Value Investing Congress: The Good, the Bad and the Winklevoss

Wyatt Investment Research

My two days at the Value Investing Congress in New York this week felt a little bit like speed dating.

I heard a lot of people talk in a short amount of time, each one telling me about themselves and what they like. Some of them I liked back. Others – not so much. By the end my head was spinning, but I felt as if I was coming away with one or two potentially meaningful relationshi-, er…investments.

Overall, my first Value Investing Congress experience was more than worthwhile. Most of the 27 speeches that I heard in a 15-hour span were compelling, outside-the-box investment ideas from some of the premier value investors in the world. A few weren’t so compelling. And then there was a presentation about bitcoin from Cameron and Tyler Winklevoss… (I’ll get to that one in a minute).

Because the majority of the Value Investing Congress presentations were enlightening, let’s start with the good first…

The Good

Whitney Tilson’s 82-slide dismantling of K12 (LRN) , the creator of national online charter schools. The Kase Capital hedge fund manager and co-organizer of the Value Investing Congress slammed K12 for, among other things, fudging student test scores, dismal academic results, woeful graduation rates and even tax evasion.

“The entire business model is illegitimate,” Tilson said in the final, and perhaps most convincing, presentation of the two-day conference.

Tilson announced that he was short-selling K12. The stock has since fallen 3.5%.

Another of my favorite presentations was Indian investor Rahul Saraogi’s contrarian case for investing in his native country. Eloquent, witty and passionate yet realistic about India’s past challenges, Saraogi made a pretty compelling argument for the India opportunity.

Saraogi says that India’s economy should outpace the likes of Europe, Japan, China and Brazil over the next 20 years. And he called the country’s currency problems an opportunity.

“India doesn’t have a currency crisis,” Saraogi insisted, “it has a confidence crisis.”

Meanwhile, one activist hedge fund manager feels that fixing a broken company is as simple as replacing a few of its board members. That’s what Jeffrey Smith of Starboard Value talked about in his speech, “Using Board Dynamics to Enhance Returns.”

Smith’s firm specializes in improving underperforming companies by strategically replacing board members who were “friends with the chairman.” Instead, his firm aims to stock companies’ boards with industry experts who are focused on delivering returns to the shareholders.

Starboard’s strategy recently helped one small cap company quadruple its margins, cut its debt by two thirds, and completely reshape the business’ focus all within two years. Smith’s approach is aggressive – but effective.

The Bad

Not everyone is as dynamic a speaker as Saraogi or Tilson. One seemingly endless stretch on Monday afternoon produced a bunch of yawners that didn’t strike much of a chord with me or my boss, Ian Wyatt.

Mark Boyar has spent more than four decades on Wall Street, and his track record as a value investor is impressive. But his speech about where markets go from here now that they’re at all-time highs didn’t pull me in. Boyar shifted focus from the tech boom in the ‘90s to the impending Chinese housing bubble to his favorite stock, Madison Square Garden (MSG) .

The presentation was a bit rambling, and in the end I wasn’t sure what his overall thesis was.

The Winklevoss

If you’ve seen the movie The Social Network, then you’re familiar with Cameron and Tyler Winklevoss.

They’re the twin brothers who famously claimed to have come up with the idea for Facebook, only to have it allegedly stolen by Harvard classmate and eventual Facebook founder Mark Zuckerberg. The Winklevosses subsequently sued Zuckerberg for damages, eventually settling for tens of millions of dollars.

Now they have another idea: an ETF that tracks the price of bitcoin, an online form of currency with a fixed supply of money. In essence, it’s a fund that hasn’t been created tracking a currency that few people know about.

The Winklevosses stated their case for the bitcoin ETF as eloquently as they possibly could. But as the long line of questions at the end of their presentation revealed, most people were skeptical. The idea of investing in an Internet currency with no basis for “valuation” left an audience full of Warren Buffett disciples scratching their heads.

Thankfully, the Winklevoss twins and bitcoin were among the few lowlights of a conference chockfull of good ideas for value investors.

I hope you’ve enjoyed our coverage of the VIC this week in Daily Profit and on our web site. You can read our full notes from the conference by clicking here.



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