23 Questions With Mike Price

GuruFocus.com
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- By PJ Pahygiannis

1. How and why did you get started investing? What is your background?

I was 13 years old at a conference for salesmen that my mom brought me to because Joe Montana would be there. Phil Town presented on some technical analysis software by Investools. I never got into that, but I got some investing books at the library, started reading on the Motley Fool website and stumbled on to Warren Buffett (Trades, Portfolio).


Today I run Rightpriceinvesting.com and work full-time as a commercial loan underwriter. I have bachelor's degrees in accounting and finance from Westminster College and a master's in finance from the University of Utah.

2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas?

I'm about 50% solid long-term stocks and 50% trades. The stocks mostly are sourced through newsletters, GuruFocus or just the news. I lean on back of the envelope valuations and try not to sell.

The trades are almost totally news derived. I then look for the stock to be in a trend and try to find an option with low implied volatility.

On my website, I try to put together strategies that have some element of value or catalyst so they aren't totally passive but also don't require a whole lot of human action to run.

3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

A whole lot of trial and error with biases and bad predictions.

CAPE, EV/FCF and P/B.

4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? What investors do you follow today?

Warren Buffett (Trades, Portfolio), Charlie Munger (Trades, Portfolio), Matthew Richey, Bill Mann, Porter Stansberry, Steve Sjuggerud, Doug Casey.

The most important lesson is to be an independent thinker and avoid the propensity to put horse blinders on for any one strategy.

I follow the same people today.

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

With investments, I try not to sell unless the market gives me no other choice, either with better opportunities or an insane valuation.

With speculations, I tend to personally get too emotionally involved so I use a stop loss and then re-evaluate.

6. How has your investing approach changed over the years?

The biggest thing for me has been working to take my emotion out of the equation. In some ways, that means leaning on others' analysis more than I'd like, and in other ways, it means automatically selling if the trend changes.

7. Name some of the things that you do or believe that other investors do not.

Technical analysis and asset allocation. Many of the value investors I know view technical analysis as the same sort of thing as witch doctors reading goat intestines. In my mind, trying to figure out the current emotion of the market, the supply and demand and the long-term trend allows you to better time buys and sells.

With asset allocation, I think most individual investors would be better suited with proper asset allocation than with just blindly investing in a vanguard fund. Most of these investors will sell out when the market crashes and the vanguard fund goes with it. If you can reduce these drawdowns through diversification, it will help in the long run.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well run companies? How do you judge the quality of the management?

I like Reed Hastings, Jeff Bezos, John Malone and Ken Iverson.

Netflix (NFLX) and Amazon (AMZN) are my favorite companies - both captains of the usually-too-expensive-to-buy club.

I like to compare what management said in the past to what actually happens.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?

I like the Magic Formula, I have five or 10 gurus I follow on GuruFocus, and I use all the premade Morningstar screens.

Other than that, I like to look for great companies that drop 10%-plus for some nonsense short-term thing and use that as my entry point.

10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.

I like a little murkiness. Some sort of controversy or bad year of financials paired with a historically great company and brand.

The traits I look for are the classic ones: strong cash flow, low capital needed, a good moat, little debt.

Bad investments are high-technology stocks trading at insane valuations based on hero worship and solar roofs.

11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard-cut rules?

I have a checklist on my website that I use. It's about eight pages of business, financial, management, risk, valuation, etc., questions. The investments do not have to pass every single one, but if it is missing a lot, it goes into the no thanks pile.

I have a method for my trades, too, that I wrote about here.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

I like Morningstar a lot. I try to make a spreadsheet projecting out financials - but I also try not to put too much weight into what this says to avoid biases.

13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap?

I do the valuation first - see if it's going to be worth it to do the rest of the analysis. Most of the companies I look at are ones I have some experience with to know the business/brand and management are good.

I just use multiples - the more complicated the valuation the more ways it can go wrong.

14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?

I have a couple of speculations on coal and short some solar stuff based on the election results. These have quick stop losses.

As for the investments, I don't think there are any big bargains as far as industries go - as far as I've seen. I do like a few muni bond closed-end funds trading at discounts. With these you get a yield that is as safe as it gets, no taxability and the reversion to the mean when the discount closes.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

I think the general stock market is probably overvalued - the CAPE is pretty high. I don't know exactly what you can do with that information though.

16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

Right now, I'm reading "The Idiot's Guide to Making Money with Rental Properties." Next will be "Income Investing" by Jason Brady and "Equities" by Stuart Veale. I'm also looking forward to the Ed Thorpe memoir.

The most important lesson is probably just to think independently. This doesn't mean discounting what everyone else says and moving to a cabin in the woods to invest. I think it means considering others' opinions and analysis and deciding when to use it and when not to. Allow the division of labor into investing while not just following every passing crowd.

17. Any advice to a new value investor? What should they know and what habits should they develop before they start?

Don't be close-minded and read as many annual reports as you can.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?

Morningstar and GuruFocus.

Porter Stansberry, Steve Sjuggerud, Chris Mayer, Mohnish Pabrai (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio), Bruce Berkowitz (Trades, Portfolio).

19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?

Selling too soon and holding too long.

I sold Netflix at $40 and then it went to $400. I have a few gold miners I held to $0.

20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

Try to do as much as I can mechanically.

21. How does one avoid blowups in value investing?

See question 20 - get emotions out of decision making. Also, consider using stop losses. Sometimes stocks go down 30% and then up 400%. If you can get out when it's down 20%, you can still buy it back when the uptrend returns.

22. If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investing wise compared to the indexes?

AutoZone (AZO), Fiat (FCAU), Franco-Nevada (FNV), Greenlight Re (GLRE), Annaly (NLY), Silver Wheaton (SLW).

I've had too many hiccups with needing cash (down payments for a couple houses, tuition, etc.) to be able to calculate a return.

23. Here's a fun one - What stock would Warren Buffett or Benjamin Graham buy today if they were you?

I think they would both be looking outside of the U.S. Many foreign markets are at similar stages in their history as America in the 1930s-1970s. Graham and early Buffett both focused on data mining to find cigar butt value. I don't think this is really a viable option in the U.S. anymore, but there are sparsely traded foreign markets where it's possible to do this.

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This article first appeared on GuruFocus.


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