Guy Spier's Speech -- Live Blogging the Value Investing Congress
Guy Spier, founder of Aquamarine Capital, gave a presentation at the Value Investing Congress today, entitled Investing in Global Education - From China to Brazil. The following are our notes from his speech:
Non-U.S. For-Profit Education
- The world is becoming more developed (meat consumption, milk, etc. are increasing). Not so sure about the "trends" in iron/oil—may not want to bet on these since iron can be recycled and there are alternatives to oil. He believes that food is a better trend to bet on.
- People will demand more education in the future. This bodes well for education companies such as Raffles Education, Corinthian Colleges (COCO), etc.
- Bullish on Brazil: has $2 trillion GDP, 200 million population, largest iron ore mine in the world. Brazil does not have a system of community colleges. Gross enrollment rate in Brazil is 24% vs. 80%+ in USA.
- Guy sees a lot of potential in non-US based education companies.
- Largest player in the private post-secondary education sector in Brazil.
- GP Investments is involved with Estacio.
- The founding family acquired many “mom and pop” education companies.
- Trades at a single digit to EBITDA, has low EBITDA margins (room for improvement), management is intent on creating a lot of value.
- Thesis relies on: Developing duopoly in Brazil for post secondary education, low penetration, no community colleges, undeveloped consumer finance sector, natural resource based economy. This is an investment that Guy plans on holding for the next 20 years.
- Headquartered in Singapore.
- They are different than other education companies in China in that they turn out English-speaking graduates.
- The company is cheap and has a dividend yield of 5-6%. Company is trading at a single digit multiple to EBITDA.
- Pay attention to concentrations of risk (credit, geography, customer, other..)
- Pay attention to hidden leverage,
- Tangible vs. intangible assets (he likes intangible assets—going forward he is going to pay more attention to tangible assets),
- Position sizing,
- Always carry lots of cash at all levels.
About Aquamarine Capital
- Aquamarine was down 46.7% in 2008, up about 2.9% in 2009. He describes himself as a “focused investor.” Guy’s fund has recovered 26% from March 1 through April 24, 2009. He feels prepared to hold his key positions.
- He uses checklists when investing, similar to Charlie Munger. A checklist he recently developed includes business specific questions as well as psychological factors. Guy has used a checklist for investing for many years, but since 2008, has had to rethink many of the factors he considers before taking a position. For investors, he stresses the importance of developing a checklist and continuing to add and improve the items one considers before investing in an idea.
About Guy Spier
Since 1995 Guy Spier has been running Aquamarine Capital Management, LLC. Investors include friends and family, high net worth individuals, and private banks investing on behalf of their clients. The fund has market beating returns - and has received mentions by Lipper and Nelson's world's best money managers. The investees can be obscure or they can also be very well known.The fund has also done well owning the shares of less understood, but very high quality, cash generative businesses. It currently owns several credit rating companies as well as several post secondary education companies. The ratings business (whether of debt securities, or of individuals, through education) is one of the best businesses that Guy has ever seen, and is consistently underestimated by investors.
Disclosure: No positions.
Interesting Links:
The author of this post is MOI research associate Zain Griffith, who is attending the Value Investing Congress in Pasadena this week. Contact Zain directly at zain@manualofideas.com.
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