, CPA ‘24

MWest24@gsb.columbia.edu
Matthew is a first-year MBA student at CBS.
Prior to business school, he worked at
Becton Dickinson as a senior internal auditor.
Matthew graduated summa cum laude from
Rutgers Business School with a bachelor of
science in accounting and finance.
 Page 19

Planet Fitness, Inc. (NYSE: PLNT) - Long

II. Strong Business Model with Competitive Advantages (Continue):
• We ran a survey and discovered that, when looking for a gym, clients value location, price, and clean-
liness, and Planet Fitness offers great values in these criteria. They have an extensive footprint, with
2,324+ locations. In addition to the $10 entry price, clients can get access to every Planet Fitness
locations with the Black Card at $25. Black card memberships account for >60% of total member-
ships. Planet Fitness also holds a high standard in terms of cleanliness, as verified by site visits and a
word cloud from 50 randomly selected Planet Fitness locations and reviews from across the US.
• Planet Fitness also has a strong value proposition to franchisees which includes great unit economics
(ROIC of 17%), thus aligning interests for expansion.
• Planet Fitness’s scale provides great competitive advantages which differentiates the company from competitors. This includes a large national adver-
tising campaign, discounts on gym equipment, better relationship with real estate agencies and network effects.

III. Attractive Valuation Caused by Overlooked Sales Growth:

• Market’s overreaction after PLNT’s 2Q22 guidance created a great entry opportunity as long-term fundamentals were unchanged. After the earnings
release on August 9, PLNT declined 23% while the S&P 500 declined only 9%. In addition, PLNT is trading at –1 standard deviation of its 5-year P/E
NTM average.
Variant Views:
• Number of stores: Management provided 4.0k stores in the U.S. prior to COVID, and the street still uses the number as a target for U.S. (+0.2k for
international). However, the street fails to incorporate what COVID caused in this industry (10k gyms closing doors). Thus, due to its strong com-
petitive advantages and best-in-class value proposition, we believe Planet Fitness is poised to capture more market share, reaching 4.6k stores in
total in 2032.
• Average Revenue per User (ARPU): Prior to the pandemic, equipment revenue per franchise was around $140k, but COVID compressed this num-
ber to $80k, and the street still forecasts a slightly higher value going forward. However, franchises have the obligation to replace their equipment
every 5-7 years. Therefore, we believe equipment revenue per franchise should return to pre-COVID levels.

Valuation — What You Need to Believe to Reach Our Target Price in 2025
• Stores: 3.0k in 2025 (vs. 2.4k in 2022) / 4.6k in 2032 — A larger opportunity due to COVID
outcome (-10k gyms)
• ARPU: $69 in 2025 (vs. 55 in 2022) — Mainly due to higher equipment sales
• Net Margin: 19% in 2025 (vs. 15% in 2022) — Back to historical levels (pre-COVID)
• 2025 Exit P/E NTM Multiple: 25x (vs. 30x entry and 23x of the street) — Higher growth until
2032 (vs. the street) and supported by trading comps

In summary, we see PLNT as a highly asymmetrical opportunity and recommend long

PLNT with a 3-year target price of $102 and an IRR of 18%.

Risk and Mitigation

• Slower Expansion: If Planet Fitness or its franchisees are not able to continue to expand, our these would be broken.
• Planet Fitness already signed ADA to expand +1,000 stores with current franchisees. Also, the COVID-19 pandemic created a great opportuni-
ty for expansion.
• Competition: If other fitness competitors start to aggressively enter Planet Fitness’ market, the number of members per gym would be affected and
returns would be lower. Also, price competition could hurt Planet Fitness’ margins.
• Planet Fitness has the best value proposition among current competitors (and other relevant competitive advantages). Also, according to a
former board observer for a franchisee at PF, because around 50%-65% of members don’t show up often, members do not go to competitors
when they arrive.
• Cannibalization: If Planet Fitness opens too many units, one unit can steal members from the other. Thus, number of members would be lower per unit,
which can hurt growth and margins.
• Planet Fitness still has a vast opportunity to expand nationally and internationally. Also, if 20k square feet units have no larger space, Planet
Fitness can reduce to 10k square feet and expand to places where the 20k square feet unit would not be viable.
• Recession: In case of a recession and/or a high interest rates, people could stop spending and franchisees could halt expansion due to high cost of debt.
• Planet Fitness has the cheapest product in the market, so people would be attracted to it. Fitness is not discretionary, and PF performed well
during the financial crisis in 2007-2008 and during COVID, whereas other gyms did not. This could create even more opportunities for PF.
Lastly, Planet Fitness’ unit economics are already attractive even without leverage.
• Lower ARPU: Planet Fitness’ value proposition is low price for a quality gym. This can result in lower pricing power with consumers; Planet Fitness is
not able to return equipment sales to pre-pandemic levels.
• Planet Fitness recently increased its Black Card price from $23 to $25 but didn’t see churn increase. Also, Black Card penetration is still ramp-
ing-up, so this would increase ARPU.
• Franchisees are obliged by contract to renew their equipment every 5-7 years. This was postponed due to the COVID-19 pandemic but is
returning to normal levels.
• Contracts of franchisees are converging to new 7% royalties fee (from 6.38% LTM), so this will increase ARPU over time.
• Disruption: Work out at home companies (such as Peloton) could steal members from Planet Fitness and decrease PF’s growth.
• Planet Fitness targets a different population from traditional fitness centers and has a much lower pricing point. Also, the value proposition of
Planet Fitness is attractive due to the low price, and members can have both subscriptions.
 Page 20

Connor Haley, Alta Fox Capital Management

Connor Haley founded background and how you are so many resources
Alta Fox in 2018 and first became interested available today for
is responsible for in investing. investors to learn from
managing all aspects the greatest investors of
of the firm’s all time, and I tried to
investment process Connor Haley (CH): take advantage of those
and strategy. He has Thanks for having me. resources.
over ten years of I've always been pretty
investing experience analytical and into
and a passion for strategy games. I caught G&D:
investing in small-cap the investing bug when I Who are some of the
and under-the-radar was a freshman in high investors that you think
opportunities. Before school. I took an have made the biggest
founding Alta Fox, economics elective, and impact on your investing
Connor was an we had sort of a stock philosophy? Who have
Connor Haley, Analyst at Scopia market game where you looked up to and
Alta Fox Capital Management we’d compete against has that changed over
Capital LP in New York (2014- local schools through the course of your
Management 2017). Connor is an virtual stock picks. It career?
active investor on really sparked my
MicroCapClub.com fascination and I started
and reading everything I CH:
ValueInvestorsClub.co could about investing. In There's a common
m (since 2016). high school, I created a perception that investing
Connor was an active website to generate is an apprenticeship
investor in college—he Peter Lynch style “invest business. You hear a lot
founded in what you know” of people say that. In
TheVariantView.com insights. The idea was to my view, that's a bit of a
and was the President aggregate consumer pessimistic notion
of Harvard’s largest insights from high school because the odds that
undergraduate and college students into you land in a seat where
financial club, which investing insights while you are working directly
he led to its highest teaching a younger for someone who is a
ever annual return. generation about top tier investor who not
Shortly after founding investing. It was a fun only has a style that
Alta Fox, Connor won idea with very little resonates with your
the 2018 Texas Hedge demand. It turns out personality but is also
Fund Conference that most high school willing to teach you
Emerging Manager and college students everything they know is
Pitch Competition. really don't care much extremely unlikely. If
Connor received an about investing. you ended up working
A.B. in Government for Julian Robertson in
In college, I was highly
from Harvard College the early days, that's
active in investing. I ran
(magna cum laude). fantastic, but it's just
an investing blog called
thevariantview.com and very unlikely.
Editor’s Note: This Fortunately, there are
participated in numerous
interview took place more resources than
investing competitions
on October 20th, ever both online and in
while part of Harvard's
2022. print to learn from the
Financial Analysts Club. I
also sought out several greatest fundamental
Graham & Doddsville great investing investors in history. My
(G&D): internships where I greatest influences have
continued to further my been reading everything
Connor, thanks for
knowledge of investing. I I could from investors
joining us. We're really
was trying to get better like Joel Greenblatt. I
excited to talk with you
every single year. My think I've read
today. It would be
goal was to get into a everything he's ever put
helpful for our readers if
risk-taking seat as early out there, including his
you could walk us
through your as possible and catalyze
(Continued on page 21)
my own learning. There
Page 21
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
Columbia Business about Greenblatt is his
School notes, frankly, ability to take very
which is one of the complicated situations
things I always and simplify them into
recommend to their most essential
investors. elements. I think he's
Same for Buffet, Lynch, excellent in that regard
et cetera. I think you and it explains a lot of
just really need to read his success.
and reread the greatest
investors of all time and
G&D:
ultimately find a way to
incorporate some of their Shifting gears, walk us
principles into your own through the period
process, which is shortly before you left
important because there your previous fund to
are many styles of launch Alta Fox. What
investing. There's no one gave you the confidence
size fits all, and it's to go out on your own
important that you and what was the
develop your own opportunity that you saw
framework from first in the market that you
principles so that you wanted to capitalize on?
know and have
confidence in your own
CH:
style in times of market
turbulence because the I've always been
market will inevitably entrepreneurial by
test you. And if you're nature. It was always
uncertain about how you my dream to move back
want to invest, you're to Texas and launch a
likely to make costly fund with a flexible
mistakes. mandate and long-term
capital. I had been fairly
successful investing my
“I think you just really personal account for
many years, and I had a
need to read and reread
strong desire to
the greatest investors of implement my investing
philosophy at an
all time and ultimately institutional scale.
find a way to
incorporate some of G&D:
You launched Alta Fox in
their principles into
2018. What are some of
your own process.” the takeaways from that
period? Anything that
surprised you, things
you would do differently,
G&D:
things you'd do the
Anything in particular same?
that stood out about Joel
Greenblatt?
CH:
CH: I knew launching the
fund would be an
A lot of things, but if I enormous amount of
had to say one, what I
work and very stressful.
think is exceptional This was not lost on me,
but it was probably even
more stressful than I
thought, to be honest.
Managing the fund, as a
one-person team,
alongside all of the
operational aspects that
go into a fund while
trying to raise capital, is
all consuming.
Unfortunately, getting
off to a good start is
even more important
than it should be, in my
opinion, in terms of
determining your long-
term success in this
industry. In terms of
things I did well, I spent
several months studying
the operational aspects
of hedge funds before
launching Alta Fox. I
knew what I wanted to
do and was well-
prepared on the
research side, but from
an operational
perspective, I'd never
worked on that side of a
hedge fund. But when
you launch a firm and
you're doing it as a one-
man team, you must
study that. I spent
several months prior to
launch really studying
that aspect seriously.
That knowledge helped
me make informed
decisions that I think put
Alta Fox in a better
position today than if I
had solely relied on
external advisors like I
see many people do. You
really have to own every
aspect of the process if
you're going to launch
your own fund. I see a
lot of aspiring fund
managers gloss over this
detail. It may not be fun
or sexy, but it can be the
difference between
success or failure
because if you overlook
some of the operational
aspects, you can have
(Continued on page 22)
Page 22
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
costly, unforced errors.
I've been very blessed
with supportive and long
-term focused LPs and
people who believed in
me early, and I'm very
thankful and certainly
will never forget that.
In terms of mistakes, I
think I would've
benefited from
developing ways to de-
stress and remove
myself from the day-to-
day strains of the job.
Today, I have a
tremendous team that I
can bounce ideas off of
and share the day-to-
day grind of managing a
fund. But when you are
a one-man investment
team, it can be very
lonely. And I think that's
something that if I had
fully understood, just the
level of stress, especially
early on, I would've
wanted to develop, in
advance, ways of
managing that.
“You really have to own
every aspect of the
process if you're going
to launch your own
fund. I see a lot of
aspiring fund
managers gloss over
this detail. It may not
be fun or sexy, but it
can be the difference
between success or
failure because if you
overlook some of the
operational aspects,
you can have costly,
unforced errors.”
G&D:
What are some of the
ways that you found
helpful to de-stress?
CH:
There are a lot of things.
I mean the biggest thing
is just having a team,
being able to talk
through things, having
people who are aware of
what you're dealing with
that share the highs and
the lows. I think that's
really important, and
we've got a great team
culture at Alta Fox and
tremendous individuals
that comprise the team.
But when you're
managing it by yourself,
you've got so much in
your head and you're
dealing with all these
other things, even
outside the portfolio, it
can be really daunting.
And I think I manage
that reasonably well. But
if someone were
launching a fund by
themselves, I would
encourage them to have
contacts that they're
checking in with on at
least a monthly basis
and chatting through
their own highs and
lows. You can share
some of that journey
with someone else.
G&D:
You mentioned studying
the operational aspects
when starting your own
fund, and we wanted to
double click into that.
Could you talk a little bit
more about what you
were studying and what
your learnings were on
the operational side of
things. Any advice
there?
CH:
When you launch a fund,
there are a thousand
different decisions you
have to make. Many of
them are operational
and if you've never
worked on that side of a
hedge fund (which
basically describes
everyone who's trying to
launch a fund) you will
have no expertise in that
area. Many times, you
won't even understand
the question that the
lawyer is asking you.
The lawyer may not
even be asking you the
question because they
have a default and
they're just kind of
answering it implicitly for
you. I think it's
important if you're going
to launch your own fund
to own all aspects of the
fund and that includes
operations. You should
not take for granted the
default answers that
99% of investors will go
with. You really need to
ask those questions
starting from a first
principles basis.
I spoke to a lot of other
people who had
launched funds. I tried
to learn from both their
successes and their
mistakes. And while this
was a very fruitful
process, I also did a lot
of research myself. I
read about fund
operations, I built
decision trees around
whether to structure the
fund this way or that
way. What are the pros
and cons? I forced
myself to ask these
questions, which then
led to more questions,
which led to greater
discovery of the process.
I had an end goal in
(Continued on page 23)
Page 23
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
mind for what I wanted
Alta Fox to look like. I
think understanding
those operational
aspects from the
beginning allowed me to
make the right choices
on vendors, for example.
Depending on where you
want your fund to be five
and ten years from
launch, you're going to
make different choices
about which vendors you
choose on day one. That
can be a big mistake I
see people make.
There are difficult trade-
offs. If you launch with a
relatively small amount
of money and you have
to balance the budget
plus the long-term
growth, these are
difficult decisions.
However, if you fully
understand the pros and
cons and have studied
the operational
questions sufficiently,
which I see very few
people launching do,
frankly, I think you're in
a better position to make
those decisions.
G&D:
Give us an overview of
Alta Fox. What’s your
investment philosophy
and investable universe?
And is there anything
else that you think is
unique about your firm?
CH:
Alta Fox has a flexible
mandate by design. We
invest globally. We
invest in both public
companies and private
companies. We invest as
passive holders, activists
and everything in
between. Nothing is off
limits if the business is in
our circle of competence,
and we can develop a
strong view of the risk a very systematic
and reward. That is not process for analyzing the
always the sexiest pitch risk / reward. It would
in a world where many not be unusual for us to
allocators want drop everything and take
increasing levels of as long as it takes to get
specialization, but it has clarity on the risk and
benefited returns. I think reward. So, we can go
our LPs understand that very wide and very
I've got the vast deep. Across our four-
majority, 90% plus of person investment team,
my net worth, in the we look at about 25
fund. I eat my own companies a week. It's a
cooking, and we are KPI we track religiously.
going to go where we I am very much a
think the best risk believer of the Peter
adjusted returns are, Lynch view, that the
even if it doesn't fit a person who turns over
pigeonholed marketing the most rocks is likely
narrative. to win the game. We
Searching for good turn over a lot of rocks
businesses with at Alta Fox and once we
competitive advantages find one that fits what
and long growth we're looking for, we
runways is not have the ability to go
particularly unique deep.
among fundamental
investors. We're “Across our four-
cognizant of that. What I person investment
think Alta Fox has done
well since inception is team, we look at
having the ability to go
both very wide and very about 25 companies a
deep in our research week. It's a KPI we
process. This is difficult
to do, but every single track religiously. I
aspect of our investing
process is designed with am very much a
this goal in mind. For believer of the Peter
example, we have a very
high velocity of ideas, Lynch view, that the
but we kill ideas very
quickly. For every person who turns
analyst that has joined over the most rocks is
our team, this has been
quite an adjustment. We likely to win the
are not a firm where you
get one idea and you
game. We turn over a
come back two weeks lot of rocks at Alta
later and tell us whether
you think it's interesting Fox and once we find
or not. It's more like, one that fits what
here are six ideas and
let's talk about them two we're looking for, we
days from now, for an
initial level of analysis. have the ability to go
Once we identify a deep.”
business that potentially
fits our criteria, we have (Continued on page 24)
Page 24
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
G&D:
An analyst at your firm
gets assigned a name or
comes across a company
that seems potentially
interesting. What does
that one- or two-day
initial research process
look like?
CH:
Well, we have a very
high bar for what IRRs
are interesting. So,
we're typically looking
for 25% plus on a three-
year IRR basis. There
are a lot of businesses,
even high quality
businesses with good
management teams,
that you can quickly
eliminate in the first
couple of hours of work
if the setup does not
exist to potentially
generate a 25% IRR. On
the first level of analysis,
the analysts are trying to
put guardrails around
what is reasonable from
a revenue perspective, a
margin expansion
perspective, a multiple
perspective, and a
balance sheet utilization
perspective. The various
levers to generate an
IRR, what are
reasonable, and is there
the potential to generate
a very attractive, 25%
plus IRR over the next
three years? If the
answer is no, then we'll
file away that
information. It doesn't
get lost. We have
software that captures
all of this information
and will alert us to when
these companies are
approaching price
targets that start to get
interesting. So, we don't
ever lose that
information, but we
quickly kill the idea in
terms of our research
process, and we move adjacent industry. So,
on to the next. Once we we try not to get
find something that is pigeonholed by dictating
potentially interesting “we're looking for this.”
within those guardrails, For every company we
again, we'll drop research, there are
everything and sharpen dozens of companies
our pencils. that interact with it in
some way as suppliers,
“There are a lot of competitors, etc. We will
businesses, even high hop from one company
to the next, wherever
quality businesses our research leads us.
with good
management teams, G&D:
that you can quickly You made an interesting
observation in one of
eliminate in the first your quarterly letters
couple of hours of that Alta Fox had done
better in the small cap
work if the setup does space versus the micro-
not exist to potentially cap space. Many
investors are under this
generate a 25% IRR.” impression that the
micro-cap space is the
most inefficient of any
G&D: market cap bucket. Can
For your idea funnel, are you talk about why you
you using screens? Or is moved away from micro-
it sort of a bespoke caps and into bigger
process? How do you names and why you
typically find most of think that’s a better
your interesting ideas? hunting ground for Alta
Fox?
CH:
CH:
We source ideas through
a combination of Well, I do believe that
methods. Screening is micro-caps are
an important part of the inefficient as is the
process. A strong entire Small-to-Mid cap
network of contacts and space. However, at Alta
boots on the ground Fox we often like to cut
research is also our losers quickly and let
important. However, our winners ride. I think
probably our favorite that is a difficult
method of generating approach with micro-
ideas is talking to caps because even the
companies and industry most successful micro-
experts and then having caps inevitably run into
that organic process lead various bumps in the
us to other leading road; they’re less
companies. It could be a diversified businesses. It
competitor or a supplier. happens. So, if you are
We often find that is one cutting exposure during
of the most organic ways that time, it’s
of researching ideas, challenging to generate
whether it's in the same
industry or in an (Continued on page 25)
Page 25

Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
the long-term results hip, if you will. And I
that we are targeting at G&D:
Alta Fox. As a result, for “In my opinion,
our own investing We spend a lot of time
process, we have found at Columbia Business position sizing should
it more fruitful to focus School thinking about be much more of a
on high growth security selection,
companies in a slightly obviously very science than how
more mature phase of important, but as you most investors
their growth. You might know, it's only half the
miss the first double or job. As portfolio approach it. We use
triple, but in many cases manager, you have to software that we have
the business has been size the positions as
significantly de-risked, well. How do you customized over the
so you have higher approach that aspect of last four and a half
conviction to hold the investing and what's
business for the long your framework for years that takes our
term. position sizing? projected IRRs as well
as our quantifiable
G&D: CH:
scores across several
Maybe we could touch I believe investing is
both an art and a important investing
on the private side of the
book as well. Is every science. In my opinion, criteria that we've
analyst looking at position sizing should be
much more of a science identified to generate
private ideas as well as
public? What does the than how most investors optimal position
time allocation between approach it. We use
software that we have sizing.”
those two books look
like? customized over the last think that's a significant
four and a half years mistake.
that takes our projected
CH: IRRs as well as our
quantifiable scores G&D:
Not every analyst is
looking at both. Some across several important You've written publicly
are. However, every investing criteria that about several long ideas,
analyst is having we've identified to but you also short. Could
conversations about generate optimal you talk about your
what we’re seeing as the position sizing. There are overall framework for
most attractive returns obviously top-down shorts? Any common
on the public side versus constraints as well, short setups that you
the private side. And married with our bottom could walk us through?
that’s important. And so, -up qualitative decisions.
we’re sharing insights While we do not follow
across the team and this process religiously, CH:
we’ve found significant we do have very high We tend to be risk
synergies. Being a public correlation. So, roughly averse on the long side,
investor makes it easier 80% plus. It is a forced but extremely risk
for us to diligence check on our analysis. It averse on the short side.
private companies, and instills position-level As a result, we typically
diligence in private discipline, and it allows avoid high short interest
companies often yields us to track hundreds of or otherwise crowded
insights valuable on the ideas on our watch list in shorts. Typically, we're
public side. So we found a very efficient manner. looking for structurally
it helpful in both Investing is both art and challenged businesses,
directions. But we do science, but I think this cyclical peaks or fads, as
have some analysts that is a particular area an example. Our
are focused more on the where a lot of underwriting process for
private side than public fundamental investors
and vice versa. kind of shoot from the (Continued on page 26)
Page 26

Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
shorts is similar to the activism. It's a lot of game to take on that
underwriting process for hard work and expensive capital allocation
longs, but our sizing and from a capital thoughtfulness, even
trading around the perspective and even when it is likely to
positions is a bit more so from a time unlock significant
different primarily for perspective. However, I shareholder value.
risk management do think it fulfills a We typically do not
purposes. necessary role in the screen for activist ideas.
market to combat We try to approach
entrenched directors everything from a
G&D: looking out for constructive manner
In 2020, you initiated themselves instead of alongside management
two notable activist fulfilling their fiduciary teams and boards. It's
campaigns, Collectors duties. only when we identify a
Universe and Enlabs AB In terms of whether it's really exceptional
(NLAB SS). What were worth the time and how opportunity where the
some of your takeaways we think about that, we only way to unlock the
from that period? And try to find good highest possible return is
how do you decide when businesses that should through change that we
to go activist versus be great rather than would consider engaging
when to just pass and looking for bad
maximize your return on businesses that could be “I'm passionate about
time? okay. It would be very
corporate governance.
unlikely for you to see us
involved in an activist I think it's extremely
CH:
situation that involves
I'm passionate about important and bad
some massive
corporate governance. I turnaround in corporate governance
think it's extremely operations. I think
important and bad hurts everyone except
Collectors Universe is a
corporate governance great example. It was a a small few; typically
hurts everyone except a really good business, but
small few; typically entrenched directors
they were paying out
entrenched directors or most of their cash flow or members of
members of as dividends instead of
management. I think it's management. I think
reinvesting in their
actually a real societal business around their it's actually a real
concern and an issue core competencies and
with market integrity. societal concern and
competitive advantages
We always strive to to unlock additional an issue with market
engage in a constructive shareholder value. So, it
manner with integrity.”
was sort of this mindless
management teams and capital allocation policy. from of an activist
have excellent perspective.
I think activists often get
relationships with the
a little bit of a stigma of
vast majority of our
“they just want to cut G&D:
portfolio companies.
costs, they just want to
Unfortunately, there are What are some
fire people”, etc. In
instances in which examples of typical
many of our cases, it's
management teams and capital allocation
the exact opposite. We
boards are unwilling to mistakes that
want to invest more, we
do the right thing for management teams
want to unlock higher
shareholders. But the make?
growth, and, ultimately,
value that can be
that rewards all
unlocked is tremendous.
stakeholders. But you
In these situations, CH:
sometimes have
activism is a valuable Well, I think a lot of
entrenched directors or
tool that can benefit all management teams and
management that have
stakeholders. I do not
very little skin in the
particularly enjoy (Continued on page 27)
Page 27

Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
boards do not G&D: that was an unfortunate
understand how public Do you typically have situation and it never
securities are valued. For this engagement needed to lead to
example, if you're just mindset before initiating activism. Additionally,
thinking about growing a position? the company tried to sell
your profits but you at a very low price,
don't understand across which we then had to
various segments that CH: oppose. We are
some segments will be confident that our
It can be both. We don't
valued higher than involvement helped lead
go looking for fights. In
others, it can lead you to to a much better
the case of Collectors,
make bad capital outcome for
for example, we invested
allocation choices. I shareholders than
in the business because
think even great would've come to pass
we thought it was a
operators of businesses otherwise. In the case of
good business that
do not necessarily have something like Enlabs,
would generate
that investor mindset, the fight kind of found
attractive returns even
which is really important us. We were big fans of
on a standalone, no
because if your goal is to the management team,
change basis. We also
increase shareholder but the company
thought it could
value, you need to accepted a takeover
generate extraordinary
understand how offer that was
returns with capital
shareholders value your completely inadequate.
allocation changes, and
business. Many The circumstances
we started to engage
management teams and around that acceptance
with the company about
boards do not were questionable in our
how they could create
understand this, and it view, that this might
more value, not in a
“I think even great hostile way, but in a have been best for some
collaborative way: “we particular individuals,
operators of businesses own a lot of shares, we but not for shareholders.
want to see your And we had to take a
do not necessarily have stance as a large
company succeed, and
that investor mindset, here are some of the shareholder that had the
ideas we have”. In those capability of blocking the
which is really situations, we hope that deal to say we're not
the management team going to allow this to
important because if happen. Within a couple
and the board will
your goal is to increase interact in a days of their initial
collaborative manner for lowball offer, we had
shareholder value, you the benefit of all drafted a press release
shareholders, as they announcing our public
need to understand opposition alongside
are supposed to do in
how shareholders the spirit of their other major
fiduciary duty. shareholders, which
value your business. collectively represented
In the case of Collectors,
Many management a blocking vote. We told
unfortunately, the
the buying group to
Chairman of the
teams and boards do come back with
company basically
something that
not understand this, questioned why he
represents closer to fair
should listen to us and
and it leads to serious value or this deal will get
told us to stop bothering
blocked. Our actions
him and that we could
capital allocation manufactured a much
sell our shares if we
better outcome for all
errors.” disagreed with his
shareholders. But I think
decisions. The Chairman
both of these examples
leads to serious capital owned very few shares
and many others
allocation errors. of the business (so it
illustrate that if activism
was really more our
business than his), but (Continued on page 28)
Page 28
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
is done in the right way,
it does not deserve any
sort of stigma. In fact, it
should be celebrated. It
requires extraordinary
effort, time, and cost for
a single shareholder to
create positive outcomes
for all shareholders. And
that is extremely
beneficial to the market
ecosystem. I think it's
very much needed today
because corporate
governance is in such a
bad state in the US.
G&D:
You wrote in one of your
past letters that Alta Fox
was in the process of
compiling this wall of
fame of successful
capital allocators. Could
you share any of the
names on that list that
you think readers and
investors out there
should be following more
closely?
CH:
There are some that
would be well known by
your readers that are
extraordinary value
creators, but I'll give a
couple off the beaten
path exaples. Ryan
Pape, the CEO at XPEL
(NASDAQ: XPEL) is one
who comes to mind. He's
done an extraordinary
job. XPEL has had some
of the highest value
creation of any public
security in the markets
during his tenure. And
he has the right capital
allocation mindset. He's
fully invested in his
business with a majority
of his net worth. He has
been rewarded, as have
investors, for his
excellent leadership. So,
I think he's one to study
and he is certainly on
our wall of fame. treats it that way
Another would be because he is a
Howard Jonas at IDT shareholder himself.
(NYSE: IDT). IDT is a There was even a time
conglomerate, but it has early on where he had to
had 20% plus annualized put some expenses on
share returns for the last his own personal credit
decade inclusive of all card for the business.
spinoffs. They've done You don't see that level
an exceptional job of of dedication from most
incubating businesses executives who are
with their legacy cash getting paid millions
flows and then spinning without really taking on
off those businesses to any personal risks. So, I
investors. We have great think he's been all in
respect for that alongside shareholders
management team and and he's really focused
the leaders inside their on the long-term value
respective businesses. creation and that's
refreshing.
G&D: In the case of Howard
What are some of the Jonas, he is incredibly
things that stand out thoughtful about capital
about Ryan Pape and allocation at IDT, the
Howard Jonas? Are there parent company that he
certain tells that you see founded. It's a relatively
when you're reading small market cap today,
about them or speaking but that's only because
with them that make you they have spun off
think that these guys are multiple businesses
great capital allocators? successfully that they've
incubated over time.
There are a lot of empire
CH: builders in corporate
America today that want
The first thing is that
to have their business be
they're all-in on their
bigger and more
business. They're not
noticeable and collect a
there to just collect a
bigger salary, as a
salary. They have the
result. At IDT, they’ve
majority of their net
sort of done the
worth invested in the
opposite. They're
business and every
extremely frugal on
single day they're fired
costs. They don't have
up to create shareholder
any sell-side coverage,
value. XPEL is a business
and they don't
that doesn't issue
particularly care. They
shares. It's very easy to
just want to compound
forecast their shares
value per share at
outstanding for the next
attractive rates over
quarter because it's the
time. And they're very
same every quarter,
thoughtful about how
every year. They treat
they allocate capital,
shares like gold, like a
whether it be for
valuable currency. That
acquisitions or spinoffs,
behavior is rare in an era
and it shows up in the
where stock-based
long-term results.
compensation and
rampant dilution is quite
common. Ryan Pape (Continued on page 29)
Page 29
Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
in excess of 20% over
“The first thing is that the last decade. We
they're all-in on their believe this story is
about to repeat. IDT has
business. They're not one business in
particular, NRS, National
there to just collect a Retail Solutions, which
salary. They have the we believe is spectacular
and, on our numbers, is
majority of their net worth substantially more
than the entire
worth invested in the enterprise value of IDT
business and every today. NRS is a point-of-
sale system for
single day they're fired individual convenience
stores. It is essentially a
up to create monopoly and has 90%
shareholder plus gross margins on
non-hardware revenue.
value...They treat In the last two years,
the business has gone
shares like gold, like a from negative EBITDA
valuable currency. margins to over 36% in
the last quarter.
That behavior is rare in
In a couple of years, we
an era where stock- believe this will be a
60% EBITDA margin
based compensation business. It is also
currently growing
and rampant dilution is
revenue in excess of
quite common.” 130% year-on-year. We
are unaware of any
asset in the public
markets that has such
an exceptional
combination of top line
G&D: growth and profitability.
That’s a good segue for We expect NRS will be
us to dive into IDT. spun off to shareholders
Could walk us through sometime in the next
the thesis on IDT? two or three years and
that investors at today's
prices will be greatly
CH: rewarded. There has
been some concern over
Sure. IDT is a small cap
a pending lawsuit. Our
conglomerate that lacks
diligence suggests that
any sell-side coverage or
you are being more than
a natural investor base.
compensated for this
Historically, the
risk at today's prices.
company has used their
But as for any position
legacy business cash
with a left tail risk it is
flows from their telecom
important to size the
business to incubate
position appropriately.
businesses and then spin
them off. The strategy
has been extremely G&D:
successful as IDT has
compounded inclusive of Do you have any advice
spinoffs value per share for undergrad or MBA
students that want to
break into the
investment management
business? And when
you're hiring an analyst,
what are the things
you're looking for?
CH:
In terms of advice, I
would say start from first
principles. Don't assume
you will find the world's
greatest mentor who will
teach you everything
they know. Study the
greatest investors of all
time and weave in their
many teachings with
your own personality to
find what makes sense
for you. Really take
control of your own
investing journey. There
are many ways to make
money but having a
defined process that you
can personally rely on in
times of market
turbulence is essential.
So, that would be my
advice on the investing
side.
In terms of what I look
for when hiring analysts,
first and foremost, I look
for people who are
highly passionate about
investing and who are
ultra-competitive. I want
people who eat, sleep
and breathe investing
and recognize it as the
greatest game in the
world and have a deep
desire to win. Second,
they have to be team
players. We win and lose
as a team at Alta Fox,
and having that team
approach with
competitive individuals
can yield incredible
outcomes. I'm very
blessed to have an
extraordinarily talented
team at Alta Fox.
(Continued on page 30)
Page 30

Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
everything and develop the firm for long-term
a really good baseline. outperformance and
Once you get a good where we should be
G&D: baseline, you need to investing our resources,
Do you have any advice start really practicing the many iterations from
for young people looking and developing models that first document are
to become better and get out of the still highly relevant.
investors? What are the theoretical world into the I think it's really starting
things that you did that practical world. From from there. Don't have
you think really there, I think you'll learn any preconceptions
accelerated your with every investment about how you should
learning curve? you make or pass on. invest. Go look at who
has succeeded in the
G&D: past and how they
CH:
succeeded. What lessons
I would read everything You mentioned first are still relevant today?
Joel Greenblatt has ever principles a few times Who is the most forward
put out. I'd read and we were wondering thinking today? What
everything that Peter if you could talk a little can you learn from
Lynch has ever put out. bit more about how you them? What strengths or
I'd read the old Warren incorporate first weaknesses do you have
Buffet partnership letters principles into your that you can bring to the
as well as all of the process and your table? So, it's really
Berkshire Hathaway thinking. Additionally, starting with a blank
annual reports. Read could you provide some sheet of paper and
everything that investors advice for students on saying, how do I hope to
with exceptional long- how to develop mental outperform? Then,
term track records of frameworks around first iterating on that over
alpha and principles? time based on your
outperformance have practical experiences
put out there. And try and implementing that in
and really understand CH:
a systematic, scalable,
how those principles I'm a big believer in
resonate with you. You'll having clear outlines. “I think it's important
take the best of each of Anytime I wrote a paper, to develop an outline,
them and weave them in I had a really detailed
with your own outline going from the a detailed framework
personality and style. first thesis to the sub for how you hope to
In addition to reading, I bullets to the next. I
think it's important to outperform in the
think it's important to be
a practitioner. Start a develop an outline, a markets. And that
small personal account. detailed framework for
how you hope to should be a living,
Start investing on your
own. If you can't do outperform in the breathing document
that, start a virtual markets. And that
should be a living, that changes over
account, but take the
positions seriously, breathing document that time and incorporates
manage it as if you are changes over time and
incorporates all your all your experiences
managing a fund. Get on
the quarterly conference experiences and your and your learnings.”
calls, have a model that learnings. I started with
you compare your own one when I was in high and repeatable
expectations versus school and it wasn't that investment process.
reality and sort of good, but it got better
G&D:
recognize what you're every single year. It is
still something that I There's this ongoing
good at and what you're
think about, analyze, debate in the investment
not, and make mistakes
and tweak. When I think community, whether it's
over time. There's no
about my role at Alta better to be a generalist
substitute for that. I
think you've got to read Fox and how to position (Continued on page 31)
Page 31

Rudi vanHaley,
Connor Niekerk,
AltaDesert Lion Capital
Fox Capital Management
or whether it's better to
be a very focused
specialist. Depending on
who you talk to, they'll
have very different
opinions. What is your
take on that debate?
CH:
I don't think it's black or
white. There are merits
to both. I think either
can be successful and I
think it would be wrong
to come to any other
conclusion because there
are obviously numerous
examples of success in
both camps. I think it
also varies by sector.
There are some sectors
that lend themselves to
specialization more so
than others. I think if
you're a generalist, you
need to really think
about how you can
maximize the value of
being a generalist by
having a really
systematic process to
compare the relative
investment merits across
very different industries
and geographies. If you
develop that really clear
approach, you can
consistently put yourself
in interesting positions.
You can be successful in
either camp. However, I
think the issue that
generalists sometimes
run into is when they
don't have a defined
process to make sure
they're maximizing their
return on time by
focusing on really
interesting things that
are likely to be mispriced
by the market in a
variety of industries.
you're not investing?
CH:
I have an 18-month-old
daughter who takes up a
lot of my extraneous
time, but beyond that, I
love to compete in pretty
much anything. Strategy
games, sports, video
games, ping pong. I'm
currently the Alta Fox
ping pong champion. I
play something called
Bughouse, which is like a
2v2 fast-paced chess
variant, which is very
niche but fun. On the
sports side, I enjoy golf
and pick-up basketball.
Video games, I enjoy
playing Apex Legends
with friends. It's a fun
way to stay in touch with
friends, but also has
skill, strategy, and
teamwork elements. I'm
usually game for any
type of competition, and
that's certainly a
consistent theme at Alta
Fox.
G&D:
Thanks Connor, this was
great.
CH:
Thanks for having me.

G&D:
Last question before we
let you go. What do you
like to do for fun when
 Page 32

Christopher Bloomstran, Semper Augustus

Christopher P. on October 28th, always came easily but I
Bloomstran, CFA, is 2022. was an effort minimalist
the President and CIO in the classroom. Back
of Semper Augustus Graham & Doddsville then the finance
Investments Group (G&D): curriculum was all
LLC. Chris has three academic. It was very
decades of Could you walk us Chicago school efficient
professional through your market hypothesis. You
investment background and how you had finance classes, but
experience with a first got interested in they were all taught
disciplined, value- investing? from the corporate
driven approach to finance side. If you were
fundamental equity doing DCFs, they were
Christopher
and industry research. all project related. There
Bloomstran (CB):
Semper Augustus was no investing angle.
Christopher manages I was going to be a You had nobody
Bloomstran, concentrated equity mechanical engineer. breaking down financial
Semper portfolios of well-run, Lots of my family were statements. Your
well-capitalized engineers of sorts, accounting classes were
Augustus mechanical and
businesses with share cost accounting and
prices trading below petroleum, and I was financial statement prep,
conservative going to mesh not use. None of it
appraisals of intrinsic engineering with applied to how to
value. football. I was a football analyze or value a
player in college and business, how to invest
Prior to forming never enjoyed the and allocate capital. I
Semper Augustus in engineering classes. I’d came to that on my own
1998, Chris was a VP taken a business class in and was reading all the
and Portfolio Manager high school that had the investing books that I
at UMB Investment students track things like could find and just fell in
Advisors where he the DOW and the S&P love with investing. I
managed the Trust and the price of gold and knew I wanted to make
Investment offices in interest rates and all the money by investing. I
St. Louis and Denver big stocks like Coca-Cola was counting cards in
and the Scout and IBM. I found myself blackjack so thought
Balanced Fund from looking at the financial with a system you could
the fund’s inception pages and back then you probably have an
until he left to found had all the daily changes advantage in the stock
Semper Augustus. in stock prices listed in market like you can at
Chris received his the local newspaper. As the blackjack table. Only
Bachelor of Science in a kid I was always as later did I come to
Finance from the fascinated with the stock appreciate how much of
University of Colorado tables as I was the a casino the market is to
at Boulder, where he baseball statistics and speculators or the
also played football. other sports lines. I uninitiated but how it’s
He served as found myself reading the not at all for investors.
President of the Board Wall Street Journal in
Investors Business
of Directors for the the engineering school
Daily’s founder, Bill
CFA Society of St. library and ultimately
O'Neal, had this
Louis from 2006-2007 moved next door to the
CANSLIM system which
and as a Director on business school where
was an acronym that
the Board from 2001 things seemed more
basically meant buy
to 2021. He has also interesting.
stocks when earnings
served on various not- When the football career are breaking out, when
for-profit boards in St. ended with a broken foot sales are breaking out,
Louis where resides and knee surgeries in when the stock is
with this family. my junior year I saw the breaking out. It's a very
light and the wisdom of momentum-based
Editor’s Note: This applying myself more in
interview took place the classroom. Grades (Continued on page 33)
Page 33
Christopher Bloomstran, Semper Augustus
application. And so I was
tracking and charting all
these quarterly earnings
numbers and sales
earnings numbers and
overlaying it with
technical analysis doing
candlestick charting,
none of which had to do
with actually
understanding or valuing
a business. I got to the
point where I thought I
knew what I was doing.
I had some money saved
up from college summer
jobs, high school jobs
and some scholarship
money and wound up
putting all my money in
on a stock on a tip in an
article I'd read in the
Heard on the Street
column of the Journal, a
Norwegian very large
crude carrier business
that was essentially a
self-liquidating structure.
The company had very
old vessels that were
going to run for a few
years, distribute all the
cash flow to the
shareholders and then
scrap the ships at the
end for whatever they
could get, all at a profit
of course. It was going
to wind down and
everybody was going to
get rich. Well, it didn't
work out that way, and
six months or so after I
bought the thing, it was
bankrupt. And I thought,
geez, this is a really bad
hobby - you put all your
money in something and
it goes to zero. You're
going to need to figure
out what happened, or
you need to find a better
hobby, so I wrote over
to Norway to get the
financial statements. It
hadn’t dawned on me to
do that before investing.
I didn't really know what
I was doing, but you
could see with declining
cash flows and just lousy
assets and depreciation
charges didn’t match the
life of the ships. I
learned right there to
read the financial
statements before you
invest!
The thing was so
levered. It couldn't
withstand any kind of an
economic downturn and
was going to go to zero
regardless.
So that kind of lit my fire
to figure out how to read
financial statements,
which I started doing in
earnest, all the time. I
wound up writing up a
business idea involving
commercial paper for an
entrepreneurship class
the final semester of my
senior year. Chrysler
was being downgraded
again and with a recent
SEC ruling 2a-7 which
limited money market
funds to owning no more
than 5% of their assets
in less than top rated
paper, Chrysler Finance
was essentially being
booted from issuing
commercial paper. I
theorized they could co-
issue with top rated
issuers and pick up the
lines of credit cost for
those guys, lowering
their cost of issuance
and also allowing
Chrysler continued
access at a cheaper cost
than bank lines. The
project evolved and
ultimately had Jerry York
at Chrysler on board. We
ultimately couldn't get
any banks to do the lines
or letter of credit.
However, I'd met some
bankers in Kansas City
and the head of the bank
said, ”We don't do
anything in commercial
paper, but we think
you're a smart kid. If
you ever wanted a job,
let me know.” And I
said, well, I really want
to manage money. At
that point I'd signed up
for CFA Level 1 exam,
and I thought that the
coolest thing in the
world would be to run a
mutual fund. When the
commercial paper
venture stalled I called
back the CEO of the
bank, Crosby Kemper,
who said, “let me put
you on our investment
operation of the trust
company and if you work
out we'll get you a fund
within a couple of
years.”
Which they did. I was
running one of the
mutual funds and
working with pension
systems in the state and
all kinds of wealthy
families. It was great
and a great learning
experience. Got to wear
a lot of different hats.
Learned about trust law,
trust tax, employee
benefits, 401k design,
profit sharing, defined
benefit design, a lot of
things that wouldn't
have interested me as a
young, very wet behind
the ear investor, but
turned out to be a great
experience. They gave a
young investor a lot of
authority, or rope. And I
pushed and had
assignments delegated
to me just because I was
energetic and on a
learning curve and loved
what I was doing.
G&D:
You started your firm in
late 1998 in the midst of
the technology bubble,
what are some of the
learnings that kind of
(Continued on page 34)
Page 34

Christopher Bloomstran, Semper Augustus

stick with you today in at 1932’s lows with what the core of the portfolio.
the current market Ben Graham ultimately GE is still down 80%
environment? called net-nets. Then from where we sold it,
later Warren Buffet into things that from a
closing his partnership to value perspective were
CB: new capital in 1966 and really cheap, and that
Well, you've got to seize eventually closing down bifurcation in the market
opportunity when it and giving all the money fixed itself from 2000 to
comes. That's no back in 1969. Between 2002. There are a lot of
different in managing an those two points, he'd parallels today with that
investment portfolio. It’s already, in 1965, gotten period. You are seeing
through the lens of control of Berkshire much of the speculative
opportunity cost that Hathaway but bought excess and overvaluation
you allocate capital. If National Indemnity in beginning to be cleansed
you can be rational and 1967. So he had a from the system.
understand when the platform now that had
herd has gone off the the float derived from
rails, that's when there's premiums and “Ignoring the macro
enormous value to be investment reserves to
added. You've been invest and took and the herd most of
trending for several advantage of the brutal
years toward a secular 1970s when the market the time serves you
peak. I think 2021 is traded sideways with well. But
going to wind up being tremendous volatility
on par with 1929, the until 1982. He had a understanding when
late 1960s and 2000. chance to buy the
Washington Post and you're at an inflection
But these secular tops
don't simply emerge Gillette and GEICO and point, I think you can
overnight. You just don't General Foods and a
go from, well, bunch of other things at do things very
everything's fairly valued rock bottom prices.
opportunistically.”
to all of a sudden, things Then in 1998 our client,
are overvalued. You're Bob Smith, and I joined
usually very early to forces and tax efficiently
figure it out as the crowd sold very expensive
comes in and pushes shares at secular high
things to excess, which G&D:
prices and reinvested in
can be very painful. undervalued smaller and That was super helpful
Ignoring the macro and mid cap businesses at and maybe this is a good
the herd most of the fire-sale prices at the time to step back and
time serves you well. same time Warren just talk about your firm
But understanding when Buffett was pivoting at a high level. Could
you're at an inflection away from a heavy you tell us a little bit
point, I think you can do concentration in stocks about your investment
things very by buying bond-heavy philosophy and the
opportunistically. I tried GenRe and using investible universe that
to weave the story of Berkshire’s very you look at and what
our anchor client and overvalued shares as your stock selection
what he did at various currency in the deal. We process is?
secular peaks and pivoted from all of those
troughs with what blue chips at 40 times to
CB:
Warren Buffett did at 50 times earnings, many
others into my letter this of whom were no longer We're very eclectic.
year in a chapter titled earning their cost of Having worked in a bank
“Benign Neglect” that capital, into better trust environment, we
talked about his pivot in balance sheets and were running a lot of
1928, getting out of the better businesses. We defined benefit money
market entirely, but a sold overvalued assets for the big state pension
year and a half early, like the GE bought at the
and then getting back in low in 1932, which was (Continued on page 35)
Page 35

Christopher Bloomstran, Semper Augustus

systems in Missouri. I average, I'd say over the portfolio
got to see the 24 years that we've run opportunistically for
encroachment of the Semper and my 30 plus valuation reasons where
consultant industry years as an investor, I'm a lot of value is added.
which wedged itself only getting two or I'm of a mind that if you
between the pension three, four names that assess the profitability of
systems and the are worth bringing into the companies that you
investors, the money the portfolio on average own properly, you
managers, and they in a given year. Brand should earn the earnings
carved everything up new names. Typically, yield of the companies.
into style boxes, which when I bring something In a classic Graham &
have now been carved in, it's offsetting Dodd sense, if you're
up further and allocated something that's fully buying dollar bills for
into more and more gone out that’s been some fraction of a dollar,
asset classes. You didn't sold completely or if you're paying 66 cents
have a lot of venture acquired, which happens on the dollar, you've got
cap, you didn't have a a fair amount. 50% upside. If you're
lot of private equity, but capable of finding
now you've gotten “You really need the businesses that trade for
myriad asset classes on less than what we'd all
the efficient frontier. flexibility to go buy
call intrinsic value, it can
When we started the things where they take a bunch of years for
firm, I don't want to get that discount to accrete,
pigeonholed into being a make sense. We do or sometimes it happens
small cap value manager get pigeonholed as a suddenly. I've always
or midcap or whatever. said, take the earnings
You really need the value investor. But yield and generally add
flexibility to go buy 2% or 3% to it, and you
things where they make we love growth as get the expected return
sense. We do get much as anybody but over time. I think the
pigeonholed as a value best way to look at that
investor. But we love recognize it as only dynamic, if you're not a
growth as much as hyperactive trader, is to
anybody but recognize it
part of the valuation start with the
as only part of the equation. In our expectation of earning
valuation equation. In the earnings yield.
our world, price is the world, price is the
You're going to get the
paramount driver of dividend portion of the
paramount driver of
what we do. We yield paid to you as
approach investing with what we do.” cash. In my world, we've
a dual margin of safety, got about 18% of our
which is business quality We run a very low profits today earned by
and the price you pay for turnover portfolio. 15% the collection of
that business quality, on average over time, businesses that we own
which kind of goes but the majority of coming to us as
without saying, right? trading is not bringing in dividends. Meaning I've
That's what you guys do the new name. If we got 82% of profits that
at Columbia. Without bring in two new names are retained by the
intent, we've always run at position sizes of 2% companies that we own.
a very concentrated or 3% a year each, And my job, essentially a
portfolio and that's an that's 4% to 6% of large part of what we do,
evolution of position capital. The majority of is to discern how well
sizing. trading, maybe 10% or the managers of the
You don't get that many more of the portfolio businesses we own
good ideas. We’ve never value per year is among invest retained earnings.
had more than 30 stocks existing holdings. Some If most of profits are
in the portfolio at any years it's a lot more, retained, a long-term
given time. Again, not some a lot less, but it's owner will see returns
by design, but on shifting capital around
the companies in the (Continued on page 36)
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Christopher Bloomstran, Semper Augustus

gravitate to the because not that many
underlying return on places can do it well
equity of the business. sustainably and durably.
What kind of And a lot of times the
opportunities do they opportunity sets will
have to invest in growth change to where now
capex, growth R&D, bolt you've hit a point where
-on acquisitions? Do you can't continue to
they understand the reinvest, and you either
value of their share? If pivot and get into
they're conducting share different business lines
purchases, are they or you've got to change
being done at intelligent your capital allocation
prices or are they simply strategy. And so that's
offsetting dilution? How at the core of what we
do they utilize the do by recognizing where
balance sheet? it’s done well and where
Our businesses return it’s not. Not many public
almost as much on company executives get
capital as they do on it. We seek the ones that
equity at about 15% as do.
a group. A Costco or a I also own cyclical
Dollar General that are businesses, which are a
retaining fair amounts of totally different animal.
capital every year and There I've lived long
have opportunities to enough, in the energy
open new stores that patch for example, to
generate over 20% know that if you're going
returns on those units, to buy an asset, you've
that’s a brilliant use of generally got to sell it at
capital. A lot of a point. We got a lot of
businesses don't have money invested in
the ability to reinvest. energy in 2020. I bought
And I've got some refiners for the first time
companies that pay most in my career, never
of what they earn as thought I would ever
dividends because they buy a refiner, but
don't have an realized scarcity was
opportunity set to developing because of
reinvest but recognize the world's green energy
that. If you can figure shift. We were closing
that out, it's a huge net refining capacity in
advantage. Costco only Europe and North
opens 20-25 new America, despite
warehouses per year. population growth and
The stock is rarely cheap growing demand for
so as the proportion of much of the products
retained earnings that are refined from
needed to grow each crude. During the
year dwindles, they pay pandemic, capacity was
special dividends when taken down and some
cash builds up. We’ve was converted to making
earned as much in renewable diesel,
special dividends since creating shortages in
we bought the stock much of the stack. If you
initially as we paid for believe that Europe and
the shares. North America are not
Return on reinvested going to build another
capital means a lot refinery, you've got a
durable long-term
advantage here.
We’ll do some merger
arb and occasionally
special situations come
along where you can’t
help but make money
and take no risk doing
so. Those are rare but
fun. If you don't live in a
style box and you just
try to go find places that
you understand where
you can make a bunch of
money and take very
little risk in doing so,
that's our investment
philosophy. Just be an
aware generalist, I
guess, is a decent way
to describe it.
“And my job,
essentially a large
part of what we do, is
to discern how well
the managers of the
businesses we own
invest retained
earnings. If most of
profits are retained, a
long-term owner will
see returns gravitate
to the underlying
return on equity of
the business.”
G&D:
Given that pretty broad
mandate, could you talk
about your approach to
position sizing?
CB:
I think about the
portfolio in terms of
number of bullets and
each point of capital
(Continued on page 37)
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Christopher Bloomstran, Semper Augustus
being a bullet. If
something new was
coming into the
portfolio, I'd bring it in
at one bullet, especially
early on. If I really liked
it, my hope was that it
would get cheaper and
take it to two. As long as
the fundamental case
was intact, you wanted
to get it cheaper and buy
it at three. So if you're
starting off buying
something at 80 cents
on the dollar, I'm going
to add to the position at
70 or 60. I've gotten a
lot better at getting
more capital working
early because often
you’d get 1% into
something only to see it
run up to fair value.
In the first two years of
the firm, oil got down to
10 bucks. The deep-
water drillers were in
trouble, nobody was
making any money,
assets were cold
stacked. I spent a couple
weeks in Houston and
discerned that if the
depressed oil price were
to last another month,
companies like Rowan
were going to go out of
business. And so having
done all that work and
knowing the high-quality
assets at that time were
Transocean and
Diamond Offshore, I got
1% of our capital in each
and didn't expect that
the oil price was going to
recover quickly. We
wound up tripling our
money on each of those
positions, but I did it
with only 2% of our
money, which barely
moves the needle. We’re
a lot better now about
getting more money in
early. You know the
business. You know the
valuation. When the two
mesh and it’s the best
idea in front of you, You are seeing that with
don’t screw around with media content today and
1%. There's no rule, but an expensive scramble
I like to at least get at to change distribution.
least 2% in general with
a new idea. “You know the
We’re happy investing
business. You know
up to 3% or 4% very
quickly, oftentimes in the valuation. When
the first week of trading,
the two mesh and it’s
because now I’ve spent
30 plus years doing this. the best idea in front
And we've got a pretty
good sense about the of you, don’t screw
investment universe.
around with 1%.
There are a few hundred
companies that we There's no rule, but I
follow pretty closely.
We're obviously going to like to at least get at
follow any of the
least 2% in general
competitors of the
businesses that we own. with a new idea.”
I've got a wish list of
companies that we'd Berkshire sits at the top
always like to buy at of the portfolio. It's
certain prices. grown into that a bit. I
Oftentimes what try to bring clients into
happens is you get a Berkshire at 20%, but
March 2020 or you get a only when it's cheap. I
2008-2009 when was buying the heck out
everything gets cheap. of it two and three and
There you've got to four weeks ago. With a
figure out if you really lot of new clients here in
want to bring in a wish the last six months, this
list company or are you downturn in Berkshire
good with what you've has given us a chance to
got. And more often get them fully invested.
than not, you're good It's still so sufficiently
with what you've got undervalued to intrinsic
because you’ve done all value and so
the work on the portfolio conservatively run. The
names and especially the earning power is so
ones you want to own predictable that I almost
forever. look at Berkshire as
But we will bring names though it's a fixed
in during those periods income holding that
because rarely do you happens to yield 10 to
get a chance to buy a 12% when bought
Costco or do you get a intelligently. The
chance to buy a great business earns 10 to 12
business. They're just on equity and trades at a
never on sale. Often it nominal premium to
takes an overall market equity. It's got the
selloff to give you an ability to reinvest. It's
opportunity to buy a got the ability to buy
great business. shares back, but only
Sometimes an industry when they're cheap. The
is down and priced in as capital allocation levers
though it’s dead forever.
(Continued on page 38)
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Christopher Bloomstran, Semper Augustus

inside of Berkshire are running 75% in the top the traps, but there a
as well executed as they 10 on average, plus or number of gems to be
are anywhere. Most minus 5% for a long had despite what
CEOs ought to pay more time. Again, none of remains an expensive
attention to what that's methodical or by market.
Berkshire does and how design, it's just the way
they allocate capital. The the process works. You “The advantage of
energy and the railroad have your two or three
bear most of the percenters outperform living in the world of
company’s debt, but for a while, they get to intrinsic value, if you
with those two groups be bigger, or you like
their debt is non- something a lot and you have a good sense of
hypothecated to the get 4% or 5% in it and
parent. If you look at now all of a sudden it's what’s undervalued
how Berkshire termed 15% and you've got to and what’s less
out its debt, when scale it back. We just did
interest rates were low that with Olin. The undervalued and
over the last few years, advantage of living in
they're huge the world of intrinsic
what’s working, is the
beneficiaries of very low- value, if you have a ability to move
cost financing. Compare good sense of what's
that with companies undervalued and what's capital around.”
utilizing a lot of less undervalued and
commercial paper or what's working, is the G&D:
floating rate debt, with a ability to move capital
lot of paper coming due around. What it's You have previously
in the next couple three allowed us to do is talked about "Learning
years. A lot of generally keep the the lesson of being able
businesses are going to overall portfolio to pay a much higher
be in trouble because valuation at a fairly low price for something that
they're going to have to price to value regardless you bought recently." I
refinance what was low- of overall market think this is a really
cost debt. The way Elon valuation. important lesson, but
Musk just financed the just one that's really
Today the portfolio hard to implement.
Twitter deal with $13 trades at nine times
billion in high-yield Could you talk a little bit
earnings, which is more about this? And
floating rate debt is a absurd. I've only had a
disaster. Interest then maybe if you could
portfolio this cheap on a provide an example of
expense, which will handful of occasions in
grow, is chewing up a where you implemented
the last quarter century. this.
quarter of revenues on a March 2020 and the lows
business with an EBITDA in 2008, 2009. You have
margin less than 25%. a stock market that's CB:
Think about that. If rolled over a bit, but at
interest rates stay high That's a very important
year end 2021 was very
and inflation stays high, question. It took me a
expensive. Lots of
who knows what's going while to get to this
parallels between end of
to happen on the because as human
2021 and 1999, but an
inflation front, lots of beings, we anchor. If
enormous amount of
companies will be in you've paid a price for
value under the surface.
trouble. an asset and you can't
You've got a whole
get it for the same price
I have a lot of names in bunch of the market
six months on or 12
the portfolio that run that's still very, very
months on, more often
between 3% and say dangerous and
than not, you're going to
6%. That's where a core expensive, but a lot of
want to get it back to
of our capital shakes companies are really
that price. Or if you've
out, I've always tended cheap. Any value
missed something at a
to have the majority of investor is going to know
price and you're
our capital in our top 10 the term value trap. Part
holdings We've been of the key is avoiding (Continued on page 39)
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Christopher Bloomstran, Semper Augustus
frustrated because you
didn't get it bought, you
wanted to buy it, you
might anchor into that
price. I think about Bob
Smith's philosophy of
benign neglect and how
that served him so well,
and I also think about
my history with Ross
Stores.
I’ve written and talked
about Ross, as one of
my biggest mistakes. I
bought the company in
the late 90s period of
bifurcation. Paid 10
times earnings for a
retailer that I knew very
well that had terrific unit
economics and a very
long runway to open
new stores that then
were already earning
high teens returns at the
unit level.
During the bear market
that took the S&P down
by half, we made two
and a half times our
money with Ross. The
overall portfolio was up
when the market was
down, but companies
like Ross led the charge.
All of a sudden, I had
this problem of Ross now
not trading at 10 times
earnings but somewhere
in the mid-20s. I was
still grounded to classic
fundamental price to
earnings, price to sales,
price to cash flow,
dividend yields. And my
God, if you've paid 10
times for something and
it's now at 25, I’ve got
to get out of this thing
and into things that are
cheaper, right? So I sold
one of the best
businesses that I'd ever
found knowing it was
going to be a much
bigger business, knowing
that they had the ability
to retain capital,
knowing that they had a
perfect balance sheet count. Has capital
that was unencumbered moved around? Has the
by debt with the balance sheet changed?
exception of capitalizing Working capital
the operating leases, changes? Where's our
which we did before it profitability coming
became a mandate here from? What do we think
a few years ago under the business is supposed
GAAP accounting. to look like a year out,
I thought, "Well, it'd be two years, three years
easy to come back and out? Were we right or
buy it again when it gets were we wrong? So I'm
cheaper." Well, it never updating intrinsic values
traded again at 10 and that allows a
times. I don’t think I was calculation of discount or
necessarily anchored to premium to intrinsic
10 times, but I never value and then apply
came back to it. And if that discount around the
you look at the stock portfolio
chart, it's been one of opportunistically. I've
the best performing become comfortable
stocks in the market paying higher prices for
since I sold it in 2004. companies over time
It's more than a 20 plus when the value of the
bagger after I sold it. business grows.
I’ve done the math on
the dollars not gained “A tiny overvalued
after sale relative to the position can’t kill
little bit that I made and
its painful. Shame on you. You've always
me, but that was an
important lesson. With got to adjust your
the businesses that I intrinsic values. I
want to own for 20, 30,
40 years, I’ve gravitated adjust all values
to trimming them in the
portfolio but never
quarterly, not that
eliminating them from I'm trying to do it
the portfolio.
with precision, but it
I took Nike down to one
half of 1%, I've taken forces me to look at
Costco way back. But
those names exist in the what's changed in a
portfolio because I will quarter, what’s the
come back to them
opportunistically when change in the share
they get cheaper. A tiny
overvalued position can’t count. Has capital
kill you. moved around? Has
You've always got to
adjust your intrinsic the balance sheet
values. I adjust all
changed?”
values quarterly, not
that I'm trying to do it
When you get away from
with precision, but it price anchoring and you
forces me to look at
can really think
what's changed in a opportunistically about
quarter, what’s the
change in the share (Continued on page 40)
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Christopher Bloomstran, Semper Augustus
upside, downside
valuation, relative
strength, position sizing,
it all comes together and
it becomes very easy to
look past the fact that
you've sold something,
or you made a mistake,
"It's a business I still
want to own or I was
wrong on some
fundamental concern,"
and it makes it easy to
buy at any time if we
know it well and if the
valuation discount gives
us some margin of
safety.
G&D:
Yeah, that makes a lot of
sense. And I think even
what you said at the end
there, buying what you
know well and having
the competence in that
valuation, and you know
if the underlying factors
change and the
valuation change, buying
again, I think that's a
really important lesson.
Switching gears a little
bit, what do you think
about the state of stock-
based compensation
today? And how do you
recommend investors
think about stock-based
compensation when
attempting to value high
tech or human capital-
intensive businesses?
And maybe any
examples along those
lines that you might be
able to share.
CB:
Silicon Valley learned
how to use stock options
in the 1980s. Options
weren't really a
compensation tool prior
to that. I've got a history
in one of my older
letters on the evolution
of how stock options and
share-based
compensation came into
being and evolved. In
the 80s and 90s option
comp was not expensed.
It was contentious, I saw
the harm in dilution, and
eventually Warren
Buffett railed against it.
Ultimately the
accounting profession
saw the light that if
you're giving away
shares, whether valued
under Black-Scholes or if
you hypothetically run all
your expenses, not with
cash by paying but by
issuing new stock to pay
your vendors, there is a
cost. So now it's an
expensed item.
The number of shares
outstanding drove
materially higher during
the 1990s. The majority
of that was Silicon Valley
giving away huge
percentages of the
company each year to
the employees and
executives. Only later
did they get around to
masking dilution with
repurchases.
Done right, if you're
buying your company
shares back and you
don't have a better use
for the capital and the
stock is trading at a
discount to what we'd all
call intrinsic value, that's
a great capital tool to be
able to shrink your share
count accretively.
You're adding value and
not taking advantage of
anybody or anything,
but if you're using the
share repurchase to
offset the dilution that
comes from giving away
the company and you
have no regard for the
price that you're paying,
well that's a destruction
of value, you might as
well take a giant pile of
money, put it on a table
and light it on fire. And
that's what most
companies have done
over the last decade or
two because we've not
had an undervalued
stock market. If you're
the CEO of a public
company, you're on the
job for four or five years,
you have a window to
get rich, you may have
come out of engineering
or marketing, you don't
come out of the capital
allocation department
thinking about how to
optimize the balance
sheet, what the share is
worth, whether you
should issue, whether
you should buy back.
You're not trained in the
art of business valuation
so you lean on your
bankers to tell you if it’s
a good or a bad deal to
go into an acquisition,
but generally it's going
to be a good deal for
them because you’re
paying them a fee, and
it’s a good deal for you
because it makes the top
line bigger and that
makes your
compensation bigger.
Too often, share based
comp is now done
through a lens that
incentivizes short term
thinking. I think far too
often, especially in the
tech world, Silicon
Valley, some of these
folks running these
businesses still have a
venture cap mindset
where they're thinking
about funding rounds
and they don't have a
regard for what the
share actually
represents, which is the
ownership of the
company by all of your
shareholders and what
(Continued on page 41)
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Christopher Bloomstran, Semper Augustus
the business is worth.
They think about
ownership and how easy
it was to have been
given shares to be the
CEO of a private
business before it went
public. Giving the ship
away is just
commonplace in that
world.
Here we have Facebook
blowing up and
so...yesterday afternoon,
I looked at Facebook's
share repurchases over
time. I wanted to see
how much they've given
away and bought back
despite little change in
the share count over
time. It turns out they
started buying the stock
back at the beginning of
2017. From their first
share repurchases
through Q3 here this
year, you've got $112
billion repurchased
against $144 billion in
profit. They spent 78%
of their profits buying
the stock back and 50%
of their cash flow from
operations. Now, when
you get on most
companies' calls or you
read their adjusted
EBITDA disclosures in
their press releases or
investor decks, not in
the Qs, but in the press
releases and decks,
they'll tell you that share
based compensation is
not a cash item, so you
really ought to ignore it.
It makes my blood boil.
Well, Facebook winds up
paying something like
250 bucks a share for
their average
repurchases. The
repurchases in 2021
were done at $330 vs.
$97 today. That’s share
based comp done badly
with an eye toward
getting yourselves rich,
no regard for the for the money, I'd rather
shareholder and really you not create a use for
no regard for the price it by making bad
you were paying for the acquisitions or simply
stock, "Hey, we don't buying the share back
need the money in the even though it’s not
business. We're cap cheap but because some
light." What do you do consultant told you it is
with it? Do you pay a returning money to
dividend? Do you go stakeholders. Give me
invent a bunch of stuff the money. I'll take it
with R&D? and I'll find places that
make more sense, right?
“Done right, if you're
G&D:
buying your
That is a very pertinent
company shares back example, especially over
the past few days here
and you don't have a with what's been going
on. And I think tying
better use for the
that into the share base
capital and the stock compensation is really
helpful in terms of
is trading at a informing our readers
along the lines of how
discount to what we'd
important capital
all call intrinsic allocation decisions are.
I think that that's really
value, that's a great enlightening and really
timely right now.
capital tool to be able
So, I'm going to jump
to shrink your share ahead a little bit here,
count accretively.” and maybe we could talk
about one of the
Very few contemplate positions here,
how disastrous a Paramount Global, and
repurchase is when it's get your thoughts on
undertaken at a price that name.
that far exceeds the
underlying value of the
business, and so who CB:
knows what the value of Paramount is the old
Meta or Facebook's Viacom, which merged
going to wind up being. with CBS four or five
You guys tell me if years ago. You have
there's a moat in the these streaming wars
business, I've never going on and you’ve got
found the moat, I get the content guys going
durable advertising over the top with
revenues, but I'm not distribution, which
sure I get the platform. Netflix really drove. It’s
Now I don't mind a a combination of cord
business paying me cutting and younger
profit as dividends. I generations leaving
don't like paying taxes traditional consumption
on dividends in taxable of content (cable, free
accounts. But if you TV, or satellite). We’re
don't have a better use (Continued on page 42)
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Christopher Bloomstran, Semper Augustus

now getting our content Disney+ app, on the content, it opened the
now through apps, Hulu app, and on their investment community's
certainly my kids are. ESPN+ app. eyes to Netflix as to
Netflix decided they My suggestion was, whether they were
wanted to compete in don't necessarily listen actually going to get a
the content creation to the investment return on a lot of the
world. Disney realized community as what you ephemeral content that
that no longer was ought to do with capital they were putting out.
Netflix just a pipe, but a and what you ought to How many series on
content competitor, and do with spending. You television, like a Cheers
so they said, "Whoa, guys do a good job and or a Seinfeld, that get
we're going to pull back are the pros. You might into syndication, are
all of our content from think about not paying a going to be seen for
you guys and take it dividend at a regular decades? Well, if you're
back inhouse, and we'll rate and paying specials spending a mountain of
create our own apps and like Costco does, but money making a
we'll go over the top." In beyond that, I wouldn't mountain of content,
the midst of all that, get caught up in the some of it doesn’t even
we've got this free for arms race because the get through even a
all, because you've got a last thing you want to do season, and very, very
declining set of eyeballs is make a bunch of crap little of it's going to get
through traditional cable that's going to sit there into the repeat of a
and a growing amount of that nobody's going to second, third, fourth,
expensive to produce watch and diminish the fifth, where you're going
content that's looking for value of the brand. to watch it again and
whichever outlet winds again and again. You're
up winning in terms of I equate high level of not going to get paid for
how you view your great content coming out syndication. Too many
content. of a Disney or coming shows. Not enough
out of a Showtime, eyeballs and a race to
Thus you've had an which is Paramount, to a
ongoing nuclear arms sign up subscribers.
high-end watch. You
race on content spend. I might pay $22,000 or Now you're in a place
sent a letter to the $300,000 for a watch, where a lot of what had
Disney board a couple and the company's got a been content that came
years ago suggesting 65%-70% gross margin. as a byproduct of
they not necessarily You're not paying for the content... If you think
reintroduce their jewelry content or the about all of the old
dividend at the pre- diamonds. You're paying Viacom assets managed
pandemic rate because for the scarcity of the under Sumner Redstone,
they'd taken on a bunch watch and the brand, well, there was a lot of
of debt to finance their the creation by hand, milking of the cash flow
own acquisition of all the the artistry. Well, cow. I would say under-
21st Century Fox assets. Showtime's a brand. investment in some of
My suggestion was, Your viewers know their properties like MTV
"Look, you guys make you're making great and maybe Nick, BET...
better content than shows. If you're Disney, They didn't maintain the
anybody. Out of your you know your kids’ spend on those
movie studios, you put content is great. ESPN is properties at a high
out fewer films per year, great. Don't diminish the enough level and the
but they're all brand by overbuilding. brands there got
blockbusters." There was Rolex now might be diminished.
a push by other making too many But lo and behold, you
investors that were more watches, right? You're get this merger with CBS
activist in nature that starting to see some before the pandemic,
were encouraging Disney weakness in the and I don't know, they
to spend essentially secondary market for were doing $14 billion in
everything they had, watches. revenue, so combined
making more and more they should have done
content so there was In the world of all this
more stuff on the overspending on (Continued on page 43)
Page 43

Christopher Bloomstran, Semper Augustus

double that. You've now billion in revenues at a could take longer and
got the business only 10 to 12% margin, you there may be so much
doing about as much can get to a $50 billion spend that nobody gets
profitability as Viacom market cap, four times a return on forcing the
was doing alone prior to where you are today. consumer to the app
the purchase of the CBS If we're wrong, and we that we think they're
assets, even though the simply muddle along and going to get, and we
business size doubled. margins are permanently could be wrong, but we
The profit margin is depressed at current have a margin of safety
down from 10% to 5%. levels, the stock’s at with price and a margin
You're bringing on a lot eight times earnings. of safety with the repair
of subscribers, but a lot Recapitalize it at double of the balance sheet.
of the value of those the multiple and And who would've
subscribers is back-end contemplate the known that two quarters
loaded. You're not going business throwing off a after we came into it,
to see really high lot of free cash. Berkshire would come
durable cash flows for a into it.
couple, three years. I like the management
team. I like the CEO, “But the question
But the question comes Bob Bakish. Since the
down, who's making the acquisition, net debt has comes down, who's
best content, and who come down from $20
survives all of this, and billion to $13 billion. A making the best
who are we all going to lot of the free cash has
pay for? As we content, and who
gone to repairing the
consolidate the apps, balance sheet. Wall survives all of this,
you're going to probably Street's looking at the
have consolidation of the current quarter, they're and who are we all
industry. Any business looking at the projection
growing customers in a going to pay for? As
six months out. They're
subscription world needs not looking at where this we consolidate the
to watch churn. I'm here is going to wind up. This
to say the Paramount looks a lot to me like apps, you're going to
movie studio, Showtime, Nike, which is in the
CBS, particularly with probably have
midst of doubling their
CBS Sports, those are margins because they're consolidation of the
trophy assets and you're taking more and more of
going to get paid for their business direct to industry. Any
them. In my world, I've consumer through the
got revenues growing business growing
apps. Investors hate it.
from today's $28 or $29 Well, they hated customers in a
billion to $33 or $34 Microsoft at 10 times
billion. You're going to earnings after the stock subscription world
get mid-single-digit fell 75% over six or
growth on top line, you'll needs to watch
seven years.
get price. But I've got churn.”
profits which are I would never buy a
depressed at a 5% net business for likely
today. I've got the consolidation, but I think G&D:
margin doubling back up these assets belong with
the top content Do you have any advice
to where they were pre- that you would give to
pandemic, so 10 to 12%. producers in some
format. It's worth way younger investors or
You're looking at $3 or MBA graduates who
$4 billion net income, more than the current
bid, but you just don't want to learn more
and as we do the math, about value investing?
and think where see it during the period
everything shakes out in where they're fixing the
four or five years, we business, repairing the CB:
have a market cap today balance sheet and
transitioning the I get asked all the time,
that's 12.5 billion. You
capitalize that on $34 customer base. Now, it (Continued on page 44)
Page 44

Christopher Bloomstran, Semper Augustus

what one book should I earnings, you can see data and be able to see
read that's going to where an acquisition was how the balance sheet,
make me a great done and how it was income statement, and
investor? My answer to financed, spinoffs, all in cash flow statement
that is there's no book. just a handful of figures all interact with
I'd read The Intelligent numbers, and in a each other. You can’t
Investor, no doubt about format that you can invest based on a tear
that. The light went on orient yourself with in a sheet, but when I'm
for me when I read it. short period of time. going to go analyze a
But just turn over rock There’s no getting business and break
after rock after rock. around dissecting a 10-Q something down,
Read as many Ks and Qs or a 10-K. It’s a great especially when I was
as you can. Continuously starting point for the younger, if I didn't really
add to the arsenal of research process having know a business that
companies that you all of that that data all well and I wanted to get
know well and get on one page. When you myself oriented in a
deeper and deeper get oriented to the hurry, I'd spend 5 or 10
understandings of format and you condition minutes with the Value
businesses. There's no your brain, you start Line page and pages for
substitute for reading thinking about where are the industry, then I
about companies, and I returns on equity being would read several
think too many investors driven? Is it coming from years’ worth of annual
don’t get to that. leverage? Where's my reports and Ks and Qs.
I don't want to do a cash going? Is it building But I'd start with the
commercial for Value up? How are working tear sheet and then I've
Line, but one of the most capital components got a better long-term
valuable things that I do, changing? sense about where this
and I've done for my business has been.
entire career, which I “I’d read The It's allowed me to
started doing in college, maintain a universe in
and which I didn't realize Intelligent Investor, my head of a lot of
would become a lifelong no doubt about that. different industries and a
discipline, but I get the lot of different
large cap and the small But just turn over businesses. And then,
cap print editions of the when you start investing
Value Line. I've always rock after rock after more and more abroad
gotten the hard copies. rock. Read as many and you don't have the
And I read them every Value Line page, now I
week. Ks and Qs as you can. can pull up a company
The discipline of looking on the Bloomberg and
Continuously add to I've got some templates
at the data, you're not
reading the Value Line the arsenal of where I get 10, 20
page for their summary years’ worth of data and
companies that you figures, and I know
of what's going on, but
you're looking at 10 to know well and get what's important from a
15 years of figures on a high level to be able to
per share basis, on a deeper and deeper generally discern in just
dollar basis. You're a few minutes whether
understandings of you've got a decent
looking at the share
count change, you're businesses.” business or a bad
looking at how returns business, at least
on equity and capital historically, based on
change over time, Whether you do that how it's evolved. It
current snapshot of using the Value Line, or doesn't tell you how it's
working capital. You can whether you have access going to change over the
see when businesses are to platforms like next five or ten years.
increasing leverage, you Bloomberg or FactSet or That's where your
can summary one-off Sentio, create your own analysis comes in and
charges against templates where you can
look at a lot of years of (Continued on page 45)
Page 45

Christopher Bloomstran, Semper Augustus

that's where you're “But I would say get a called Million Dollar
going to do the work, Blackjack. Uston was the
when you really get into lot more of your daily president of the Pacific
the business, do all your Stock Exchange and was
reading, talk to calendar oriented banned for counting,
competitors, talk to toward turning over skill in a game of
managements. chance, but sued and
But I would say get a lot
as many rocks as you settled for a large
more of your daily undisclosed sum.
can and reading Counting cards is easy.
calendar oriented toward
turning over as many about as many You have a count system
rocks as you can and where you're assigning a
companies as you positive count to your
reading about as many
companies as you can, low cards and a negative
can, and read them in
and read them in depth. number to your high
If you're just starting depth. If you're just cards. And so, two
out, for the first ten through six could be a
starting out, for the plus one, seven through
years of your career, you
have to live in the first ten years of your nine would be neutral,
footnotes. I live in the they'd be a zero, and
footnotes. But read all career, you have to your 10 and all your face
the footnotes. All the cards and your aces
live in the footnotes.” would be a negative one.
new accounting
pronouncements that You keep a running
are coming. Read the G&D: count. And you could get
definitions of how That’s super helpful, and into a lot of decks by
revenue recognition I think our readers will using a divisor.
takes place, boring, really appreciate that. Essentially the way
pedestrian stuff. But It's different than what counting works is you
then when you get a we've heard, but it's a want to know when the
GAAP or an IFRS good reinforcement of unplayed deck is rich in
accounting change, and you've got to put in the high cards, because you
you've got six or seven work, you've got to learn don't ever want to hit
companies talking about about the history of your hand and bust if
the same change, and companies, in a sense, the dealer's going to
"We're going to and really see a lot of draw a card or cards and
implement it now," pitches. And I like bust. You get more
"We're going to do it in a maintaining a universe money out when the
year," then some of in your head. I think odds are in your favor
these nuances really that's really helpful. and change your play
start to make sense.. based on the count. It’s
All right, wrapping up easy but incredibly
I don't have to read as here. What do you like boring.
much boilerplate now, to do for fun outside of
because I've done it for investing? Any hobbies I would play a bunch of
so long, but it was or passion projects or poker, especially when I
advantageous to me, big things you're involved was in my 20s and 30s.
time, to have taken my with that you want to Then I was trying to play
time, not going as fast enlighten our readers golf once a week,
as I could but spent a lot on? sometimes twice a week
of time, company by when not on the road. I
company. And if you're had a regular golf game
reading a lot of books CB:
on Saturdays at my club
and listening to a lot of Well, as I mentioned
with all the older guys
podcasts, nobody's earlier, when I was in
and had a lot of fun. It
drilling into that kind of college, I got into
was competitive and
minutiae that you can, counting cards. Ed Thorp
enjoyed the
because it takes time to had a book called Beat
camaraderie.
do it. It takes a lot of the Dealer. There was a
When my kids came
time to do it well. guy named Ken Uston
(Continued on page 46)
that had a book out
Page 46

Christopher Bloomstran, Semper Augustus

along, I scrapped the your friend group
golf and poker and carefully. Find those
basically lived my non- smarter than you, some
investing life through older, some younger,
their lens. My hobby for but above all else find
all those years that the good people with moral
kids were under the roof compasses. Outside of
was them... We just kids and family, there is
went empty nest this no more fun than having
year. So far the silence a group of colleagues
is deafening. They say that you enjoy spending
you eventually relish it. time with, on the phone
My baby boy is a and getting together.
freshman in college, my Thirty of us are getting
daughter's a senior, so together for three days
that changed the next week to talk stocks.
dynamic. If you like investing,
hang out with great
A reflection on what I investors. When you
learned was important meet bad people,
was give your children unethical or who treat
time. They grow so others badly, you should
quickly it’s a blur. Think know who they are and
back to when you were get rid of them. Bad
15 or 16 and started people can drag you up.
driving. How much time Good ones lift you up.
did you hang out with
your parents? You didn't.
So you don't have 18 “But professionally
years with your kids. It's
it’s mission critical to
a short window.
I coached a bunch of choose your friend
their sports teams –
group carefully. Find
basketball, softball,
baseball. Coaching my those smarter than
son's football teams
you, some older, some
from 2nd to 8th grade
was a joy and privilege. younger, but above all
I loved that. If you look
else find good people
at the Semper website –
I know some of you read with moral
my annual letters, you'll
compasses.”
see a window where I
did not write a big, long
annual letter. It was
more important to run
the portfolios but to be
there for the kids. For a
time my priority in
January was not writing
a big annual letter. I
have no regrets about
doing that whatsoever.
I’d add that as you have
a family your friend
group will evolve around
their school and
activities. But
professionally it’s
mission critical to choose
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jwheelock23@gsb.columbia.edu
mkeating23@gsb.columbia.edu
sspellberg23@gsb.columbia.edu
Graham & Doddsville Editors 2022-2023
Jake Wheelock ’23
Jake is a second-year MBA student at Columbia Business School
and a member of the Value Investing Program. He recently in-
terned as a Summer Research Analyst at Caveat Emptor Capital
Management in New York, NY. Prior to Columbia, Jake was an
Investment Analyst with a generalist mandate at Focused In-
vestors, a long-only value-oriented fund in Los Angeles, CA.
Jake graduated from the University of California, Los Angeles
with a B.A. in Business Economics and is a CFA charterholder.
He can be reached at jwheelock23@gsb.columbia.edu.

Matt Keating ’23

Matt is a second-year MBA student at Columbia Business School
and is member of the Value Investing Program. He started his
career at Apple in 2012 working in finance and program man-
agement roles. In 2019, he joined Saratoga Research and In-
vestment Management and works there as a portfolio manager
covering the healthcare and consumer staples industries. He
studied Economics and Finance at Cal Poly in San Luis Obispo,
CA and has earned the CFA designation. He can be reached at
mkeating23@gsb.columbia.edu.

Sean Spellberg ’23

Sean is a second-year MBA student at Columbia Business
School. During the summer, Sean worked as an investment
professional at The Ferrante Group in Naples, Florida. Prior to
Columbia, Sean worked at Stonepeak Partners and Cerberus
Capital Management investing across the capital structure. Sean
graduated from Colgate University with a B.A. in English Litera-
ture. He can be reached at sspellberg23@gsb.columbia.edu.