October 28, 2009 — What sort of financial regulation might help prevent another financial crisis like the one the shook the world economy in summer and fall of 2008? How will financial markets wean themselves from government "life support?" What will happen if the Chinese stop funding America's debt?
These were just a few of the weighty questions pondered by nine investment professionals during presentations and panel discussions at the Second Annual Virginia Value Investing Conference, hosted Oct. 22 and 23 by the University of Virginia's McIntire School of Commerce and Darden School of Business.
The conference was free and open to the public, but the comments of many of the participants were understood to be "off the record" to promote candor and free discussion.
"The Value Investing Conference provides an outstanding opportunity for professional investors, members of the investing community, U.Va. alumni, and students to engage with one another on topics related to value investing," said event organizer David C. Smith, a finance professor in the McIntire School and director of its Center for Financial Innovation, which sponsored the event. "It's also extremely illuminating to hear from these top-line investors about the current state of the economy."
This year's conference was, not surprisingly, dominated by discussion of the ongoing challenges faced by financial markets and investors in the wake of the financial meltdown and subsequent massive government intervention of late 2008 and early 2009.
Commenting on current conditions, the nine participants – Lee S. Ainslie III, a 1986 alumnus of the School of Engineering and Applied Science and managing partner of Maverick Capital; James S. Chanos, founder and managing partner of Kynikos Associates; 1985 McIntire alumnus John A. Griffin, president and founder of Blue Ridge Capital; 1996 McIntire alumnus Carney Hawksfounding partner of Brigade Capital Management; 1993 McIntire alumnus Matthew Iorio, managing director with White Elm Capital; 1976 College of Arts & Sciences alumnus Paul T. Jones II, founder, chairman and chief executive officer of the Tudor Group; 1964 Arts & Sciences and 1968 Darden alumnus Richard A. Mayo, founder and chairman of Mayo Capital Partners; 2000 McIntire grad Joel Ramin, an analyst at Bridger Capital; and Julian H. Robertson, co-founder of Tiger Management – agreed that the current financial situation is without precedent, analog, or, for that matter, many bright spots.
"To me, our country and economy are in the worst shape they've ever been in," Robertson said, pointing out that much of the government stimulus money seems to have found its way into the stock market, perhaps replacing one bubble with another.
The conference opened with a presentation titled "Ten Lessons from the Financial Crisis That Investors Will Soon Forget (If They Haven't Already)" by Chanos, who pointed out, among other things, the importance of unbiased and transparent methods of accounting; the "horribly conflicted" nature of ratings agencies; the perils of overreliance on mathematical risk models; and the dangers of enabling financial institutions to become "too big to fail."
Unfortunately, Chanos said, market memories are awfully short: When stock prices start rising, people quickly forget the things they vowed never to do again. Moreover, he warned, the opportunity for the government to make meaningful reforms to the financial system is quickly fading.
Alumni Value Investing Panel
Chanos' presentation was followed by a panel discussion of investment strategies and tactics featuring Ainslie, Hawks, Iorio and Ramin; Griffin acted as the panel's moderator. The group discussed such issues as how the macroeconomic situation is affecting their respective investment strategies, how to know when to make a move in the market, and the sorts of questions to ask in determining whether a company's business is likely to become obsolete.
The panelists also offered the audience some of their current favorite investment ideas.
Master Investors Panel
The conference's second day featured a "Master Investors Panel," again moderated by Griffin, and composed of trading and investment superstars Ainslie, Jones and Robertson.
The panelists discussed at length the chaotic and uncertain nature of the current market, considering such questions as how massive infusions of government liquidity are affecting longtime stock pickers such as Ainslie; what effect such infusions will ultimately have on the long-term strength of the U.S. economy; and whether the U.S. is heading into a period of prolonged recession akin to Japan's "lost decade."
"Today," Ainslie said, "you have to be attuned to macro factors."
The panelists also discussed some of the human factors associated with trading and investing, including the importance of keeping your emotions in check and loving the "game" of investing. Successful traders, Jones said, are typically high-energy, "Type A" personalities who are able to retain emotional balance when confronted with adversity.
Moreover, he said, "they have to be unbelievably competitive all the time."
U.Va. Value Investment Pitch Competition
The conference closed with a presentation on value investing by Mayo, who discussed the asset classes he currently believes are undervalued.
Value investing, an investment paradigm pioneered by Benjamin Graham in the late 1920s – and arguably perfected by Charlie Munger and Warren Buffett over the last half-century – involves the buying of securities whose shares appear to be underpriced according to the metrics of various methods of fundamental analysis.
Mayo's address was followed by presentations from the four finalists in the first-ever U.Va. Value Investment Pitch Competition. Open to students throughout the University, the finalists –second-year Darden student Matthew Fedors; the team of second-year Darden students Mike Kochan and Mike Ritzer; the team of fourth-year McIntire student Manuj Jindal and graduate Arts & Sciences student Rahul Gorawara; and fourth-year McIntire student Kevin Mahony – presented their investment ideas to a panel of expert value investors.
Mahony, who successfully touted the stock of data center services provider Equinix, earned a trip to New York City and lunch with Griffin, Robertson and other financial luminaries.
McIntire Dean Carl Zeithaml called the conference "a tremendous success."
"We were extremely pleased to host such an outstanding group of investment professionals who discussed topics of such vital interest, timeliness and importance," he said. "We look forward to organizing another superb conference next year."
-- By Mary Summers Whittle