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Jeff Gramm, Author And Money Manager, Speaks With GeoInvesting [IN-DEPTH]

By Maj Soueidan. Originally published at ValueWalk.

As we have talked about in the past, part of the GeoInvesting methodology is to talk with management and smart people.  Jeff Gramm is a smart person.  In addition to running Bandera Partners, Jeff also wrote a book that is required reading for our team called Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism.  This fascinating book shows how the Grandfather of Investing Benjamin Graham started as an activist shareholder, taking on and beating Rockefeller, as well as Ross Perot’s tenure on GM’s Board and several other groundbreaking shareholder battles.

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Also read:

Jeff Gramm Dear Chairman

I had a chance to to chat with Jeff to learn more about what he does, his investment process and his views on activism. You can see all of what Jeff had to say below, but I’d first like to point out some of the structure and notable moments of the interview.

Topics Discussed:

  • A little about Jeff Gramm
  • Investment strategy and definition of activism?’ (Reel time) 
  • Longer-term horizon vs. Sort-term 9
  • Industry Preference 1
  • Research process 
  • The importance of networking 
  • Initial Research Filtering Process 
  • Market Cap Preference 
  • Activism in the small and microcap space 
  • Evolution of activism 
  • Personal Activist “Battles” 
  • Passive vs. Active Investing 
  • What an additional appendix to Dear Chairman would look like

Thank you Jeff

Learning From Your Peers

One of the things we like to do is to find a few of the pearls hidden in the dialogue and bring them to the surface, polish up, and use as conversation starters.  From Jeff’s talk we have a few ideas we think you might be interested in exploring a bit.

Even though Jeff not does consider himself to be an activist, he points out that its part of the game:

Jeff: I think anyone who does a lot of small cap investing, anyone who takes large concentrated positions…you ultimately will find yourself in situations where you either need to get involved or you need to find an activist to get involved.  

We consider ourselves to be activists, but not in the normal sense of just agitating for changes like management changes or capital allocation strategies.  We assist management with suggestions on how to increase sales and reduce risk, and make introductions that can have synergistic effects.  When we decide to take a position, we believe we can maximize our profits (and hopefully our members’) by giving management our talents.

Jeff Gramm: In our business, that’s the kiss of death: when you begin to cut corners.

The longest route is always a shortcut.  We have a responsibility to our Members to always do the right thing and not cut corners in our research process.  We have created additional SOP’s (Standard Operating Procedures) to ensure high quality control in our investment process, and encourage the companies we deal with to do the same.  Never cut corners because it is a slippery ethical slope.

Jeff Gramm: I do think the growth of passive is a threat to corporate governance. 

If you read Sig’s article on active versus passive management, this is a thought you know we have addressed extensively.  We have a deep-seated belief in the value of the research we do, not just for ourselves and our Members but for the investment community in general.  Sometimes it is by exposing the bomb companies out there that can blow up and weaken investor confidence in the microcap space.  Other times it is discovering gems that with some polish will be valuable.  Our information focused approach uncovers opportunities all along the spectrum while promoting a better overall market.

Often you might hear “history does not repeat, but it rhymes”.  One of the best ways to be prepared for the boardroom battles of the future is to study those of the past the way current military leaders study Sun Tzu’s Art of War.  The best tome for this is Gramm’s Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, and we thank Jeff for investing the time with Geo.

Notable quotes from our interview with Jeff Gramm:

We’re just classic value investors…trying to find a fifty-cent dollar. – Jeff Gramm

… I think anyone who does a lot of small cap investing or takes large concentrated positions… ultimately will find yourself in situations where you either need to get involved or you need to find an activist to get involved. – Jeff Gramm

You can be the best analyst in the world, but it’s pretty hard to avoid situations where you’ll buy into a good company that isn’t run optimally. – Jeff Gramm

So, I view activism as basically getting engaged with your portfolio companies…getting involved with the governance or the management or the strategic decisions and any kind of engagement. – Jeff Gramm

It’s pretty hard to think of a scenario where I know the short term is going to play out a particular way. – Jeff Gramm

But I don’t think that there’s anything that I would never read the 10k. I think there are industries where I know it would be a real uphill battle, but I don’t think that is the same thing as just inherently off limit. – Jeff Gramm

To me the most important step is deciding what to work on. You filter through all your ideas and I think the key decision in any value investing research process is…it’s a time management one. It’s why do you decide to look at stock A and not Stock B? – Jeff Gramm

It’s not that hard to look at a company, it’s harder to put yourself in a position to find the good ones, because they’re so rare that are good investment ideas vs. a lot of good companies. – Jeff Gramm

So, I find a lot of our business is about being like an investigative reporter: you’ve isolated a business that you think is good, that you think you understand the economics of the industry, but usually you need to talk to someone that knows the industry better than you and try to get them to explain…“I think that this company looks cheap, at the quality of their earnings, but can you really walk me through how they make money.” I just make sure that I’m getting it. – Jeff Gramm

I don’t build a big spreadsheet or look at the comps, trying to figure out ‘well, how come this guy has a 22.8% gross margin when the competitors are at 23.5%. To me…I’m not digging in the numbers that much. I’m trying to find people that know how the business actually works that can give you a sense for the durability of that business and to try to talk to me. – Jeff Gramm

we all have our own way of doing things and I’m not saying this is the way for value investors, it’s the way for me. – Jeff Gramm

It took me a long time to learn about gathering information, but not being affected by opinions. – Jeff Gramm

So, to me, in that initial screen, we’re looking for things I can understand, things that I think I can get

The post Jeff Gramm, Author And Money Manager, Speaks With GeoInvesting [IN-DEPTH] appeared first on ValueWalk.

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Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!