Editor's note: The stock market and our offices are closed today in observance of Memorial Day. So instead of our normal commentary, we're bringing you an incredibly valuable interview every investor should read and read again.
Bonner Private Portfolio editor Chris Mayer has a track record you might not believe… Over the 10-year period from 2004 through 2014, he outperformed the book value of Warren Buffett's Berkshire Hathaway (BRK) by 2-to-1. And he beat the S&P 500 over 3-to-1.
Below, in an interview with Palm Beach Daily's J. Reeves, Chris shares his investing strategies…including his powerful system behind his stunning outperformance. We hope you enjoy…and have a great holiday.
J. Reeves, editor, The Palm Beach Daily: Chris, who are your investment heroes and why?
Chris Mayer, editor, Bonner Private Portfolio: I like Martin Sosnoff. He’s about 85 now.
I got to meet him at his office in Manhattan last year. He spent over an hour with me. It was quite a treat.
It’s not that he’s a great investor or has a great track record… although he’s done okay. He manages somewhere around $6 billion.
But I like the books he’s written about his experiences investing: Humble on Wall Street, Silent Investor, Silent Loser, and Master Class.
They’re fun reads, especially Humble on Wall Street. He’s a great storyteller and I’ve learned a lot from him.
Sosnoff has this saying: “Entrepreneurial instinct equates with sizable equity ownership.” He really drilled into me the idea that you want to invest with people who have “skin in the game.”
Another hero is Thomas Phelps. I love his 1972 book 100 to 1 in the Stock Market. Phelps was a security analyst and also wrote for The Wall Street Journal, among other publications.
His book is a study of stocks that returned at least 100-to-1. It’s full of wisdom about investing in stocks for the long haul. Buy right and hold on is his basic formula.
(Phelps was such an inspiration, I wrote a follow-up book of my own on his ideas called 100 Baggers: Stocks That Return 100-to-1 and How to Find Them.)
Last one I’ll throw out there: John Maynard Keynes. Most people know him as an economist. But he was a great investor. And I mean great. His track record through the Great Depression is remarkable. His Chest Fund was up about 15-fold for the many years he managed it while the market barely doubled.
Keynes went through an interesting transition. He started as a speculator and almost wiped out. Then he figured out how to be a long-term value investor. His basic formula was to focus on his best ideas, buy cheap, and hold on. Simple.
J.R.: Interesting. Now here’s what everyone wants to know… What’s the secret behind your sustained investment outperformance?
Chris: I don’t know if it’s a “secret” because I write about it all the time…
There are a number of elements. I have this acronym I use, CODE.
C is for “cheap.” I want to buy cheap stocks.
O is for “owner-operators.” I want to own stocks where the insiders have skin in the game.
D is for “disclosures.” I’m looking for businesses I understand. If I can’t make sense of the public disclosures—the 10-K, the 10-Q, etc.—I pass.
E is for “excellent financial condition.” I stick with great balance sheets, companies with lots of cash, and little debt.
All of these are important. In combination, they make for a powerful test.
I also don’t buy and sell a lot. I like to focus on my best ideas and hold on to them. Let the power of compounding do the work.
(And there is an element of chance investing. I’ve enjoyed my share of good luck.)
J.R.: So what’s the most important investment lesson you’ve ever learned?
Chris: Tough question. My first thought is to answer the same way Phil Carret answered it…
Carret was another great old value investor. He ran one of America’s first mutual funds… for something like 50-plus years. He lived to be 101. And he was much admired by the investment community.
Somebody asked him this question when he was in his 90s and he said “Patience.”
I think that’s true for me, too. You have to be patient. You have to have patience to let your ideas work. You have to be patient in the search for great ideas.
Investing well is not for the get-rich-quick crowd or for people whose money burns a hole in their pockets.
J.R.: What’s something the average investor is missing when looking at the markets today?
Chris: I think the average investor focuses way too much on “the forest” and not enough on “the trees”…
The average investor wants to talk about the economy… or where interest rates are going… or where the market is going… or what the impact of the election is going to be.
Most of that stuff is unknowable. Investors would be better off if they focused on understanding businesses… how to think about them… and how to value them.
So I always see opportunities in specific stocks and situations. Near market tops, it’s harder to find ideas. Near bottoms, there are more ideas than I can use. But there’s always some opportunity.
There are thousands of stocks trading on American exchanges. Any analyst who can’t find at least 20 interesting stocks isn’t working hard enough.
J.R.: Chris, where do you see the greatest investment opportunity in 2016?
Chris: I’ll focus on stocks because that’s what I spend all my time on…
(I can’t give any specific names because I want to reserve my favorites for the Bonner Private Portfolio.)
In general terms, we’re looking for safe ways to compound capital. There are some good businesses on sale because of short-term worries over, say, oil prices or China.
So we’ve found a real estate company that has exposure to the U.S. oil patch. It’s 35% off its high. Another find is a great brand-name company that is 35% off its high because of China exposure.
But in both cases, there are talented owner-operators at the helm. Both are great businesses that generate high returns on invested capital. And you have rare opportunities to buy both at prices we haven’t seen in years.
I think there are a number of specific opportunities like that. I don’t think the stock market overall is attractive… and there are many overpriced stocks and many bad businesses out there.
But in spots, there are still some great places to invest in 2016.
Editor’s note: Chris’ simple CODE system has consistently produced triple-digit winners. It's even outperformed some of the world's best investors. That’s why Agora founder Bill Bonner has decided to invest $5 million of his own family’s trust in Chris’ recommendations…
And Bill wants his readers to have a chance to invest alongside him. In fact, you'll even have the chance to get into each recommendation before Bill does.
But we recommend you act soon… Chris' next issue—and his newest pick—will be released this Wednesday. Best of all, if you sign up now, you'll receive a $1,000 discount as part of our special offer. Learn more by clicking here.