Welcome to the first episode of Invest Like the Best! You can subscribe here:
My guest today is Jeff Gramm. Jeff is the founder and portfolio manager at Bandera Partners, an Adjunct Professor at Columbia Business School, and the author of Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism. Jeff and I discuss the history and current state of shareholder activism, and explore how Jeff invests himself, taking large stakes and often board seats in undervalued companies.
My favorite parts of this episode include the history of activism, Jeff’s story about studying and then teaching at Colombia Business School, and our discussion of share buybacks.
1:30 – (First question) – The Beginning of Shareholder Activism – Ben Gramm spearheaded the active shareholder movement by investigating Northern Pipeline starting in 1920’s. Companies didn’t release nearly as much information and he took it upon himself to travel to Washington, DC to do research on these companies and discover more value for the shareholders.
10:08 – The Proxyteer Movement – The beginning of pro-shareholder populism, folks like Robert Young and Louis Wolfson who got a lot of press when they said that the companies had to protect their shareholders. It was the first time people started to call for having more rights and flex their muscles.
12:30 – The Conglomerate Wars – Hostile M&A and the rise of active investors like Warren Buffet.
13:30 – The Corporate Raiders – Companies are forced to look for new ways to protect themselves from active investors bent on grabbing up the most cash and business as possible. How Warren Buffett was different from other more well-known investors.
15:51 –What happened when Boone Pickens went after Phillips but winds up getting bought out
17:10 – The public perception of the corporate raiders and hostile M&A’s.
19:41 – The remaining history of shareholder activism through the 90’s and early 2000’s
22:07 – Looking into the major shareholders of companies and getting past the massive asset players, like Vanguard, that are most likely passive players but who have major influence on the company.
25:52 – What moves actually provide the most value to shareholder, which is a more recent trend, and is the focus on shareholders actually best for companies?
31:03 – How do companies balance the short term goals of providing shareholder with earnings results verses those that are focused on the long term growth of the company. Jeff argues that share price is not the only metric you can use to really measure the performance of a company or its executives.
36:05 – Shifting into Jeff’s history. He got started in music. (Sample from the band Aden) Why this lifestyle was hard but still educational for him.
38:07 – How did Jeff make the transition from playing in a band to attending Columbia business school. He didn’t know that he was going to focus on investing. He didn’t even know who Warren Buffet was. It was the Joel Greenblatt class on securities analysis that changed his life.
41:52 – Looking into the Joel Greenblatt class and how that class was structured
43:34 – How Jeff got back into teaching at Columbia, with the help of Eddie Ramsden of Caburn Capital, who now teaches at the London Business School. He also saw it as a form of speech therapy to help him face his stutter.
45:44 – A look at Jeff’s actual portfolio. With a special focus on three holdings, Star Gas, Popeye’s, and Tandy Leather.
47:14 – Star Gas, their largest position, the Dan Loeb letters, and investor fatigue.
55:45 – Patrick asks “what does it mean to be good capital allocators?”
57:42 – Patrick questions Jeff on the value of stock buybacks and their real value. They look at some of the thinking of Popeye’s when it came to stock buybacks and why boards don’t understand valuation enough to use buybacks correctly.
1:05:02 – Tandy Leather – Jeff explains their business, which is quite unique, as well as the reason that he owns such a large amount of their outstanding shares.
1:12:28 – A look at how Jeff benchmark’s himself and what impact the investors play into his fund.
1:16:55 – The kindest thing anyone ever did for Jeff professionally
1:18:28 – The one skill that Jeff has the helps him perform better than the average population is his ability to see the big picture.
1:19:34 – Jeff explores why books have a different impact on you when you are younger verse older. But he would force people to check out “The Snowball.”
1:23:17 – Wants to hear interesting people who are productive but have diverse interests, like Tyler Cowen.
Books Mentioned in this Conversation
(26:30) Lynn Stout – The Shareholder Value Myth
(41:36) – Roger Lowenstein – Buffett: The Making of an American Capitalist
(41:42) – Robert Hagstrom – The Warren Buffet Way
(1:21:19) – Alice Schroeder – The Snowball: Warren Buffett and the Business of Life
(1:21:43) – Benjamin Graham – The Intelligent Investor
(1:21:45) – Benjamin Graham, David Dodd – Security Analysis
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag