Back to Class: Value Investing Congress West 2008 (1)
I’m back in Southern California for my second Value Investing Congress West (May 6th and & 7th), and this year I’m also attending the Pre-Congress Workshop, An Advanced Seminar on Value Investing, taught by T2 Partners’ Whitney Tilson and Glen Tongue.
As a CFA Charterholder with an MBA, a small financial advisory practice, and 20 years in the business, I’ve been in my share of classrooms over the years.
Tilson and Tongue’s detailed, fast moving, but equally understandable instruction style make this pre-Value Investing Congress session well worth attending.
Morning Highlights McDonald’s
An excellent case study on the fate of McDonald’s (MCD) following the company’s 2003 bottom opened today’s session. Tongue recounted a previous analysis of the company which argues against viewing McDonald’s as merely a quick service restaurant company, preferring to characterize it as a Brand business (including real estate and franchises) and a restaurant company with more than 8000 company owned stores. This is the way that we, as value investors, are trained to think. A little reinforcement here is never a bad thing.
The restaurant business is much more complicated than one might think, and Tongue and Tilson’s insights on the industry as whole, and a few of the players, were extremely valuable.
Berkshire Hathaway
Tilson and Tongue are still unapologetic Berkshire proponents, and put the current intrinsic value of the A shares at nearly $180,000 per share, a 40% premium to the current price. (Interestingly enough, the audience at today’s session was polled, and at least half were at last week’s Berkshire annual meeting!)
The Mortgage Crisis
For his part, Tilson believes that we have not yet seen the worst of the mortgage crisis. His extremely detailed presentation (“An Overview of the Mortgage Crisis and the Structure of CDO’s”) paints a very bleak picture, suggesting that all things housing and mortgage related will get much worse before improving. Tongue and Tilson put their money where their mouth is with short positions in monoline insurers AMBAC and MBIA, and a long position in Fairfax Holdings (which has gained and may gain further in the mortgage crisis due to its credit default swap holdings).
Jonathan M. Heller, CFA