David Iben is the Chief Investment Officer and Lead Portfolio Manager of Kopernik Global Investors. He had the chance to interview him in June 2019 in Munich.
In a small series between the years we are sharing this transcript and some transcript of evergreen interviews now.
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We have discussed the following topics:
- Why Kopernik Global is a global investor
- Non-investable countries
- Preferred markets
- Quality
- His watchlist and the turnover in the portfolio.
- Trading as an additional return source
- How his performance is linked to the general performance of Value vs. Growth
- Opportunities in Europe
- Is Dave also doing tech investing?
- Disclaimer
Why Kopernik Global is a global investor
[00:00:07] Tilman Versch: So Dave, welcome back to the interview. We trust that we want to discuss your global focus. You’re a global investor. Why are you that?
[00:00:15] Dave Iben: Okay. The stock market is a very interesting place and there are people who believe in efficient markets. We think there’s lots of empirical evidence as well as logic to say the markets are anything but efficient. People are sometimes rational, sometimes not. So the rationale is part of crowds.
The stock market is a very interesting place and there are people who believe in efficient markets. We think there’s lots of empirical evidence as well as logic to say the markets are anything but efficient. People are sometimes rational, sometimes not. So the rationaleis part of crowds. They can become very irrational from time to time, and that gives us the opportunity to find bargains.
They can become very irrational from time to time, and that gives us the opportunity to find bargains. We wait for the market to make mistakes. Now, it’s not easy looking for those mistakes. So the greater the opportunities the more likely we will be able to take advantage of the mistake.
So why not look at the whole world? Why not look at all the market caps? So that’s what we’ve done. We’ve maximized our opportunity set. So all countries, all regions, all industries, all sectors, all market caps. And usually, there’s one of those things that the market is skittish about, and that’s where we can buy really good companies at bargain prices.
Non-investable countries
[00:01:18] Tilman Versch: Do you say that you don’t invest in certain countries, or are you doing all the countries?
[00:00:15] Dave Iben: Well, we are willing to do all countries. Now, we might be willing to take a 10% discount here in Germany, but on a 50% discount in Russia and maybe 90% to be in Venezuela or something like that where we don’t currently have anything. So at a price, we’ll consider anything.
Preferred markets
[00:01:45] Tilman Versch: Do you like a certain market at the moment especially?
[00:01:49] Dave Iben: Well, you know, we like good companies with good prices. And right now, the market is willing to give us good prices in Korea. They’re willing to give us really good prices in Russia right now.
They’re willing to give us good prices in Ukraine and here and there and China and places like that, emerging markets in general. So we don’t try to have a preconceived notion or where we just, you know, our utility analysts will say, I’m finding a bargain here in our phone company and also say I’m finding a bargain there, railroads will find somewhere else.
And then we find from the bottom up that we right now have a third of our portfolio in emerging markets, and we have, well, less than 10% of our portfolio in the United States. Now, we love the United States, but the market really, really loves the United States. And so they’re paying the highest prices ever.
So we’re finding a way better, you know, risk-reward scenarios elsewhere, especially in emerging markets and especially in Canada. Canada right now has a lot of those companies that I talked about earlier with gold mining and with uranium mining in special situations.
Quality
[00:03:13] Tilman Versch: What qualities do you look for in certain companies?
[00:03:17] Dave Iben: One thing we try to look at is one industry being different than another. Now, I know a lot of people have industry specialists, as we do, but we start with the very first thing we do when looking at something is an industry template where we’re saying, you know, what is this industry all about? What are the barriers to supply?
If somebody starts making money or supply flooding in, or are there barriers that keep it out? Then we say, what is the winner likely to look like? Is this an industry where it makes sense to borrow money, such as a hydroelectric dam? Or is it an industry where borrowing money is often the kiss of death like technology?
And so we’ll say, is the balance sheet appropriate for the business? We’ll say, how good is the management team and also how important is the management team? If we were to own Nestles, which we don’t own right now, we would consider management to be partly important?
But it’s such a great franchise they have that an average manager could do. Okay, where we look at smaller companies or turnaround situations or highly leveraged situations, then will say management is very, very important. And so once we’ve looked at all those key variables, we identify the companies that we want to be long-term owners of.
Now, once we’ve identified that, then we say, how are we going to value this? We look at a lot of metrics are we value add on replacement value or liquidation value or book value or earnings and come up with our price. We risk adjusting that price based on the things we talked about, what we think about the industry, and the geopolitics if it’s gone through all that and we still like it. It gets on to our approved list.
If it is not going through that, it cannot be bought into anybody’s portfolio. Once it’s in the portfolio, then we say, how cheap is it relative to what we think their risk-adjusted prices and we put it in an appropriate position.
His watchlist and the turnover in the portfolio.
[00:05:24] Tilman Versch: How many companies am I currently watching or on your watch list?
[00:05:29] Dave Iben: On the approved list or over a hundred. The portfolio is about 70 right now, and our team of analysts is always looking for more.
[00:05:41] Tilman Versch: And how big is the turnover of a company? Do you have certain holdings you have from the beginning of your funds in there?
[00:05:46] Dave Iben: Our turnovers are pretty low. But you know, if I turn turnover 25%, I would suggest every four years things turn. But it’s a couple of important points. We have some names that we hold for a long, long time, others that quickly run up and approach our price, we will sell. There’s no way to hold it if it’s already reached our price.
Another thing is we seldom buy a company and then sell it. We’ll say, let’s say a company is worth 30 in our mind and we could buy it at 20. We don’t buy it at 20 and sell it at 30. We buy a couple of present positions at 20, the stock goes up to 23. We’re going to take it down to one and a half percent, 25 or six, we’ll take it down to 1%, drop to 17, we’ll take it to two and a half.
So lots of little trims and adds. So that’s another important and then a last important point. Times like 2002 and ’03 and 2008 and ’09, when the market was just horribly volatile. That was a wonderful thing, very a value of manager, of an active manager. So our turnover, both of those periods were closer to 100%. We were able to buy a bunch of growth stocks after they fell 80 or 90%. We were happy to do that. So turnover depends on opportunity.
Trading as an additional return source
[00:07:05] Tilman Versch: Does this trading at return?
[00:07:08] Dave Iben: Bad return? I think it adds a lot of return. Especially being helpful in value has been so out of favor. We theoretically, we’ve been underperforming in this market of course, but we’ve done a lot better than me. The value sort of things that were in say I mentioned gold stocks that have dropped a lot over the last half dozen years.
Our gold stocks have gone up or our energy stocks have gone down. So we’re not perfect. But we’ve, I think, done we’ve done better in emerging markets than the emerging market indices. Better in gold than the gold indices. So if you’ve got stocks that are fluctuating up and down, I don’t know why people consider that risk. That is opportunity. So we have definitely added a lot of value.
How his performance is linked to the general performance of Value vs. Growth
[00:07:56] Tilman Versch: How is your performance linked to the performance of Value versus Growth?
[00:08:03] Dave Iben: In value versus growth? I don’t know that it’s that linked to weaving over our career done very well in value markets and done very well and in growth markets. What we have done horrible and is momentum markets just the wild that we had in ’99 and the wildness you saw last summer and again on the first quarter, we grossly underperformed in those environments. And then, fortunately, we usually do quite well when the momentum breaks. 2000, 2001, and 2002 or really great years for us, 2016 was a great year, the fourth quarter was okay. And so we look forward to when this momentum breaks, which seems inevitable to us.
[00:08:53] Tilman Versch: Do you have something to add?
[00:08:56] Dave Iben: Not a whole lot to add. I think it was a great conference here and it was interesting to see the views on whether quality growth is the new value or whether it should be more the gram and add old value, which was more in that count. But a lot of smart people here with a lot of great views and we think right now will be really great for value in general. We’ll see.
Opportunities in Europe
[00:09:20] Tilman Versch: Do you see opportunities in Europe?
[00:09:23] Dave Iben: Yes, opportunities. We find the US to be way overvalued and we find Europe and Japan to be quite interesting. And we find emerging markets in Canada to be unbelievably cheap.
[00:09:39] Tilman Versch: Emerging markets in Canada?
[00:09:40] Dave Iben: Emerging markets in Canada, they’re both very cheap. In Canada, because of the resource dominance and emerging markets, they’re not growing as fast as they used to, but they certainly should grow faster than your Europe in the US, and yet you’re not paying for growth. A lot of these companies we look at are single-digit PEs, fractions of book value and so we like growth at a nine growth price.
Is Dave also doing tech investing?
[00:10:07] Tilman Versch: Do you also do tech?
[00:10:09] Dave Iben: We do tech. We did a lot of tech in 2002. We did a lot of tech in 2009. Uh, not a whole lot of tech right now. Tech is very loved right now.
[00:10:22] Tilman Versch: Thank you very much for the interesting interview.
[00:10:09] Dave Iben: Well, thank you very much. Good talking with you.
Disclaimer
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