Creating  Alpha  Through  Global  Value  Investing  

Joseph  H.  Schwartz,  CFA  Wellington  Management  Company,  LLP  

Retired  Partner  

 

Co-­‐Sponsored  by:  

The  Stonehill  College  Chapters  of  the  FMA  International  and  Beta  Alpha  Psi  

 

Agenda  

•  The  investment  management  industry  

•  My  philosophy  of  investing  

•  Some  unsolicited  career  advice  

•  Developing  yourself  outside  the  classroom  

•  Further  Q&A  

Investment  Management  A  Great  Career  Field  

•  Pays  Relatively  Well  

•  Fascinating  Work  Experiences  

•  Offers  Significant  Growth  Opportunities  

•  But,  it’s  very  competitive  and  not  easy  

•  How  does  an  aspiring  investor  create  value  for  clients?  

•  Role  of  higher  education  

An  Investment  Philosophy  

“There  is  a  spectrum  of  

 relative  pricing  efficiency  

 that  exists  in  the  global  capital  markets.    

Focus  on  the  areas  of  greatest  inefficiency.”  

The  Fixed  Income  Spectrum  •  U.S.  Treasury  Securities  (Most  Efficient)  

•  Developed  Country  Sovereign  Debt  

•  Investment  Grade  Corporate  Debt  

•  High  Yield  Corporate  Debt  

•  Emerging  Market  Debt  

•  Lower  Quality  Sovereign  Debt  

•  Structured  Finance  

•  Credit  Default  Swaps  (Least  Efficient)  

The  Equity  Spectrum  •  US  Large  Cap  Stocks  (Most  Efficient)  

•  Developed  Country  Large  Cap  Stocks  

•  US  Small  &  Mid  Cap  Stocks  

•  Developed  Country  Small  &  Mid  Cap  Stocks  

•  Emerging  Market  Small  &  Mid  Cap  Stocks  

•  US  Venture  Capital  

•  Developed  Country  Venture  Capital  

•  Emerging  Market  Venture  Capital  (Least  Efficient)  

A  Behavioral  Explanation  

“Because  of  human  nature,  regularly  

 recurring  cycles  of  fear  and  greed  prevail  

 within  the  global  capital  markets.”  

“Animal  Spirits”  

Sell

Buy

Logic  of  Long-­‐term,  Value  Investing  •  What  does  it  mean  to  be  a  value  investor?    

•  What  matters  most?  

•  Valuation  Metrics  

•  Core  Fundamentals      

•  International  Investing  -­‐  Risky  Business  

•  Vigilantes?    Contagion?    

Previous  Opportunities  •  Edwards  Life  Science  (US:  Tissue  Heart  Valves)  

 

•  St.  Jude  Medical    (US;  Cardiac  Rhythm  Devices)  

 

•  Smith  &  Nephew    (UK;  Orthopedics  &  Wound  Care)  

 

•  Terumo    (Japan;  Hospital  Supplies)  

Common  Elements  

•  All  were  small-­‐to-­‐mid-­‐cap  stocks    

•  All  had  negligible  investor  recognition  and  low  valuations  

•  All  had  strong  core  franchises,  cash  flow  and  balance  sheets    

•  They  were  important,  but  not  yet  leading  industry  players  

•  Each  had  an  attractive  new  product  pipeline    

•  Each  had  an  improving  competitive  position  

Wall  Street  Is  Not  Your  Friend  •  Inherent  conflicts  of  interest  

•  Targets  of  Opportunity  

•  No  fiduciary  obligation  

•  CDO’s  

•  Caveat  Emptor  

•  “Battle  for  Investment  Survival”  

Some  Unsolicited  Career  Advice    

•  Work  very  hard  -­‐  you're  competing.  

•  Never  stop  learning.  

•  Get  out  of  your  comfort  zone.  

•  Be  creative  and  open-­‐minded.  

•  Be  skeptical  of  consensus  thinking,  but  not  cynical.  

•  When  something  looks  too  good  to  be  true,  it  usually  is.  

Some  Unsolicited  Career  Advice    

•  When  you're  wrong,  admit  it  ASAP.  

•  Remember  -­‐  the  more  you  know,  the  more  you  don't  

know.  

•  Be  quietly  confident;  be  humble.    Avoid  hubris.  

•  Keep  an  even  keel  with  your  emotions  –  it’s  hard.      

•  Share  your  success  –  be  a  mentor  and  give  back.  

•  Enjoy  your  career  –  it’s  a  privilege.    

 Some  Recommended  Reading  For  Aspiring  Investors    

•  The  Intelligent  Investor    (Benjamin  Graham)  

•  The  Little  Book  That  Beats  The  Market    (Joel  Greenblat)  

•  Extraordinary  Popular  Delusions  &  The  Madness  of  Crowds          (Charles  Mackay)  

•  The  Big  Short    (Michael  Lewis)  

•  Too  Big  To  Fail    (Andrew  Ross  Sorkin)  

•  Fool's  Gold    (Gillian  Tett)  

•  This  Time  Is  Different    (Carmen  Reinhart  &  Kenneth  Rogoff)  

•  When  Genius  Failed    (Roger  Lowenstein)  

•  Unconventional  Success    (David  Swenson)  

•  Pioneering  Portfolio  Management    (David  Swenson)  

•  The  Investment  Answer    (Daniel  Goldie  &  Gordon  Murray)  

•  Boomerang    (Michael  Lewis)