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The Security Analysis Podcast

John Huber: Base Hit Investing

Wed May 08 2024
investingbloggingvalue investingreturn on capitalBuffettmoatslarge cap stocks

Description

This episode features John Huber, managing partner at Saber Capital Management, discussing his journey into investing, successful blogging and investing strategies, insights on investing returns and evaluation, Buffett's investment preferences and resilient companies, investing in companies with strong moats, successful strategy of investing in out of favor large cap stocks, opportunities in long-term investing and trusting skilled capital allocators, and Warren Buffett's decision to hold onto Berkshire stock.

Insights

Value of Engaging with a Community of Investors

John Huber emphasizes the value of engaging with a community of investors for mutual learning and growth.

Investing Philosophy: Compounding Capital at Low Risk

Successful blogging and investing should focus on providing value and consistency. Investing philosophy should focus on compounding capital at a low risk.

Factors for Investing Returns

Investing returns come from factors like return on capital and earnings growth. Finding companies with sustainable return on capital is crucial for long-term value.

Buffett's Investment Preferences

Buffett prioritizes cash flow, buybacks, and low prices in his investments. He avoids retail businesses and prefers investing in businesses with strong brands and media companies that are likely to survive long term despite management challenges.

Investing in Companies with Strong Moats

Investors look for moats in companies, such as network effects and barriers to entry, for long-term investment confidence. Examples of businesses with strong moats include Co-Part and Florida Core.

Successful Strategy of Investing in Out of Favor Large Cap Stocks

Investing in out of favor large cap stocks can be a successful strategy, as they tend to be undervalued and overlooked by the market. Having a long-term perspective as an individual investor is advantageous.

Opportunities in Long-Term Investing

Investors who can look beyond immediate market trends and focus on intrinsic value can find opportunities in durable companies trading below their intrinsic value. Trusting skilled capital allocators like Warren Buffett is important for long-term investment success.

Warren Buffett's Decision to Hold onto Berkshire Stock

Despite challenges, Warren Buffett's decision to hold onto Berkshire stock was based on long-term durability and trust in his vision.

Chapters

  1. John Huber's Journey into Investing
  2. Key Insights on Successful Blogging and Investing
  3. Insights on Investing Returns and Evaluation
  4. Buffett's Investment Preferences and Resilient Companies
  5. Investing in Companies with Strong Moats
  6. Successful Strategy of Investing in Out of Favor Large Cap Stocks
  7. Opportunities in Long-Term Investing and Trusting Skilled Capital Allocators
  8. Warren Buffett's Decision to Hold onto Berkshire Stock
Summary
Transcript

John Huber's Journey into Investing

00:04 - 07:31

  • John Huber, managing partner at Saber Capital Management, shares his journey into investing influenced by his father's interest in the stock market.
  • Huber discusses the parallels between journalism and investing, highlighting the investigative aspect common to both fields.
  • He started investing in real estate during the early 2000s and transitioned to stock investments after building up enough capital.
  • The inspiration behind starting his blog was to connect with like-minded individuals and share investment ideas.
  • Huber emphasizes the value of engaging with a community of investors for mutual learning and growth.

Key Insights on Successful Blogging and Investing

07:05 - 14:08

  • Providing value and consistency are key for successful blogging and investing.
  • Investing philosophy should focus on compounding capital at a low risk.
  • Value can come from earnings growth, multiple increase, and capital returns in the form of dividends or buybacks.
  • No one way to extract value from stocks; consider earnings growth, changes in multiple, and returns of capital equally.
  • High return on capital is preferred when evaluating stocks for investment.

Insights on Investing Returns and Evaluation

13:49 - 20:42

  • Investing returns come from factors like return on capital and earnings growth
  • Finding companies with sustainable return on capital is crucial for long-term value
  • Consider both earnings growth and multiples when evaluating investments
  • Buffett historically avoids paying above 15 times earnings for publicly traded stocks
  • Buffett prioritizes free cash flow and clear visibility into future earnings when making investment decisions

Buffett's Investment Preferences and Resilient Companies

20:20 - 27:02

  • Buffett prioritizes cash flow, buybacks, and low prices in his investments.
  • Buffett avoided investing in retail businesses like Walmart due to the operational challenges and low profitability.
  • Buffett prefers investing in businesses with strong brands and media companies that are likely to survive long term despite management challenges.
  • Great companies like Disney and Coca-Cola have survived periods of mismanagement, showcasing their resilience.

Investing in Companies with Strong Moats

26:37 - 33:15

  • Google is a highly profitable business with significant cash flow and operating margins.
  • Businesses like Amazon and Costco require razor-sharp focus due to lower margins compared to Google.
  • Investors look for moats in companies, such as network effects and barriers to entry, for long-term investment confidence.
  • Companies like Co-Part and Florida Core are examples of businesses with strong moats due to barriers to entry and network effects.
  • Investors seek businesses with strong moats that will continue to strengthen over time for future free cash flow.

Successful Strategy of Investing in Out of Favor Large Cap Stocks

33:03 - 39:41

  • Investing in out of favor large cap stocks can be a successful strategy, as they tend to be undervalued and overlooked by the market.
  • Having a long-term perspective as an individual investor can provide an advantage in capitalizing on undervalued stocks.
  • Ben Graham's concept of buying unpopular large caps from his book 'The Intelligent Investor' has proven to be effective over time.

Opportunities in Long-Term Investing and Trusting Skilled Capital Allocators

39:19 - 46:05

  • Investors often claim to have a long-term focus, but various constraints and external factors can lead to short-term decision-making in the securities market.
  • Shorter time horizons and focus on short-term influences rather than intrinsic value create opportunities for investors who can look beyond immediate market trends.
  • Opportunities exist in finding bargains among durable companies trading below their intrinsic value, offering safety and quality investments with potential for long-term growth.
  • Special situations or events in the market can also present investment opportunities, especially when there is a gap between price and underlying value.
  • The story of a Nebraska farmer holding onto Berkshire shares highlights the importance of trusting skilled capital allocators like Warren Buffett for long-term investment success.

Warren Buffett's Decision to Hold onto Berkshire Stock

45:37 - 47:39

  • Berkshire's insurance company faced challenges in the late 1970s and early 1980s with poor results and prospects.
  • Despite the initial struggles, Warren Buffett's decision to hold onto the stock was based on long-term durability and trust in his vision.
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