Rolf Heitmeyer ’06

Rolf Heitmeyer ’06 is the Co-Portfolio Manager of Breithorn Capital Management, a value-oriented investment firm with $190 million in assets under management. The firm manages a long-only fund and a long/short fund. Prior to Breithorn, he was a Research Analyst at Donald Smith & Co., a deep value asset manager. He received an MBA from Columbia Business School and a BA from the University of Michigan.

Graham & Doddsville (G&D): To start off, can you take us through your background and what led you to Breithorn?

Rolf Heitmeyer ’06 (RH): I arrived at value investing in an unusual way. Coming out of college, I wanted to be an investor, but I didn’t have a great understanding of value. My first buy-side job was at a publicly traded venture capital firm. It was 2000, and this company was the poster child for the internet bubble. It made investments in startups at ridiculous valuations based on clicks and eyeballs, and all sorts of other non-GAAP metrics. Predictably, that imploded a year after I joined, which was a very formative investing experience. It really forced me to think about the meaning of intrinsic value and margin of safety. Watching a company collapse like that probably also sparked my interest in short selling.

That’s when I started reading value investing classics like Graham’s The Intelligent Investor. Subsequently, I got to explore value investing in-depth through the Value Investing Program at Columbia Business School, and that was definitely the best academic experience of my life. After that I worked for eight years at Donald Smith and Co., a traditional Graham and Dodd-style asset manager that has outperformed the stock market over a 30 year period. There, I learned how to pick deep value stocks but also gained experience short selling.

I’ve always wanted to build my own business, so I left Donald Smith and Co. last year to become a co-portfolio manager, along with Benner Ulrich, at Breithorn Capital Management. Benner is a like-minded value investor who was formerly a med-tech analyst at UBS and a Director of Research at an activist hedge fund, Oliver Press Partners. He and his brother, Adrian Ulrich, a CBS classmate of mine, were exploring ways to expand the long-only business they had been running at Breithorn since 2009. We decided a partnership made sense. Currently, we manage $190 million and recently launched an alternative mutual fund called Breithorn Long/Short Fund.

G&D: Could you tell us more about the long/short fund and why it was the time to do that?

RH: We conceived the idea by asking ourselves a simple question: what kind of fund would we personally want to invest in to maximize our long-term absolute returns? That determined both the investment strategy and the vehicle we chose. Regarding our strategy, first and foremost we believe that making relatively concentrated investments with a statistically disciplined value approach is the best way to generate outperformance over the long-term. Second, we believe in being significantly net long, between 50% and 100%, to take advantage of the long-term appreciation of the stock market. Third, we believe in short selling to expand our universe of alpha generation opportunities, and to provide downside protection in market declines. Our typical exposure might be 110% gross long, 30% gross short, and therefore 80% net long. However, that will fluctuate based on the number and quality of ideas we find on both the long and short side. We believe this structure enables us to enhance absolute returns if our shorts significantly underperform our longs. That’s important to us.

G&D: Do you have any limits on portfolio construction since you have a mutual fund structure?

RH: Given our strategy, it is not a constraint. For example, with a mutual fund you can’t go over 150% long on a gross basis, but that is not an issue for us because we don’t plan to go over 130% under normal market conditions.

The reason we chose a mutual fund vehicle is because we think it is appealing from an investor’s perspective. First of all, we charge a management fee of 1.5% instead of the 2% and 20% charged by traditional hedge funds. We think traditional hedge funds have underperformed the stock market partially because of their fee structure. Second, we believe the convenience of mutual funds is attractive. They have daily liquidity and daily price transparency, and there is typically less paperwork.

As we looked at the existing long/short mutual funds out there we noticed something interesting. We think the vast majority of these funds are geared towards minimizing volatility rather than generating superior absolute returns. They tend to have consistently low net exposures which we believe is a drag on absolute returns in the long-term. They also tend to be highly diversified and have low gross exposure, which makes it hard to generate alpha in our opinion. We saw a void in the market for relatively concentrated long/short funds focused on generating superior absolute returns, and that’s why we launched our fund.

G&D: Is daily liquidity an impediment to long-term value investing?

The most important thing is cultivating an investor base that understands your long-term perspective and is willing to stick with you for that time horizon. At the end of the day, the difference between daily liquidity and quarterly liquidity isn’t that drastic. Traditional hedge funds can and do get big redemptions at inopportune times. It just happens at the end of the quarter instead of during the week. To discourage short-term investors, we do have a redemption fee of 2% for investments held less than 90 days. From an investor’s perspective, I don’t want to be locked up for a long time, and I think that’s why those structures are becoming increasingly rare.

G&D: Can you give us an idea of how you construct the portfolio?

RH: One of the biggest takeaways from my experience in the CBS Value Investing Program was an appreciation for the different flavors of value investing. Several different styles work, but not always at the same time. Realizing that, we opportunistically allocate our portfolio into three buckets. Our deep value bucket consists of average quality businesses trading at very cheap valuations. Our compounder bucket consists of high quality businesses trading at slightly higher multiples. Finally, our special situations bucket consists of catalyst-oriented investments that may or may not screen cheaply, but are none-the-less cheap on a pro-forma or sum-of-parts basis. We’ll usually have something in every bucket, but the amount depends on the quantity and quality of opportunities that we’re seeing in each area.

Our average long position size is typically between 3% and 5%. Our goal is to limit positions to a maximum of 10%, because unexpected things always happen, and we don’t want to be overly concentrated. On the short side average position sizes are generally smaller, usually 1% to 3%, because of the inherently asymmetric risk profile.

Currently, I think the deep value bucket is a point of differentiation for us. In general, I think the traditional Graham and Dodd approach is overlooked right now. Like everyone else, we like to buy exceptional businesses at a discount. The problem is that by definition there aren’t a lot of exceptional businesses. Also, I think there are more people chasing those opportunities than ever before because you have multiple generations of Buffett disciples on Wall Street — enough to fill a stadium in Omaha every year. Most value investors say they’re looking for high ROE businesses with wide moats. However, let’s assume there’s an average quality business that we expect to earn an ROE that is merely equivalent to its cost of equity, say 10%. If we can buy that business at half of stated book value, then we’ll earn 20% on our investment at market value of equity, which is very attractive. The difference is we won’t hold it forever like a compounder. We’ll sell it when it appreciates to fair value. That is what my experience at Donald Smith & Co. taught me.

Keep in mind that while Buffett is best known for his investments in compounders, he started off as a “cigar butt” investor. In his most recent letter, Buffett says that in the 1950’s when he was investing in “cigar butts”, he generated by far the best returns of his life, both on a relative and absolute basis. He can’t invest that way anymore because he manages too much money, but luckily we can, and that is where we spend a fair amount of our time.

We also believe strongly in maintaining a statistical value discipline. In aggregate, we expect our longs to trade at a discount to the market and our shorts to trade at a premium on numerous valuation metrics. In our opinion, this provides a strong long-term tailwind. Take something as simple as price to earnings ratios. We have observed that over the past 50 years through 2014, stocks in the lowest decile of P/E ratios returned roughly 16% annually versus 12% for the market as a whole. Conversely, the highest decile returned roughly 7%. Despite this, people are reluctant to invest in statistically cheap stocks because they aren’t “high quality” enough. This is why the opportunity persists. Our goal is to profit off of this spread through long/short investing. We make decisions based on a lot more than valuation alone, but we think maintaining a valuation discipline is important.

G&D: How do you think about scaling the fund longer term? How do you offset potential size with still finding actionable deep value opportunities?

RH: We’re figuring it out. I’ve spent most of my career picking stocks as opposed to capital raising, so there’s a learning curve. I think we have identified an underserved part of the market that we think rational investors will gravitate towards. In general, I think the alternative mutual fund structure is attractive and will eventually transform the hedge fund industry. Given our current size we are nowhere near the point of limiting our opportunity set. I’m not sure when that would happen, but my guess is north of $1 billion.

G&D: Can you explain how your assessment of management teams factors into your investment process?

RH: We prefer not to rely too much on our ability to assess management teams because they are usually good salespeople and have the ability to mislead. We’re far more comfortable basing our investment ideas on historical financial data, which usually doesn’t lie. We also try not to rely on management’s ability to add value. This is particularly true in deep value situations where there usually aren’t exceptional managers running the show. Our primary goal is to find managers that will do no harm.

There are many ways that managers can do harm. Our biggest concern is usually capital misallocation. We always remind ourselves that a DCF valuation is only valid if the free cash flow is returned to us or reinvested at a decent rate, which is often not the case. We always try to determine if management has a clearly articulated capital allocation plan based on appropriate metrics like ROIC. We greatly prefer companies that have a specific quantitative return hurdle as opposed to qualitative goals that are open to interpretation. Then we evaluate if their past actions are consistent with their stated principles. For example, have they made bad acquisitions in the past? In general, the fewer acquisitions the better. By analyzing their past behavior and incentive structures, we also try to determine whether managers are looking to enrich themselves or shareholders.

G&D: How do you incorporate macro analysis into your investment process?

RH: As bottom-up investors, we would love to ignore macro. However, we live in an environment where government intervention in financial markets is so extreme that our investments will be heavily influenced by macro factors, so it’s not something we can ignore. The way we approach macro is to focus on big things that could go wrong.

At the top of my list is the likelihood of unintended consequences related to rampant money printing by central banks around the world. Economics is a dismal science because it’s more of an art than a science. However, central bankers conduct business with a false aura of scientific precision, and I think people have too much trust in their abilities. Also, there’s rarely a free lunch in economics, and I think the market may not be considering the ultimate cost of all the stimulus it has enjoyed.

Another thing I worry about is a hard landing in China. The debt fueled investment binge that has powered growth in that country could end very badly. I see returns on fixed asset investments drastically diminishing. In my opinion, there is overcapacity in a lot of industries, so they don’t need to build more factories. They don’t need to build more residential or office buildings because of the high vacancy rates we are seeing. The day of reckoning has been delayed because of government stimulus programs, and because China has a closed and manipulated financial system. However, there may be signs that things are starting to unravel. For example, housing starts and housing prices have started to decline significantly in recent months. The property sector accounts for 15% of GDP, so that’s a problem. I think that there is a big risk that China misses its 7% growth targets.

As an example, our short thesis on Hermès International (RMS.FP) incorporates our macro view. An estimated 50% of all luxury industry sales are to Chinese nationals. That’s up from 30% five years ago. China is a big reason why Hermès has grown sales at a 16% CAGR over the last five years. Obviously $8,000 handbags are highly discretionary, so if the Chinese economy weakens, that could have a big negative impact on this business.

From a valuation standpoint Hermès has significant downside risk. The company trades at 35x 2015 consensus earnings estimates, which are projected to be an all-time high. It’s clear to us that investors are extrapolating past revenue and margin growth trends into the future, and we believe that they could be disappointed.

There is also a technical catalyst here. Last year LVMH tried to take over Hermès, and in the process, shrank an already small free share float. This caused a big run-up in the stock price. Hermès family members fought back by pooling their shares into a vehicle that controls 51% of the company, greatly reducing the likelihood of a takeover. LVMH threw in the towel and agreed to divest the Hermès stake it acquired to its shareholders, so technical support for the shares has been reduced. Now if the company disappoints, its stock price could hit an air pocket.

G&D: How important are catalysts to you?

RH: All else being equal, we always prefer to have a reason why a cheap stock will appreciate and an expensive stock will decline in value. However, catalysts are a higher priority for shorts because time is generally not on our side given that the stock market goes up longer-term. Occasionally we will short on valuation without a specific catalyst, but that can be risky because an excessive valuation can easily become more excessive. In those cases, there are two things that we like to do to mitigate our risk. First, we generally make the position sizes smaller. Second, we try to use the law of large numbers to our advantage. For example, if we’re anticipating that a glamour stock’s revenue growth will mean revert down, it’s easier to do that with a company that has billions of dollars in sales facing natural deceleration. Also, from a market cap standpoint, it’s a lot harder for a company with a $45 billion market cap, like Salesforce.com, to double than it is for a company with a $45 million market cap.

G&D: Could you give us an example of a management team who are poor capital allocators?

RH: We think a glaring recent example is Weight Watchers (WTW). In 2012, the company issued $1.5 billion of debt to repurchase 25% of its outstanding shares at $82 per share, near all-time highs. This happened right as secular challenges to their business model were starting to appear in the form of competition from free smartphone dieting apps and fitness bracelets. The shares were repurchased from a controlling shareholder, Artal Group, which serves as a cautionary tale of how conflicts of interest can lead to bad capital allocation. Now the stock trades at around $8 and the company has leverage issues.

Without naming specific companies, on the short side, we are doing work on a few serial acquirers who we believe are playing unsustainable financial engineering games. These companies appear to be creating value by rolling up a lot of small companies at relatively low multiples. However, this eventually comes to an end when they have to keep making bigger and bigger acquisitions to move the needle. These are more expensive and have much higher integration risk.

One thing we try to do is back out organic growth from acquisition growth. If a company is touting big revenue growth, but it is all being purchased, then that is a red flag for us. We also try to determine if previous acquisitions delivered on promised expenses synergies, which are generally oversold by investment bankers. If there is no aggregate improvement in costs, that’s also a red flag for us.

G&D: Could you explain your approach to sizing positions?

RH: Generally, we rank every idea on a scale of one to three, with one being the highest target position size and three being the lowest. The rank is based on our assessment of expected value versus downside risk. If something has big upside potential but is binary, we won’t make it a large position.

G&D: We noticed that American International Group (AIG) and Bed Bath & Beyond (BBBY) are two of your larger positions. Take us through your thought process there from an upside/downside perspective?

RH: AIG is an example of a company in our deep value bucket. For us the main attraction is that it is very cheap, not that it is an exceptional business. Although, given its global scale, we believe it has the potential to be an above average business. The stock price is around $54, while book value per share excluding accumulated other comprehensive income is $70. Comparable insurance companies trade at a big premium to book value. At a minimum, we believe AIG should trade at book value which provides a margin of safety.

G&D: Some shorts believe AIG trades at a discount because it’s not earning its cost of capital. What levers could they pull to improve profitability?

RH: In 2014, AIG had an operating ROE of around 6% while comps earn greater than 10%. We think there is no reason why AIG won’t close the gap based on several levers at their disposal. First, there is a lot of low hanging fruit for improvement in profit margins. Hank Greenberg cobbled this company together through a slew of acquisitions over a long period of time. We don’t believe these were ever properly integrated, and there are significant cost saving opportunities from streamlining and consolidating operations. Historically, AIG also had poor underwriting discipline, and so we see a big opportunity to bring loss ratios down. Overall, we think AIG’s property and casualty insurance combined ratio could move from around 100% towards the 90% range longer-term. Importantly, we’re not expecting a miracle here, just mean reversion to comps.

I should note that we think underwriting discipline in the entire insurance industry has improved. It used to be that insurance companies deployed all of their capital to write new business, which contributed to poor pricing. Now, rather than write unprofitable business, companies are returning capital to shareholders. One reason for this is that it’s harder for them to make money on their float given low interest rates, so they have to make money on underwriting instead.

AIG’s other big lever for improving ROE is increasing its asset to equity ratio, which is currently lower than comps. AIG can do this by growing its business or returning capital to shareholders. It has been doing the latter through large buybacks. As AIG’s ROE mean-reverts to industry averages and the stock trades at a premium to book value, we think the stock will be worth over $100 per share.

Bed Bath & Beyond (BBBY) is an example of an investment in our compounder bucket. We believe this is an exceptional business, with a leading position in the housewares retail category and a return on invested capital that is consistently above 20%. The company spins off a lot of cash and has returned it to shareholders in large amounts. Over the last ten years, BBBY has repurchased over $7 billion of stock. The current market cap is under $13 billion. The company recently upped the ante by issuing $1.5 billion of inexpensive debt to accelerate the buyback. We believe BBBY has medium-term earnings power of approximately $7 per share. Applying a 15x multiple to that, we arrive at a target price of $105 per share compared to around $75 today.

With over 1,500 stores, BBBY already has significant market penetration, so this probably won’t be a high revenue growth story. However, that isn’t necessary for this to be a good compounder over time. We think share count reduction at attractive prices will drive EPS growth. I should mention that there is an embedded growth option in the form of BuyBuyBaby, one of the company’s retail concepts which is growing rapidly but off of a small base.

Given the strength of the franchise, we believe the downside is pretty limited. We also take comfort in the macro backdrop. Lower oil prices are a big tailwind for U.S. consumer spending. We also think housing starts are below longer-term norms, and BBBY’s houseware sales are correlated to the housing market.

G&D: How big a threat is Amazon here?

RH: We think that is the biggest overhang on the stock, and the main reason why it’s cheap. Over the last few years, BBBY has maintained its market share, but margins have been pressured by competition from online retailers, primarily Amazon. BBBY has responded by investing a lot of money into ecommerce. They’ve totally revamped their web presence, invested in online analytics and marketing, and improved their ecommerce logistics. As a result, we think they are nearing an inflection point where they’ll start to see the benefits of their investment and the expense tapers off.

In the past, BBBY’s products were priced at a premium to Amazon which was one of the drivers of margin declines. That price gap has now closed, and BBBY is actually cheaper in some categories. We think this will reduce margin declines going forward.

G&D: Could you take us through another deep value investment and how you came across it?

RH: American Axle & Manufacturing (AXL) is one of our top holdings and a good example of a deep value investment. The company makes driveline systems for the auto industry. A majority of its products are used in light trucks, and 68% of sales were to General Motors in 2014. The company initially came to our attention through a high free cash flow yield screen. We think the stock trades at a discount for three main reasons. First, AXL is perceived to be a boring provider of commoditized products. Second, its high customer concentration is perceived as a weakness. Third, the company is seen as riskier than comps due to its higher leverage. We disagree with all of these perceptions.

To the first point, if you go to an auto supplier conference it seems like all anyone wants to talk about are hot themes like autonomous driving or infotainment systems. If you’re a supplier in those segments, you’ll probably have a standing room only audience. On the other hand, if you go to an AXL presentation, you may hear crickets chirping. We think AXL is not getting credit for the fact that it actually has innovative products. For example, they have a new lightweight, disconnecting axle that cuts off power to tires when it’s not needed to increase fuel efficiency. This has enabled AXL to grow revenue faster and achieve higher operating margins than most comps.

To the second point, we think AXL’s exposure to GM light trucks is actually a huge positive. In general, we think the US light truck segment is extremely attractive. U.S. pickup trucks are 13 years old on average, a record high, which we think provides a replacement cycle tailwind. Lower oil prices are a big positive for large vehicle sales, which is evident in recent increases in light truck market share. GM specifically is benefitting from a strong new product cycle. This is consistently GM’s highest margin segment and suppliers share in the wealth. To the extent that high customer concentration is a concern, this should be resolved over time as AXL diversifies its customer base. The company has a large backlog of new business that should bring GM concentration to below 50% of sales over the next few years.

To the third point, we believe AXL’s debt load is very manageable. Net debt currently stands at 2.5x EBITDA and is steadily declining. The company spins off about $200 million in free cash flow a year which compares to $1.3 billion of debt. AXL has an industry-leading free cash flow yield to equity of over 10%.

We estimate AXL’s earnings power to be approximately $3 per share over the medium term. If you apply a low double digit multiple to that, say 12x, you get a target price of $36 per share versus a current price of around $25. We think that multiple is undemanding on an absolute basis and it’s a big discount to comps.

G&D: What’s the nature of the commercial arrangement with GM? Can they come back next year and renegotiate it given how important they are to AXL?

RH: One nice thing about auto suppliers is that there is a lot of visibility into their sales and margins because agreements to supply any given car program are locked in for several years into the future. GM just rolled out its new light tuck platform in 2014, so the current economics should be intact through the end of the decade at least. Also, these contracts tend to be very sticky. Upon renewal, AXL has negotiating leverage because it would be very disruptive for GM to take its business elsewhere. GM would also have to incentivize a competitor to build out the specialized, high-volume capacity necessary to fulfill such a contract.

G&D: How do you assess investment opportunities to protect against potential value traps?

RH: That’s an essential question, particularly with deep value investments where cheap stocks are often cheap for a reason. There are several general types of value traps we look out for in our investment process. The first are companies in secular decline masquerading as companies in cyclical decline. Telling the two apart can be tricky. A second type are management teams that destroy value, most commonly by misallocating capital. A third type are companies that chronically earn less than their cost of capital. If a company doesn’t earn its cost of equity, it mathematically deserves to trade below book value.

Another type would be companies with unsustainable balance sheets. For example, valuing a company on mid-cycle earnings power doesn’t hold water if the company goes bankrupt at the trough of the cycle.

G&D: Can you talk about Energy, which obviously has been a tough sector? How do you analyze downside risk in this context? Some of the valuations are compelling, but many of these companies might not make it to the other side of the cycle given their balance sheets.

RH: Energy is difficult, because with commodities it’s hard for us to determine intrinsic value. Theoretically, over the long-term, the price of oil should gravitate towards its full-cycle cost of production. However, in the near-term the floor on prices is determined by the half-cycle, or cash cost, of production, which is really low. Current valuations are definitely not pricing in a downside scenario of sustained oil below let’s say $50 a barrel. These cycles can last a long time, and given our lack of conviction, we haven’t bought much during the decline. But that could change. There’s a price at which almost anything becomes interesting.

Given the high debt levels of a lot of energy related companies, there’s a possibility that equity value could be wiped out, so position sizing is important. We own two levered offshore drillers, and we have sized them according to our view that the outcome there is binary. They are effectively call options. We are comfortable making investments like that as long as the expected value is high and the position size is small.

G&D: Do you have any special situations you could take us through?

RH: I have a couple that demonstrate our approach. One is a company called Vectrus (VEC), a defense contractor that was spun out of Exelis in September 2014. Vectrus specializes in infrastructure asset management for U.S. military bases. This has some typical spin-off dynamics. There is selling pressure from Exelis shareholders who received one Vectrus share for every 18 Exelis shares. With a market cap below $300 million, the company is underfollowed and has minimal analyst coverage. Its management is newly incentivized with performance-based stock compensation.

We think Vectrus is a decent business given its low capital intensity and potential to generate a lot of cash. Its government contracts are sticky and provide good earnings visibility. The stock recently sold off when management issued disappointing guidance for 2015 due to lower than expected margins. We think that’s a temporary problem partially due to the cost of ramping up some new contracts. Also, Vectrus will be renewing a lot of its existing contracts under a fixed price structure that we believe will give them the ability to profit from efficiency gains in the future. That should be margin expansive.

A potential positive catalyst relates to a big contract Vectrus has for managing the U.S. military base for operations in Afghanistan. This is projected to account for about 15% of the company’s revenue in 2015, and has higher margins than the rest of the business. Due to a planned withdrawal of U.S. troops, this contract was assumed to be wound down by 2016. However, the government recently reversed course and extended the timeline for withdrawal. This is not baked into management’s guidance or sell-models yet.

Vectrus also has a big pipeline of new business that it is competing for, which could provide upside. They recently had success winning a contract away from a competitor, Lockheed Martin. All in all, we think medium-term earnings power is $3 per share. We think a multiple of 13x earnings is very reasonable for a company like this, and a big discount to comps. That gets us to a target valuation close to $40 per share compared to the current price of $25.

Another special situation that illustrates our approach is Investors Bancorp (ISBC). This is a small regional bank with a footprint in New York, New Jersey and Pennsylvania. The bank recently demutualized in May of 2014, and is currently overcapitalized as a result of that transaction. This is depressing ROE, and the stock trades at 1.1x tangible book value. On average, comps trade at over 1.5x. We think Investors Bancorp will increase its ROE by growing its loan book and returning excess capital to shareholders. The company recently received approval from regulators to buy back stock earlier than anticipated.

Investors Bancorp has a track record of highly accretive acquisitions, and we think the company has generated a lot of value organically too. For example, they have increased their mix of low cost core deposits dramatically in recent years. The company is growing its loan book in the commercial and multi-family real estate segments, primarily in the New York region. Based on our analysis, we think their loan growth looks prudent.

The track record for bank demutualizations is generally very positive. There is frequently book value multiple expansion after they become public, and over half of them get acquired within three years. We’re not assuming the latter is going to happen, but that provides upside potential. Also, the company’s largest shareholder is an activist fund, Blue Harbor Group. We think management allocates capital wisely, but it is nice to have an involved investor guarding the cash register, so to speak.

G&D: Given that you’re an alumnus, can you go through how your experience at CBS helped develop you as an investor?

RH: The best thing that I got from CBS was a wide perspective on value investing. Learning about different approaches and why they work was fantastic. I also picked up some investing frameworks that I find very valuable. One in particular is Bruce Greenwald’s “three sources of value”. With that in mind, my first preference is to buy stocks that are cheap based on asset value. The next best thing are stocks that are cheap on historical earnings power. Growth is something I don’t pay for, although free options are nice. I think about that all the time.

G&D: Lastly, do you have any advice for our readers who are looking to break into the investment industry?

RH: First of all, I would recommend experimenting with the different flavors of value because the temperament required for each is different, and you won’t know what you’re best at until you try it. Also, force yourself to find ideas in as many different industries as possible. I think appreciating absolute value is the key to being a good value investor, and that requires a broad perspective. If you’re considering a career in investing, be certain that you’re doing it because you have a deep intellectual interest in it. If your idea of a good time is reading a 10-K and learning about a new business, that’s a good sign. If you’re doing it only because you want to make a lot of money, you probably won’t be very good at it.

G&D: That is great advice — thank you for your time.