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An interview with billionaire investor and
founder of GAMCO Investors, Mario Gabelli. In this interview, Mario discusses
his approach to value investing and explains what his favourite investments are
and why. Mario also talks about clients, BREXIT and interest rates.
Interview Date: July 2016
Interviewer: Tim Schaefer
What's interesting about this interview is that in 2016, so it only took 3-4 years before some of the companies owned by Gabelli were acquired. He didn't need a special catalyst. Remember, he is managing an AUM of 40B, which is quite an impressive feat.
0:00 Introduction
0:43 What makes a great value investor?
2:58 Hard to make up the gap of 20%?
4:47 Time horizon?
6:10 Why do you like this company?
9:30 Other companies you like?
11:08 Those stocks go up slowly?
15:26 Why won't anyone take them over?
16:35 Amazon?
18:15 Netflix?
19:50 CST? now taken over by alimentation couche-tard from
canada
21:48 Owning oil after a drop in price?
23:30 Companies are getting in trouble?
28:42 Opportunities in Great Britain after BREXIT?
29:40 Gold and silver?
30:20 How did you get in touch with finance?
31:43 VW?
33:14 How much of a mid size company would you buy?
35:18 You’re not a activist investor?
36:09 Take on Viacom?
38:34 Banks?
39:09 Dealing with clients in a crisis?
Mario Gabelli:
Tim runs works for a German magazine. Tell them what you do.
So I am a Wall Street
correspondent, I work for several publications— it's a conglomerate. It is
financing dot nets and several magazines and websites.
What makes a great
value investor? What are the criteria you would say is necessary of our
character? What do you need to be a
great value investor?
Mario Gabelli:
I think one of the elements is patience, secondly you do
have to understand that when we buy shares of stock; we're buying a piece of
business so what is the business worth?
From my point of view, I had an accounting background and a
philosophy minor, but then when I went into graduate school I had finance, but
in particular security analysis so I was trained in the Graham and Dodd
methodology of valuing a security where you gathered the data— that is, you
look at all the public information, and you then, we as a firm, put it together
by arraying it, then we project it, then we interpret and then we communicate
so we called GAPIC approach G.A.P.I.C approach to it investing so we try to
find companies.
Tim, about 70 to 80 years ago, you would try to find a
company where you had a million shares outstanding selling at $10 but they had
cash or receivables of $12 it was basically finding a company below, in the
public markets, below the net current value of their assets— that is very hard
to do today, the markets have been reasonably cold though, so you then try to
find other businesses where you do this and it will work.
The second thing that's important other than patience—accumulating
knowledge of industries over an extended period of time so by following the
auto industry as I've done for 40 years or 50 years and the farm equipment
industry and the entertainment business you can adopt the change quicker.
And if the stock market which we call Mr. Market comes down
as it did on Friday and today it's because of Brexit you can see what companies
make an interesting opportunity are they weak enough and then how much time do
you have to hold so those are kind of the elements.
Tim S:
Today if even if you
find something below Book value mostly even if there's a gap of 20% it's hard
to make that 20% right? Is it liquidating a company or what reason?
Mario Gabelli:
Right, well, there are there are elements. So what we call the
private market value would a catalyst because we would like to harvest and narrow
the spread between the public price of a security what you can buy a company at
and what it would sell to a private equity on or a strategic that is a
corporate buyer so in that framework we don't necessarily look at Book value we
look at what we call what multiples of cash flow – capital expenditures ebitda
– capital expenditures will someone pay to own the business and how quickly
will that even a grow? How is it affected by inflation deflation is it
subscription revenues or is it a transaction revenue?
For example if you're buying sugar and there's a spike in
the price of sugar somebody's going to make a lot of money but what multiple
could you get it for, as opposed to someone that's buying a cable television
cash flow, so that we distinguish that between Book value and what the value of
business is, and that valuing can change over time.
For example, if you're doing leveraged buyouts in private
equity, what multiple can you sell the business at five years from now? What
kind of return do you want to have on your equity investment? How much debt do
you can you can you raise the finance of today? How much debt can you raise
where you want to sell to somebody else will do the same thing?
So there are a lot of dots to connect; it is not complicated
but that's what we do.
Tim S:
Sure and you
mentioned being patient, you have to be patient, well what is your time horizon
when you buy today a stock?
Mario Gabelli:
Well, when you look at the Gabelli portfolios and we run 40
billion dollars U.S, all equities primarily, these are in rough numbers, our
turnover is about 10%, which means we hold stocks for 10 years, so as a result
of that we have a very long-term timeframe.
However, when we start the process what we like to do and
this is about what we do most of the time, but not all the time. You basically
say, okay, if the stock is selling in a case of Scripps broadcasting at $16,
the symbol is SSP, we think it's worth $22 today or $24, what will it be worth
in three or four years?
What elements would be visible to the world that would say
okay that $16 will go higher and match the private market value, then we ask ourselves
what can go wrong? Where can we make a mistake in the analysis of private
market value? And then where could we be wrong not only because it can go down
but maybe because they can go up higher? So we look at those facets of the
evaluation process
Tim S:
What is the company?
What is story behind it? Why do you like it? How do you predict what the amount
of this company is?
I started following the broadcast industry 50 years ago and
they were tied to the growth of consumer spending, so if you are a company like
Procter & Gamble or a company like Unilever or a company like Reckitt
Benckiser— if your revenues are growing and your profits are growing it is
because the consumer sector of the economy is growing and the consumer sector
the economy grows not only in real terms but also in nominal terms because the products
they sell tend to have administered pricing where they do reasonably well in
inflationary times— their advertising budgets will grow, so the broadcasters
had a sense of being inflation-indexed and they did not have a large amount of
capital expenditures.
In this particular case, this company located in Cincinnati,
Ohio bought another TV station operator, and sold oil and newspapers to that TV
station operator so there are approximately 80 odd million shares, the stock
does $16 the symbol is SSP. So 16 times 80 is about 1.2 billion dollars— they
have about 400 million of debt so you add the debt to the company and then you
look at how much cash flow and how much will they do at 2016— where you have
some unusual events— the Olympics, most likely, the presidential election of
the United States, where there’s some people advertising, and then the sale of spectrum;
so as a result of that we think the use of cash flow to buy back stock. We
think all of those elements will come together to support the stock here and in
the mid-teens so our downside I think is somewhat limited and then we looked how
much do we make on the upside.
Tim S:
Do they also have
internet portals and websites?
Mario Gabelli:
No, they don't, but they have inching into that area, and
they're also having scale in terms of creating their own content at the local
station show but this is not a large television station operator.
The largest ones would have a footprint. There's 330 million
people in the United States about 120 million households and they measure them
by households and to the degree the largest TV broadcasters the United States
the scripts and the next star that a publicly-traded chat station owners would
own about 38% of that footprint this one is a small piece of that.
Tim S:
Because long-term
they say that the fewer TV viewing, it goes down?
Mario Gabelli:
Yes
Tim S:
And streaming?
Mario Gabelli:
Yes, over the top
Tim S:
They’re on whatever
portable mobile device
Mario Gabelli:
Yes, and then what happens is that the advertiser needs to
figure out a way to get a message targeted to a specific group there's no
reason to show me an ad for a car if I'm not interested in buy a car yes okay
oh
If I'm 12 years old and I want to buy cereal— I love cars
but my market is tough for Ferrari’s, a long way off or a BMW so far with
Facebook and so on you can't better market it to it right. Yes, the target
market is right it's much like you're doing what your subscribers, also the
short attention span in the digital generation is two minutes to three minutes
and that's what you'd like to keep everything at.
Tim S:
Yeah, okay and is
there not a stuff you like well there are many let's deal with another one you
like?
Mario Gabelli:
We like financial engineering. So when interest rates have
come down, and as interest rates come down, there are investors in the world—
there is 60 odd trillion dollars in the equity markets and about 90 to 100
trillion dollars of fixed income.
But investors in the United States are accrued about 30
percent of that market they want to get the current return. If you're in
Germany you're getting a negative return, if you're in Japan you're not getting
it, you're getting a negative return too. So how do we get returns?
One of the areas that has worked well for us and we've been
in it for 15 years is the utility industry but we don't want utilities because
they pay a nice dividend that's growing we want them because there's a
consolidation going on in the industry— just in the year 2016, about seven or
eight companies have been taken over.
So, one of the companies that we like is located in the southwestern
part of the United States called Public New Mexico. It's a company that
operates in the utility area but it's positioned to merge with the El Paso
Electric and or another company in that area so three of them, we think, will
combine and there's been about seven or eight utility companies. So we got a
nice dividend that's growing well managed company in geographically good part
of the world and so that's an example and the ticker symbol is PNM, P. Nancy
Mario.
Tim S:
okay and but those stocks
they grow slowly, you can see do you
say the phrase say you can watch the grass grow like very slowly but it's very
stable.
It's like Turtles racing, but to the degree that they are
tied with interest rates so if interest rates go up.
So the question is what do you want to own if inflation goes
up? You do not necessarily want to own utilities and the reason for that is that
the utilities have a rate of return that is regulated, and so when inflation
picks up, the regulators are unlikely to increase their allowable rate of
return so if you can make ten percent a year in inflation—that's eight percent
real— this is good. If inflation is going to go from 2 percent to 8 percent and
the stock is priced as though it was only going to stay at 2, it's not so good.
If those are the elements that one has to weigh them. Now in
the distribution of things— the distributor, if they can grow a real unit
volume at 2% and have 2% nominal inflation that's 4%, assuming they all gain
share and everything else is constant but their SGA expenses can grow 3 or 4%, so
they don't have any leverage.
Even though they maintain gross margin it's not that much leverage,
the SGA, but if inflation picks up an inflation goes from 2 to 3%, the revenue
stream grows by 5, if margins are constant the gross margin grows by 5, but if
SG&A only grows 3 or 4%, because they have good controls, then what happens
is that they have leverage and operating profits, so we look at companies that
can benefit from an increase in inflation.
One of those sectors in the United States is parts for cars—
replacement parts. If you look at the world— there's 1 billion cars on the road
in the world. If you look at production, in the year 2016 is about a hundred million—
the United States produces about 16 to 17 million, Japan is only about seven or
eight, Europe is about eighteen, China is about twenty-three, and so on, and
there's 300 to 250 million cars in the United States and they need parts, and they're
getting older, so companies like genuine parts, the symbol is GPC, located in
Atlanta Georgia, there are a hundred and fifty million shares, the stock is
selling at approximately $95, they raised the dividend every year for the last
50 years, they would be a prime beneficiary. Earnings this year, about 460, and
they can grow over the next several years.
I'm going get some water would you like anything let's take
a break.
I gave you some other names that are there. They don't have
any funding and the p/e ratio of genuine parts unfortunately, is about 20 times.
That's okay with you
then?
Mario Gabelli:
It's not on the cheap side, okay, but it is a basically a
company that has an advantage it's not going be taken over, and the advantage
that in terms of the companies that they have made acquisitions in New Zealand
and Australia and the currencies in those markets have dropped sharply, in part
because of the Chinese export dynamic.
The second part is they have the similar type of dynamics in
Canada, so that will hopefully stabilize and allow the earnings to grow at a
faster rate because they've acted as a headwind.
The third part is that, in addition to automotive, they do
about 15 billion of revenues you do— about 10 billion of that as an automotive,
but they do about several billion dollars where they sell parts for industrial
equipment and the United States economy has been hurt because of the strong
dollar.
As a result they can't export as much, so manufacturing is
not as buoyant, they don't need as many parts and then the oil sector in the
United States is hurting, and I think that stabilizes over next couple years—
they are full of US cash taxpayer for tax purposes, so if the United States
reduces their corporate tax rate from 35% to a lower rate— they benefit. So
there are a lot of moving parts.
Tim S:
Why will nobody to take
them over? Is it too much or is it family?
Mario Gabelli:
No, no, I think it's not that. It's culturally— you’re just
extraordinarily well-managed and therefore you don't want to disrupt it. The only
company that I think would be able to keep their culture behind would be
Berkshire Hathaway, but I don't think the companies are going to be taken over.
Secondly and they're debt, by the way, it's tiny it's only
like 500 million dollars versus their billion plus of ebitda and capex is tiny
only 100 million dollars this year I'll probably get a little more because
they're building some distribution centers in addition to that they have a
logistics business that's very good so if you want to pick, pack, and sort and
distribute the way Amazon does that this company has that core competency.
And then it's an aristocrat
that sounds very good right?
Yes, it's been a very good stock we started following the
company in 1967 so I've been covering it for almost 50 years and I've visited
them religiously by going to Atlanta, Georgia, seeing the management and they
have a new CEO that has come on board and this is probably the fifth one in
their eighty year history.
How do you like Amazon?
You mentioned it with logistics, I think you bought it.
Mario Gabelli:
We don't own any Amazon. Well, we've owned it for a while,
but we haven’t bought any in last five years and Jeff Bezos has done a terrific
job is AWS which is these cloud services that he provides along with the
distribution.
It's interesting and one that we have to follow because of
the amount of packages that people order— Amazon Prime deliver— you know why go
shopping when you can have it delivered? Everything on a digital world this is
the digital generation so as a result of that this digital generation.
Everyone wants everything delivered and that means that for example
if you live in an apartment complex in New York at Christmas time, your super
is going to have lots of problems— and so we're looking for companies that
creates storage facilities, for example, if you are across the street there's
the Osborne house if packages are delivered they will have locations in which
they will put a code on the box so that if Amazon comes in at 12 o'clock at
night to deliver through your delivery service you can tap into that code open
the box put it in there, the next day that code changes. So I can pick up my
delivery any time during the day, the delivery service doesn't have to go through
my doorman.
So this world is changing, it's interesting and Amazon is a
creature and driver of that change.
And it may be
interesting for you to pick more (Amazon) up or…
Mario Gabelli:
It's not at the moment, Jeff Bezo’s market cap is four
hundred billion dollars, along with you know some of the other FANG stocks.
What do you think about
Netflix, since you have a lot of traditional media? Like, Viacom, CBS?
Yes, well, CBS does have some over the top, with CBS now. And
all of the companies, like Time Warner has created Hulu; traditionally we like
the content companies and what we like is recurring revenues, so Netflix we
think is a bargain at $9.95 or $10.95 or depending on what part of the world
you came in.
So with their subscribers growing that company has a
significant pricing flexibility, however one has to be, as they would say in
the old Greek mythology, the Achilles heel of Netflix—right now they distribute
their product for free, because the cable operator has to carry it.
At some point in time there will be a new administration in
the United States—
there will be new head of the Federal Communications Commission,
and the individuals at Google and Netflix and Apple in it and getting free
carriage they may have to wind up paying to get their traffic— so if everyone
in my building is watching Netflix they may need more capacity and they may
have to pay for that— secondly the other operators are getting together and
trying to do that— they have a first mover advantage— they offer good a good
price good service for the price, so Netflix is intriguing again— it's a question
of what price in the market am I paying for that growth rate and we're not
adding to the portfolio's on this at this time.
What’s your take on
Google?
Mario Gabelli:
Well, those are large companies.
Let me give you an example of what is going on in the United
States— gasoline stations— because of environmental rules— gasoline stations cannot
relocate, the ones that are existing have gone out of business, and then the
stores that sold you gasoline have created locations where if you go up and get
your gasoline you also stop in the store and— you can buy Gatorade, you can buy
your cigarettes, for those that smoke; you can buy a bunch of things.
Those stocks were not public, but Couche-Tard in Montreal,
7-eleven in Japan, were public but nobody kind of clustered them then you had a
company in the Midwestern part United States called Casey's, but today there
are three or four others and so there's a nice group of companies that you can
follow good growth rate.
So we are focusing on a company located in San Antonio Texas
called CST who is spun off from Valero the symbol is CST is stock is $40, there
are 77 million shares outstanding and they just announced that they're looking at,
“strategic alternatives,” which means to me that they'll probably sell the
company. So we think they can get anywhere from 48 to 60 dollars. We've owned
it now since they were spun off from Valero. Kim Bowers, the woman who runs
this, the CEO, has done a good job and so I think they will allow that value to
surface.
The category is interesting— and as you will read in the papers,
for this fourth of July weekend— in the United States there more cars on the
road driving more miles and as a result of that; even with gasoline prices going
up in the last two or three months it's still well below where they were. So once
you drive cars you're going to need parts but you'll also need gas to fill.
How do you like oil after
the drop drastic drop— I think 50% or more?
Oh yeah, well you know when I was at what we call the United
States was Thanksgiving Day of 2014— when the Saudis decided that they were
going to maintain production and as a result of that by maintaining production
it didn't take much— so we as a world produce— about 93 billion barrels, we're
now consuming about 94 billion barrels. Russia is about 11 or 12 billion, Saudi
Arabia's around 11 billion, and then the United States was up to 9.5 billion
and that's slowly coming up.
So you're getting back into balance— the price of oil has
bounced back up from February lows of $25 to close to $46 today— they’re down a
couple of bucks in last week, two days.
My sense is, it probably will come down a little bit more,
short-term, after the driving season. But on balance, even with Iran coming on board
with the problems in Nigeria may be being resolved, but Venezuela…
Supply and demand are in balance. So you take the American
consumer— the American consumer consumes 20 million barrels a day, so even
though the price has gone up relative that three years ago, it is $35 lower,
that means it's still saving 700 million dollars a day, and that money is going
to be spent.
So what we're doing is looking at is where can you make money?
Where is your cash lifting cost? And that would be in the United States, in the
areas around Texas in the Permian Basin and one of those is Athlon Energy.
They are stable, they
are not in… a lot of companies get in trouble right they may not survive in the
industry?
Mario Gabelli:
Well that’s already been going on you do have a
consolidation as a result of either financial challenges or basically concerns
over leverage.
Now a couple of years ago we were buying a company that was
bought by General Electric, we did not expect them, Lufkin, and we did not expect
Slumber J. to go out and buy Cameron. The stock was at sixty we started buying it
at fifty five fifty to forty six forty and that we were waiting a little longer
and they came in and paid them at sixty for the stock.
So today there's a company called Weatherford— highly levered
almost the billion shares it stocks five dollars and they make equipment for
pressure pumping, which is important for fracking— they make equipment with
regards to artificial lift where you have to go in and help the product and
well completion, so there are a lot of wells that have been drilled in the
United States but that have not been completed.
So they get the benefit when oil prices stabilize to go up.
So there was a lot of opportunity in that area. And in
addition to that, where our core competency as a firm are— if you see anything
on a device whether it's your mobile television, PC or tablet we follow it— whatever
the content, whatever the form of distribution.
Second are cable companies around the world, we think there is
going to be a consolidation again in Latin America of the cable operators. We had
a big position at cable & wireless when it was taken over by Dr. John Malone
of Denver— they owned some assets in Germany. Vodafone, which had some
short-term issues with regards to the pound because they're in the UK and a
translation of earnings— but we think that one is kind of intriguing to us.
There's a company controlled by a family out of Stockholm
called the Kinnevik, the family is called Steinbeck. Christina Steinbeck’s
grandfather started it, and she now runs it; and they own a company called
Millicom. Millicom has assets of 100 million shares and the stock today is $53.
They have assets in Africa which they're selling, except for Tanzania, that’s
another price.
There will be liquid assets in Latin America, primarily in
Colombia, where there's about 55 million people and then they are in Guatemala,
Nicaragua, Panama and that is kind of an intriguing area for both cable and television
so they will be consolidated by a company called Liberty Lilac and that one
will be attractive I think it's worth of probably $80 in the next two years.
In looking at Argentina, so that's an interesting because of
Mauricio Marques is turning around Argentina— if you can turn around Brazil—
the same way and eventually turn around Colombia— you’re going to do better and
you go up to Panama and across that, and that are independent of what's going on
in China.
The other area is that if you drink something we followed it.
Water, beer soda—so I was in Milan not too long ago, visiting a company called Campari.
Campari was on brought to my attention, because we were
doing and own all the companies that made American bourbon— we felt that that
was a good business they bought a bourbon company about 10 years ago and the
stock is selling at about nine euros and we owned nine billion shares of it so we’re
pretty large holders of this company. And they are in the process of buying Grand
Marnier.
We also like Pernod Ricard which is based in Paris, Diageo
in London— now the stocks, each one has a little more challenges, in part
because of China, in part because of the currency— if you can make something in
Europe paying local euros and sell in dollars you're doing well today.
You make something in England or Scotland like Scotch,
you’re okay and you make it with local expenses and you get old dollars that's
interesting and particularly if the stocks go down so the S.A.B Miller the
Heineken merger Heineken is a beer company the AmBev companies that we liked,
and as a result we go around the world and look at bottling companies and there
are always changes in taste one of them in the United States is called national
beverage located in Boca Raton Florida they sell a product called La Croix which
is apparently a product that the Millennials like— all natural ingredients, it's
very attractive
And you said something
in Great Britain after the drop…
Mario Gabelli:
Yes, a lot, but one
of them that I was right now on our radar screen is a company called BBA
aviation located in the Mayfair district and BBA aviation operates the private
jet locations called Signature and they bought another group called Landmark
the stock is selling at two pounds ninety percent of their earnings are outside
the UK so they get the reverse benefit of translation they don't make anything
in the UK, but their operations in the United States are worth more. So since the
stock trades in pounds and since the currency, as the stock has gone down with the
market.
I'm buying it cheaper in pounds because the pound today is
131 over-talking but their earnings are going to be worth, more so those are the
kinds of opportunities it was like Remy Martin in Paris we buy Cognac and you
sell it around the world in local currency.
Tim S:
What is your take on
mining in gold and silver? Is going up?
Mario Gabelli:
Well we own we have a well a run gold fund, I don't run it.
The guy that's running it is a Brit, he was a barrister, one of those legal
guys that had the wig and the robe and he sold both of those, and he's
basically been with us for about 20 years okay he's up close to 100% this year.
But you know it's very volatile returns and the gold at 13-20 to me is a lot
better store value for some people that are worried about economic the global
turbulence a lot better than Bitcoin there's going to be very hard to go through
the border with bitcoins.
Tim S:
Some personal
questions was so you build up that business by yourself right so how did you
grow up was your family in finance or how did you get in touch with finances?
Mario Gabelli:
I basically started caddying. So I made $2.00 per bag per
loop so if I had doubles which means two bags you make four dollars and the
advantage was that you can stay later because there were no rules. And the
advantage as a 13 years old was that I would stay later. The specialists from
the New York Stock Exchange would come up and play golf so I got started buying
stocks at 13 and so it was an interesting way and so I liked the
competitiveness at like the global marketplace.
I like everything, but we did not buy we did not buy
companies in Europe we followed the industry, until the Berlin Wall came down
in November of 1989 then we went global once the Berlin Wall went global.
We said okay we can no longer just isolate ourselves to
American companies we all understood that the connection on the global basis
but we didn't invest that way.
Okay, Tiananmen Square occurred in July 1989, the Berlin
Wall was also 1989 –
Tim S:
What is your opinion
of Volkswagen?
Mario Gabelli:
Yes— we bought some. I think the notion of correcting in the
United States you cannot sell a car to defect through the degree it is an environmental
defect as opposed to safety defect you will be dealing with certain issues
they're working their way through that I think they'll come out of it whether
it's two years or three years I don't know it's so I I'm not concerned about
that what I think Volkswagen will do is spin off their truck business and we
think the truck business will merge with Navistar in the United States so we are
just buying Navistar. Navistar is a big class a truck that had their own problem
with diesel engines. They had a diesel engine that was supposed to do X they
did not do it. They did not have a backup— that's a problem.
So Volkswagen to us is very attractive what we did is we
made money by part suppliers so for example if you drive a BMW you draw you
you'll see the red calipers on the front those are made by a company in Italy
called Brembo we've made five times our money by owning Brembo because we
follow the car companies we've been following them for 50 years.
So you know you always pick little spots like I talked about
the distribution of parts we'll also look at original equipment parts producers
and occasionally we'll buy the truck manufacturers the class a truck manufacturers.
When you like a mid-sized
company how far do you go to build up 5% 10%? Or just whenever you would stop
buying it?
Mario Gabelli:
The ideal world for us is our clients we have 2,000
separately managed customized accounts— that is 20 billion dollars or we have
25-20 billion dollars in mutual funds ideally we would buy a hundred percent of
the company okay but the closest I came was 49 percent 49 right and I think we
own a company now we own about fraction—
We owned 40 odd percent it's called Cefco tiny company. What
they did was that when you go into a factory you could not bring in electric
you know when the operator has to move a pallet they have the forklift truck
they made all of the equipment to control the movement for electric vehicles
they took that technology and they're now being given orders by the car
companies and I don't know which ones but I'm assuming is either Mercedes at
BMW— to provide that technology for portions of the big trucks.
So that the truck that only works in diesel but when there's
that idling or starting they can have an electric assist and the stock is selling
in ten dollars and we think if they can pull it off over the next five to ten
years you could make ten times your money. So we own a large portion of the
company but not for one client.
Tim S:
But for a lot of
clients are you in the board? And you know you have somebody from your own team
on the board?
Mario Gabelli:
Oh no but I did I did put someone on the board of this
particular company because they needed money and they were reluctant to give
the management the capital to grow so as a result of that the company went out
and raised some financing and these were a very friendly deal what's a stock
symbols SEV Sam Edward Victor okay I have enough being on the board of all of
my public companies a lot of mutual funds.
But you're not very,
like an activist investor right?
Mario Gabelli:
If you see we are we are if you have a four year old child
that's riding a bicycle they put training wheels, sometimes existing companies
will need training wheels to stay on the right path to enhance management – and
enhance the returns we own over a hundred companies we own over five percent—
so we've watched these companies very carefully—
Do you get involved in something when they need it?
Yes, yeah yes we will do that and you know whether it's
Diebold which is buying a company in Germany now whether it is a company and
Stockholm whether it is a company in the UK in Italy it is a little more
difficult in China we have not done very much in China
Tim S:
What does it take on
CPS and Viacom? Both have to save shareholder?
Mario Gabelli:
Yes just struggling or what do you think well they're not
struggling the country's top tier on chat the businesses challenged
Yeah what happened was that Mrs. Sumner Redstone took control
of Viacom in 1987 board, CBI paramount in 1994 took over control of CBS then
about 10 years ago maybe eight they spun off CBS so that there's a company
called National Amusements that controls both companies because they have the
voting stock
We own most of the shares and the voting stock that are not
publicly ha had that are not controlled by the family we own half of both CBS
and Viacom.
So the question is the daughter who's 62 years old who's
trained as a lawyer but also has been involved in venture capital work would
like to change the management of Viacom. And the management is not willing to
be changed.
So there's some concerns over does she have authority because
her father some of the Redstone was 92 and has had a brilliant career as a
movie mogul has he given the right blessing or hearts to do what he's doing and
you get the United States has this legal quagmire and they're going slug it out
in the legal courts for a long period of time unfortunately.
Tim S:
What is your recommendation?
Mario Gabelli:
Well you don't have any of them but my event going time an
old-school person that have yet I bought the stock knowing that they 80% of the
vote so either you change the structure where if you drop below 10% of the
economics you can't control with 5% of the you know 10% of the economics can
control the company I think that we'll see some creative solutions to this in
the next six months.
Tim S:
They thought about
also a merger of both companies because…
They're thinking about a lot of things. No they not thinking
about it, but Wall Street is think about oh okay and I there are individuals or
organizations perhaps thinking about the best tax efficient way to put the
companies together
We're going to have to finish…
Okay, one more quickly
about banks financials— I think you have JP Morgan & Bank of New York
Mario Gabelli:
No, but we like the trust banks because they are getting a
piece of the revenues— so bank of New York is particularly interesting stocks
$35 a group of activists Nelson, Peltz, and Trian are taking a position so we
think over the next two or three years that'll be a very attractive the short
term issues with obviously what that would Britain is that interest rates are
not going to go up there for the stocks have gone down 15% less three days
Did it not give you a
good buying opportunity? And my last question about your clients— so in a crisis,
how do you deal with it? Because it's very often is a problem psychologically,
right? People get anxious, and yes, of course, how do you deal with it?
Right, we started in 1977, so as a result of that we've had the
challenge of 1980, 1983. 1987 was particularly of uninspiring with the market
dropped from 2,700 and one day to 1,700 that was a Monday then the following
Monday was just as bad so send out letters to clients would call them.
Our businesses two parts— judgment and service— and we are
very good our clients know that so an incident that's why I was in the city today
for a meeting an institutional client that has wants to give us more money but
it also has let's say X dollars with us today they say you know we're in town
we would like to see you with coming in from the west coast or would come up to
your Connecticut office
So I would go there and you know I would see clients in
Milan I would see them in London I would see them in Florida the ones I have
trouble with are the ones in age-wise then a long flight – you know it's easier
go coming back from Berlin than it is to is for coming back from Tokyo
Yeah, I think people very often pick a good manager but they
make mistake themselves at a terrible time—they go to the cocktail party and
hear a tip and they listen to people losing money and they look at their wives
and their husbands sit down next Sunday and say when we get the June 30th
statement this is what do we do, and then this, and then, etc. Now they watch
CNBC in the morning, and they watch Bloomberg, and they watch whoever else is
out there and they say risk-on, risk-off, and so they don’t do any work
analytically. They sell it the wrong time and they buy it the wrong time.
Yeah and what do you do?
Nothing.
We just hold their hands and if it's a private wealth manager
it's institutions they're more balanced than their approached right now because
fixed income has gone up and equities have gone down we're going to get money we
already have a client in Europe that just call us that instead we're giving you
30 million dollars because we're rebalancing the portfolio and that will see
more and appropriately they took money out because we did so well in the first
part of the year rebound the other way.
So thank you for your interest, if have any questions, come
back to me.
Okay and I will be around for a while. Thank you.
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