Value Investing in a Macro-Driven Environment
The GoodHaven Fund (GOODX) is managed by Larry Pitkowsky and Keith Trauner of GoodHaven Capital Management, LLC, a new firm from some not-so-new investors. For most of the previous decade, Larry and Keith held research, portfolio management, and executive positions with Fairholme Capital Management, LLC and its affiliated Fairholme Fund.
We spoke with Larry and Keith on September 14.
Let’s start with a little background on yourselves and what led you to create GoodHaven.
Pitkowsky: We had a very nice nine- or ten-year run at Fairholme along with Bruce Berkowitz. We were proud of what we accomplished when we were together there, and when we wound up our involvement we looked at ourselves and said, “Well, would we like to just run a friends-and-family hedge fund out of our den, or would we really like to do it again?”
Managing assets is what we would do every day if there were no clients or shareholders, and so we decided that we like having a public fund and having people invested alongside us. We don’t have any hobbies; this is what we like to do, and we decided we’d like to do it again.
Trauner: I have been in the business for 30 years and Larry more than 25. We’ve seen an awful lot. At this point in our careers, having been involved in a very successful venture before, it’s not a question of knowing what we want to do when we grow up. We know what we want to do; it’s really just a question of execution.
We’re value-oriented and conservative because our net worth is invested alongside that of our investors. We want to earn the highest returns we can without taking a lot of risk, and that’s how we behave.
For us, it’s about executing, it’s not about figuring out the right strategy. We have a strategy that we think makes a lot of sense and which has proven over time to be worthwhile.
Let’s talk about your strategy. In your latest semiannual report, you quote Ben Graham as saying, “Price is what you pay; value is what you get.” Do you consider yourselves Graham and Dodd value investors? In what ways might you differ from their textbook style?
Trauner: Our strategy owes some debt to Graham, but it also owes to Buffett in the way he expanded on Graham. We are investors in pro rata ownership of businesses. That’s all a common stock is, and we look at everything as though we were buying the business, or a security that’s issued by the business. We don’t care if the market is up or down, today or tomorrow. We’re not trying to make wonderful macro predictions about what’s going to happen in the world. We focus on what we think the value of a business is, and, if we can, we buy a decent business with good operators and capital allocators running the show, at a bargain price.
That’s our preferred strategy. Sometimes it’s easy to find a good business, but it’s not easy to find the right price, so we have to be patient and disciplined and wait for the right confluence of circumstances.
Pitkowsky: We understand the two most critical things to take from Graham’s teaching. First, you need to buy something with a margin of safety. To us, either that naturally grabs you as a concept or it doesn’t. Secondly, the concept is that the market is there to provide you with opportunities and not to guide you in deciding what to do.
We’ve chosen to try and put together a concentrated portfolio of better-quality companies run by strong management teams. There are multiple ways to get to heaven with those two important tenets. You can have a Tweedy Browne portfolio of, say, 150 companies, or you can be much more concentrated and try and buy better-quality companies, but the central tenets underlying it are similar.