I recently had a chance to to chat with Jeff Gramm to learn more about what he does, his investment process and his views on activism. I thought it would be interesting to highlight some of Jeff’s quotes.
- Jeff Gramm, Author and Money Manager
- Maj Soueidan, co-founder of GeoInvesting
- Siegfried (Siggy) Eggert, GeoInvesting Analyst
- Joe Templin, Bestselling Author & GeoInvesting Contributor
Special thanks to Siggy for making this happen. Siggy joined Geo last year and Jeff’s book, Dear Chairman, is the first book he recommended that I read.
You can see the entire interview transcript here. What follows are some notable quotes from our interview with Jeff Gramm.
1. We’re just classic value investors…trying to find a fifty-cent dollar. – Jeff Gramm
2. … I think anyone who does a lot of small cap investing or takes large concentrated positions… ultimately will find yourself in situations where you either need to get involved or you need to find an activist to get involved. – Jeff Gramm
3. You can be the best analyst in the world, but it’s pretty hard to avoid situations where you’ll buy into a good company that isn’t run optimally. – Jeff Gramm
4. So, I view activism as basically getting engaged with your portfolio companies…getting involved with the governance or the management or the strategic decisions and any kind of engagement. – Jeff Gramm
5. It’s pretty hard to think of a scenario where I know the short term is going to play out a particular way. – Jeff Gramm
6. But I don’t think that there’s anything that I would never read the 10k. I think there are industries where I know it would be a real uphill battle, but I don’t think that is the same thing as just inherently off limit. – Jeff Gramm
7. To me the most important step is deciding what to work on. You filter through all your ideas and I think the key decision in any value investing research process is…it’s a time management one. It’s why do you decide to look at stock A and not Stock B? – Jeff Gramm
8. It’s not that hard to look at a company. It’s harder to put yourself in a position to find the good ones because they’re so rare. There are good companies, and then there are good investment ideas – Jeff Gramm
9. So, I find a lot of our business is about being like an investigative reporter: you’ve isolated a business that you think is good, that you think you understand the economics of the industry, but usually you need to talk to someone that knows the industry better than you and try to get them to explain…“I think that this company looks cheap, at the quality of their earnings, but can you really walk me through how they make money.” I just make sure that I’m getting it. – Jeff Gramm
10. I don’t build a big spreadsheet or look at the comps, trying to figure out ‘well, how come this guy has a 22.8% gross margin when the competitors are at 23.5%. To me…I’m not digging in the numbers that much. I’m trying to find people that know how the business actually works that can give you a sense for the durability of that business and to try to talk to me. – Jeff Gramm
11. We all have our own way of doing things and I’m not saying this is the way for value investors, it’s the way for me. – Jeff Gramm
12. It took me a long time to learn about gathering information, but not being affected by opinions. – Jeff Gramm
13. So, to me, in that initial screen, we’re looking for things I can understand, things that I think I can get a handle on. I’m often thinking about “well is there a reason that the market might be blowing this or undervaluing this.” “Can I really understand this business before thinking about risk. – Jeff Gramm
14. But I tend to look teeny tiny and we have the luxury of long term investors at Bandera, so we’re not afraid of some illiquidity and I also have that from my distressed debt background too. In distressed debt, the liquidity often just appears in these little clumps: you’ll have a day where something bad happens and if you take a position, you might be stuck in that thing for a while and then it’s just the way that I learned to invest. So when I began to look at equities more, the illiquidity of small cap and micro caps was always something that I had some training with I guess. – Jeff Gramm
15. It’s hard for boards of directors to govern well. It’s hard for them to ultimately remove under-performing CEOs. There’s all these dynamics in the book that will continue, but I do think the one big theme in the book that evolved as the history progressed was the increasing sophistication and concentration of the big passive investors and you’re definitely seeing that continue with Vanguard and Black Rock and all those guys and I think that’s a secular trend. – Jeff Gramm
16. I think over the next twenty years, they (passive institutions) might begin to cut out the middleman more, to be more proactive on their own account, to take more advantage of proxy access and I think it’s an interesting dynamic. – Jeff Gramm
17. The end game is a little bit troubling with companies like Vanguard and BlackRock get a huge amount of a power without actual in-house financial analysts researching these companies and management teams. – Jeff Gramm
18. With short activism, it’s interesting because if you have a stock that a short gets involved with, you probably would applaud the, picking the other side and perhaps magnifying your gains if you’re right and also allowing you an opportunity to buy more in the short term. But if they’re a loud short activist, that is, talking down the business and if there is any part of the business that is confidence based, I could see it being troubling. – Jeff Gramm
19. As an industry we have not done our job of showing that consumers should choose active managers and I think, over time, more of them will be replaced in the sense that Vanguard and the S&P 500 is a very good product. – Jeff Gramm
20. If we as an industry continue to just charge away the value of those skills and excess fees, that’s hard to complain about the customers voting with their feet. – Jeff Gramm
21. But I think there’s always going to be a place for guys like you and me who will do the hard work and the nitty gritty to generate good returns while taking less risks. – Jeff Gramm
22. I think it would be very fun to take a current proxy fight and to get behind the scenes and discuss why Vanguard voted the way that they did and to essentially address this whole issue of “are the big index funds, informed voters?” I think it would be very fun to take a current proxy fight and to get behind the scenes and discuss why Vanguard voted the way that they did and to essentially address this whole issue of “are the big index funds, informed voters? – Jeff Gramm
23. The main thing with my book, which I try to tell people, is it’s about activism but it’s not pro activism or anti activism, it’s just about the way that public companies work. It’s a way that a business works and I finished the book in 2014, which was right before there began to be a lot of attention on the Vanguards and the Black Rocks of the world and their voting intentions. – Jeff Gramm
Thanks for taking the time to read these useful nuggets of investment knowledge.
~ Maj Soueidan, Co-founder GeoInvesting