My full interview with Jeff Stacey of Stacey Muirhead Capital Management originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
Jeff Stacey was waiting for me in the Gold Room at the Royal York Hotel, reading the Financial Times and sipping coffee from a white china mug. Nobody else was around him in the classically appointed room that brought to mind images of captains of industry from years past congregating to shape Canada’s economy. It’s hard to fathom now that the Royal York was once downtown Toronto’s tallest building.
It wasn’t officially spring just yet, but the sun was piercing the window onto the table at which Jeff and I would sit and chat. It was so bright that I would later draw the blinds. Jeff was visibly eager to talk to me about his passion: value investing. I was eager, too, as Jeff has been successfuly practising value investing since founding Stacey Muirhead Capital Management in 1994, and is a friend of Prem Watsa, a notable value investor. Days after our interview, he would host the question and answer segment of Prem Watsa’s Fairfax Financial Value Investing Dinner Gala.
Jeff Stacey has learned value investing from both the experiences and writings of super investors such as Benjamin Graham, Warren Buffett, and Sir John Templeton. Over time, he has identified the following enduring value investing principles, which he judiciously applies to all of his long-term investment efforts:
• Think about stocks as part ownership of a business
• Maintain the proper emotional attitude
• Insist on a margin of safety
• Do not diversify excessively
• Invest for the long term
Jeff looks for companies with outstanding business economics that are run by capable and honest managers and that are available at attractive prices. He describes this concept simply as “Great Business, Great People, Great Price.” Jeff also has some great stories on event-driven investments. Specifically, he explained how he profited from Starbucks’ acquisition of Teavana amidst the threat that that deal could have blown up.
Jeff Stacey’s 17 Investing Lessons:
1) “We’re trying to estimate intrinsic value, we’re trying to buy with a margin of safety to that intrinsic value, and we’re trying to be rational and patient in all that we do.”
2) “Event-driven transactions are the pursuit of profits from announced corporate events. So that’s liquidations, mergers, acquisitions, recapitalizations, tender offers, anything where you can say, ‘Okay, if this event happens we’re going to make this amount of money in this amount of time.’”
3) “We will consider bonds that are high-yield because there’s a perception that the companies aren’t going to be able to keep paying, so the analysis is all around why we believe that they’ll be able to keep paying.”
4) “We’re not afraid to let the cash build up when we have more money than good ideas.”
5) “We’re not trying to guess on which company is going to get taken over. It’s a matter of public record.”
6) “Every big merger is widely reported on. From an informational point of view there’s certainly more awareness about mergers than anything else.”
7) “If you knew as a certainty that something could grow 50% a year for a long period of time, of course it’s worth more than seven times earnings.”
8) “The deep-value guys will state, ‘I want to buy something at a discount to book with a dividend yield and a single-digit price earnings multiple.’ You know, that’s probably a great price for a rotten business. But if it’s a better business you can pay more.”
9) “Value depends on the quality of the merchandise. The trick in what we do is to invest in enduring, high-quality businesses that can last for a long period of time.”
10) “We spend a lot of time trying to understand the qualitative competitive advantage that a business has.”
11) “The mistake that the good business buyer will make is he’ll pay too much for something that he or she thought was a really great business that turned out not to be a really great business.”
12) “There could be hidden assets. For example, real estate that is on the books for next to nothing but could be sold to unlock huge value.”
13) “The asset-light management company is generating these recurring service fee revenues from this hotel. That’s a classic example of a business that from a balance sheet point of view doesn’t really have much in the way of assets but it has enormous economic value.”
14) “There is no question that the playing field has been levelled because of the availability and ubiquity of information. However, information is not the same thing as wisdom or knowledge, and so you still have to interpret that information.”
15) “The human condition is subject to cycles of both greed and excess optimism, or fear and excess pessimism.”
16) “You have to get out and you have to travel and you have to see what people are eating, what they are drinking, what they are smoking, what they are wearing, and so on.”
17) “Read the letter to shareholders in the annual report. Is management talking to you like an owner, or does it seem like it’s written by some PR person who really doesn’t know what the business is about?”
Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.