Amit Wadhwaney: ’Buying Cheap Has a Number of Attractions’

Please stay tuned for important disclosure information at the conclusion of this episode. Welcome to The Long View. I'm Ben Johnson, Head of Client Solutions with Morningstar. And I'm Amy Arnott, Portfolio Strategist with Morningstar. Today's guest on The Long View is Amit Badwani, Portfolio Manager and Co-Founder at Moiris Capital Management. Amit has over 30 years of experience researching and analyzing investment opportunities in developed, emerging, and frontier markets worldwide. Prior to co-founding Moiris, Amit was a portfolio manager and partner at Third Avenue Management, where he worked alongside his Moiris co-founding partners. Amit founded the international business at Third Avenue and was the founding manager of of the Third Avenue Global Value Fund, the Third Avenue Emerging Markets Fund, and the Third Avenue International Value Fund. Earlier in his career, Amit worked at MJ Whitman LLC, a New York-based broker-dealer. Prior to joining MJ Whitman, Amit was a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm. He began his career at Domtar, a Canadian forest products company. Amit holds an MBA in finance from the University of Chicago. He also holds a BA with honors and an MA in economics from Concordia. At Concordia, he was awarded the Sun Life Prize and the Concordia University Fellow in economics, and he subsequently taught economics classes there. Amit also holds a BS degree in chemical Engineering and Mathematics from the University of Minnesota. Well, Amit, welcome to The Long View. Thank you so much for joining Amy and I today. Thank you for having me. I wanted to start by asking you to tell us a bit about your background, and I'm particularly curious about how you caught the investing bug. Well, I was trained as an engineer, and I also studied some math in those days. And so I'm kind of a quant person by training. Now, you know, it remains to be seen and I suspect it's probably not accurate to say that the quant part of me has stayed, but I got interested in economics. Again, this is when I was living in Montreal, Canada. And the chemical engineering mathematics happened when I was in Minnesota. Just to give you some geography and some background, those are sort of pertinent in some ways, as you will see. So I got quite interested in economics. And there too, I veered to things clunky in metrics and so on and so forth. So I studied that. And the interest in investing really came out of two things. I mean, it's not investing generally, but investing in a very specific sort of way. So I studied economics. I encountered a book by Marty Whitman. Actually, it was not a book. It was a book by Marty Whitman, but what caught my eye was his co-author's name. The co-author I knew of by his reputation, a very famous mathematical economist, Martin Schubig. He was at Yale, a game theorist. And he wrote this book about investing. And how I came upon it was I read a review of the book in a publication called the Journal of Economic Literature, which used to summarize new books which were of interest in terms of pathbreaking. And the review looked very interesting. And amazingly, it was at the university library. I read it. The book was full of junk. And again, I had never had a course in accounting before. The book was, you know, I always say, it's amazing detergent prose. It was deadly. But it was very bright. It was a very bright book. And I was fascinated by the book. And I would come back to the sort of stuff that you learn from the book. And I put that aside. I said, this is kind of interesting. Maybe I should do more of it. Again, I was finishing up with my master's degree at that point. And I was wondering what I should do. I was working at that time as an engineer. And I was doing this. And my hobby, studying economics at night, was fun. And then I decided that I would apply for graduate school, a degree in business at Chicago. Now, context, we are in 1980. Inflation rates are high and interest rates are rising. This is a Volcker era. It's been decided that we're going to squeeze inflation out. Higher inflation rates is obviously a difficult thing. I was working in a company that was very cyclical. The businesses were very cyclical. and I got into Chicago for the MBA program, University of, and I did not get financial aid. Now, of course, the question is, how do you conjure up the financing for this venture? I thought, well, look, I mean, the best you can do is A, reduce your costs. Now, there's only so many ways you can reduce your costs, don't you? Because then you pay by the course. And the one way you could do it was by reducing the number of months you were there, which is taking lots of costs in every turn. So the decision was made, let's squeeze this into one year. As a two-year program, squeezing it into one year is, it's an effort. Let's just say it's an effort I would not recommend to most people. And what happened was, what assets were there? I mentioned that we were in 1980, right? So 1980, the significance of that year, I was living in Montreal, Canada, which is Quebec. Quebec had its first separation referendum. and it was like a major freak out. Then his promise is going to separate from the rest of the country. Our assets are going to be toast and so everybody was fleeing. But, you know, I said, I'm going to live here because the firm I worked for was owned by the government of Quebec. So I'm not going anywhere. So I might as well think in terms of, you know, it'd be nice to have a nice place and Montreal in those days had some very beautiful old properties which were in need of some loving care, some renovation and so forth. So by the bunch of others, I bought a piece of one and he'd sort of kind of put it away and be able to renovate it. Then I got into Chicago and there was no financial aid. Now I said, now, you know, how do I do this? So I said, I'd sell as many assets that I had. And there were few. I was just an engineer working in Canada, Canadian salary. We paid Canadian dollars, paying Canadian taxes. But I had this house, this sort of unrenovated house. And as it turned out, the separation referendum failed. And of course, prices soared. And I said, oh, gosh, I mean, this is quite something. What timing this is. I sold that house. And that paid for at least one year's, a bit more than one year's worth of tuition there. It was a very cheap house. It was a dump. It was great. So that was so interesting. I said, look, on one hand, this could be a very interesting way of earning a living. I didn't have to do much of anything. You know, investment was gradually becoming interesting after I read Marty's book. And I said, maybe sometime I'll figure out a way to combine these things. You know, investing and earning a living. And again, I mean, there's two separate things, investing and the business of investing. Now that's a story unto itself, but, you know, I thought that was an interesting idea. And so I went to Chicago. Again, more qualtz stuff. I mean, it's a fabulous school. I wish I could stay there for two years, but I had only one year. I could afford only one year. I did graduate from there and came out of there and went to Montreal. And so that was the beginning of my interest in investing. accidentally, and this is yet another accident, my past crossed of Martin. And I was lucky to have sort of a seat, you know, watching this investing happen. It was absolutely fascinating. And I said, my gosh, I mean, it'd be amazing to mentor with someone like that. You know, so in turn, I'll learn, you know, sort of live this. And so I asked and I wound up working there. That's sort of the genesis of that. Again, all this quant stuff sort of kind of went out of the window. And we come back to that, I suppose, all this econometrics and economics and academic finance. I mean, it kind of went out of the window, but didn't. I mean, there was a background. There's some sort of structure. The accounting certainly did knock it out of the window. Accounting was a big deal. And how it's very good for the accounting. And that certainly helped me in the future. So that is sort of how investing started. my adventure, our journey in investing started. So you trained and worked closely with Marty Whitman, as you mentioned. What are some of the lessons from that period that are still directly shaping how you invest today? So Marty absolutely hated academic finance. And, you know, shortly up there was academic finance types of economists. Now, maybe I don't reject them all. I don't put all of them into the same bin as he does. There isn't more than an element of respect for academic finance. One certainly learns from that shape, you're thinking. Economics, on the other hand, in terms of the kind of stuff that I aspire to do and what I learned from Marty is subordinate to many things. Economics clearly matters. the economics, the microeconomics of business, the structural organization of industries. That's very, very, very important to me. So what I've learned from Marty, amongst other things, and I suspect we probably get into that, is one, recurrent forecasting of the macroeconomy is probably not worth it. You're probably going to get it wrong, and you're going to risk the whole bunch of capital on making these judgments. So try to minimize that. Minimize your forecast for the future. It just, it may or may not work. And it's probably not worth the risk of doing that. So that's item number one. How do you deal with it? And this is kind of important, is if you buy something cheaply, and we'll get to what cheap means, and you buy something that is strongly capitalized, that is, has survivability in the sense that, you know, if you own things for long periods of time, lots of stuff can happen to your company. in the business that you bought. I mean, look, if you own it for six months, interest rates could go up 100 basis points, 50 basis points, depending on the country you're in. If you own things for three to five and more, they could go up by, I mean, depending on the country you're talking about. I mean, if you're in Brazil, they could go by 10 percentage points. That's a big deal. And the business that you own has to be able to survive that. So it's partly a matter of context. The nature of the business that you bought is financial structure, is capitalization. the business model it employs? I mean, does it need to raise funding? I mean, sometimes the doors of capital markets close, as we saw in, you know, the great financial crisis. You have GFC here, even the U.S. This is not something we're taking for a given. So survivability, I mean, along many different sort of axes has to be assessed very carefully. Our business model, I mean, it's very important that there have to be some things that are intrinsically attractive about a business. So survivability in isolation is an interesting, good business, a desirable business with survivability. And of course, the valuation has to be cheap. And so that was a starting point of my understanding. And one of the things, you know, learning from Marty was, you all did this for a long period of time. And I suppose maybe that was a chicken meal saying you'll probably be wrong in the short term. which the odds are if things are cheap they're cheap for a good reason and things get worse they could go down and so just you know run and bear it you buy some more maybe if things are not getting worse if anything you perceive any reason to believe things might actually improve and progress forward in time buying cheap has a number of attractions to it what you try to do is buy at a price which would make it very attractive. It's less than what somebody who is in the business would be willing to pay for that business. And that's quite important, that you are buying a business less than for what you could replicate it for, what somebody in the business would be able to replicate it for as a real going concern. And that's quite important. And that's the essence of what we do. We try to buy things cheap in the sense that less than what's worth to a cash buyer who operates the business, is knowledgeable about the business. Amit, I'd like to come back to sort of your timeline and bring us to your present charge, the firm that you co-founded with a number of your former Third Avenue colleagues, particularly interested in how you arrived at your choice of name and equally, if maybe not more interested in lessons learned and lessons applied, as you alluded to before. There's investing and then the business of investing. So how did you think about the latter with respect to building your own firm? So I was in Third Avenue for a number of years, more than a couple of decades. And by FANCO founding partners since 2004, just a couple of decades right there. and the second one since 2008, actually 2007. The both will soon be two decades. So founding the business the way I think about the business I mean there nothing abstract about it But you strip the business to the core What is it that we do What is it we like to do? The firm that I joined initially when we started at Third Avenue was a much smaller firm. It was very much a baritocracy. It was very collegial. And my end of the business, the international side, was very narrowly focused. I had the firm. April. As firms get bigger and are successful, they want to do more and more. And they proliferated a variety of different areas. And my perspective, these were, they pigeonholed us to some degree. They were distractions. So when we founded Moiris, we decided that we'd be a narrowly focused firm. Deep value investing, long-term investing, doing what we did for the long term, and we'd had just one area, one area of activity, buying things around the world, as long as they were cheap and met our investment criteria. And we're attracting businesses that we could buy cheaply, only for long periods of time. And that was certainly the idea. Now, when you buy things for long periods of time, you have to have sufficient conviction that there would be a ramp. Hence, this concept of survivability outcome. It's an obsession. There's many sort of elements to this. And it's what we call intrinsic to what we do is this risk aversion. Now, risk aversion is, I say, survivability, and that's what Moiris refers to. Moiris refers to a city's defensive walls. Cities, over time, I mean, like as businesses, should have ways of coping with adversity. I suppose in the old-fashioned ways, they could withstand assault by hostile parties. In our case, our companies should be able to cope with hostile environments, environments of adversity. I mean, it could be, you know, rising infrastructure, rising inflation, changes in government regulations. I mean, there's a whole slew of things that could make life difficult for them. And so we tend to obsess about that. And which is how we're more riskiered. It's a classic Latin word. My colleague Michael was behind this. Obscurers it may be. We believe him that such a word existed. And of course, he connected us with a professor of classical Latin at NYU. And he who gave us a lecture initially, remember how to pronounce it, it creates worse. And so on and so forth. There is such a word. It's infrequent in use. And no wonder we can find it easily doing searches online. But there was such a word. And yeah, it describes how buying cheap is easier than buying something that's cheap and safe. Safe precedes cheapness in trouble because safe basically winnows out all these things that you can have, which aren't cheap, but may or may not be around in the future. You know, sort of the huff and puff and blow your house down kind of thing. That is what we want to avoid. And one thing you've said in relation to finding cheap assets and cheap businesses is that trouble is opportunity. Can you expand on why you think that's the case? Yes. Now, something causes cheapness, mishaps, mishaps of the liver of a company. A good company slips in a banana peel. It happens. It really does happen. You wind up with companies that have amazing market positions and great businesses. And a bunch of things happen to them at one time. They converge and, of course, the stock crashes on you. It just crashes. So what we're looking for is what I call extreme cheapness. It's not quite buying the dip. It's a bit more buying the crash. So trouble causes this stuff to happen. Okay, it's not always trouble that presents us with an opportunity. It can be long periods of neglect, disinterest, operating in a business area that is kind of loathed by people. You know, companies can make mistakes, as I mentioned earlier on. I mean, for example, Natura, a company we own, which is an absolutely beloved company. It's a fabulous company that makes beauty products in Brazil. And Brazil is, like many other Latin American countries, has a very large beauty product spend. I mean, let me not expand upon that. You know where I go. if I was a comment about the spending in Brazil, but Latin America generally. Now, their business model historically used to be prestige versus selling. And they proceeded to, they made lots of money. They were very, very successful. Beloved premium price products. They did, and they were environmentally sensitive. They did a lot of things that appealed to people. They had products which, as I understand, are quite, quite good. They proceeded to expand. But the money they had, They made a series of acquisitions, most of them ill-conceived and ill-fated. And so the company's balance sheet went out of Kilcher. I mean, the stock went down by almost 90% between 2022 and 2024. And that is trouble. I mean, within this trouble, we saw opportunity. The opportunity that the company, if they came to their senses, would reconstruct themselves by basically divesting all these other flotsam and jetsam they'd acquired along the way. With, you know, the ideas were sort of squishy ideas. The reasoning was kind of squishy. They did not recognize the limitations of their own, that these are not businesses that they could manage. I mean, they were a Latin American company, person to person selling, and they were not going to manage chains of bricks and mortar stores across the world. That was what shop I'm referring to, which is a disaster. They bought Avon across the world, which is because they thought it was also person-to-person selling, but selling in different parts of the world, different products, managing different sales forces. This is a wildly labor-intensive business. You cannot let these people go and do their own thing. You have to have some, I don't want to use control, but some degree of management. It's management-intensive in a way they could manage. So anyway, Natura basically got rid of all these things, and it's sort of coming true. So bad things can happen to very good companies. But that's not the only source of opportunity. Just to note that I'm not out there looking for disasters or trouble. But, you know, trouble, it does sort of, you know, makes you sit up and look. I mean, there could be businesses that people ignore. Businesses, for whatever reason, are unfashionable because, I don't know, people have just, sometimes, people just don't get the trouble of sitting there with a pencil and paper and locking themselves up in the room and just doing it. Like a measurement of value, envisioning how the value might emerge, might out someday. So trouble, you know, getting out of trouble is also an important thing. But staying out of trouble, so companies that experience difficulties, and it could be, you know, the environment in which they operate is horrible. It could be you could be in the middle of some kind of an industrial crisis. You could have a geographic crisis. You could have some kind of capital markets crisis, you know, witness the global financial crisis or eurozone crisis. Stuff happens, right? And you want to make sure that the business you buy, it will not be affected or if that peripherally impacted by the crisis with which it's coexisting. So what you want to see is businesses have a strong enough capitalization, an intelligent enough business model that will keep them out of trouble and they will be survivors at the end. So generally, sometimes I wonder what kinds of trouble do I seek or avoid? I mean, some things, I mean, ideally, the trouble should have a transitory nature. It could feel like forever when you're dealing with a company having all these headaches. I mean, you know, the global financial crisis, its intensity was so large, the debt was so big, and the damage was so widespread, not just the United States, not just the U.S. housing market, the Lehman, the Brairsters. Everybody was shaking to the core. Then, of course, you had these ripples across Europe. You know, you got all kinds of financial institutions in terrible trouble. You thought it would never end. I mean, at the time, with the intensity, the noise, the cacophony that happened. So you ideally would like these episodes to be bounded in terms of time. However strong your company is if something goes on for 10 years, it could sap its rewisal. I mean, companies can have great, great, great balance sheets, but they could erode. So, you see how the trouble is, you know, which would really bring you back to the question of survivability. I mean, survivability in our offer of risk aversion takes a number of forms. Risk, as I see it, is not the day-to-day stock price volatility. That's not what concerns me that much. What concerns me is financial or business risk. Financial business risk emanates from two or three different sources. One is internal to the company and external to the company. Internal to the company, some generic characteristics. You could have crummy management, short-term management, management that's self-serving. Just avoid those. Even before trouble or trouble, I don't want to deal with people like that. Two, you could have a bad business model. Some businesses tend to require funding. access to financing, external financing, be capital markets, be banks, be what have you, that should not be dependent upon for your recurrent business. Okay, if you're making a big acquisition, you might need external financing, but those happen sporadically and are sort of, you may do them, you may not do them. There's a discretionary element to that. But what you don't want is your day-to-day business requires you to go to the market every day and borrow. That is horrible. Which is why, for example, we never got involved with Lehman, we never got involved with Bear Stearns, or generally capital markets focused firms. And we did not experience that kind of misery during the GFC as a number of value investors did. External to the business could be things like unusual regulatory requirements. Some businesses are more sensitive and could be subjects of regulations. You know, for example, some businesses need to be necessities. Now, the definition varies by government and by country. For example, in India, you would worry about buying businesses where the government feels and pharmaceuticals. And the products of the company are necessities, and therefore the prices will be capped. So you avoid stuff like that. Handicapping government meddling is a very difficult thing. I mean, good companies can do weird stuff. I mean, we saw that. I've seen that in Norway. We've seen that in New Zealand. Both great countries to invest in, great governance. However, sometimes the government deems some businesses necessary for whatever reason. And so the rules didn't change. I mean, we've seen that in the United States. Who thought spirit is worthy of being bailed out? I mean, maybe it'd be heartless. I think spirit should be- No, I've flown it a few times, and that was my initial impression as well. I mean- Oh, oh. I mean, if I'm not in America, the seats are impossible. It's a company that deserves to go out of business. Well, they do. They do. You know, they can go to bankruptcy. And if the assets are worth buying something, you know, let's let the investors in that take the bath, the proverbial bath. And there's something wrong when you're bailing out airlines. I'm sorry. Airlines, you know, can go through bankruptcy. That's what the bankruptcy code is about. But again, as I said, that's heartless. Maybe I went to the wrong school, the school of Marty Whitman. I mean, they're actually aligned in that. Sometimes they will not be quite for a tactic, totally are invited. So some businesses are hard to invest in, and you just don't want to do them. And there's the other thing about industry structure. People don't think enough about it. Sometimes industries are such that the barriers to entry are very limited. Now, why does that matter? Well, there's a class of people who love moats. This is not what I'm talking about. What I'm talking about is you buy something that's depressed. And oftentimes the cause of valuations being depressed is terrible near-term business outlook because of things like overcapacity in the industry, things that could be rectified with the passage of time. You could have consolidation, closure of capacity, all kinds of things happen. Industries tend to fix themselves. The capital will go out of the industry. So if, for example, an industry has very limited barriers to entry, as said industry, post this period of difficulty, starts to make money, margins approve, you have lots of new entrants coming in again, you never make money. Your margins will always be sort of blah, they'll be sort of subpar, and you're not going to make money. And that's kind of a boring industry. You know, I hang around for years. I would like to make money. And so that is a way of, I'd rather not invest industries like that. That's an extirma to the business. I mean, so we've done a piece talking about, you know, how we stay out of trouble. It called risk We talk about risk I mean there ways that how we perceive risk So that one thing we did At Silver Avenue we talked a lot about avoidance of risk and valuation and so forth We've tried to quantify that a bit more formally, a bit more rigorously. And we practice it. And in terms of how we value things, our asset-based valuation, And what that does, avoidance of risk, the margin of safety is not just valuation. Buying cheaply is an important thing, but also the avoidance of trouble, avoidance of financial risk, business risk, and anything that's existentially related to the business. Anything that impair the value of your business, diminish its value during a holding period. So I wanted to follow up on kind of business structure risk as it relates to Natura Cosmetics, which it looks like was still your top holding as of the most recent portfolio that we have. And I think someone might look at that type of business that relies on kind of old school person to person sales and say, you know, is that business model obsolete in the age of Instagram influencers? And, you know, you can buy whatever you want with one click. So how do you think about that type of risk in relation to Natura? So it started out as such. It did. Natura has progressed in time. Latin America is actually pretty good about that. Natura is actually, even in the U.S., it's available online for what it's worth. Check out Amazon. You'll see it. I mean, look, I think the product's expensive, but that's just me. I'm too cheap, but I mean, you know, who pays that kind of price for soap? But anyway, fine. So Natura, in his last stage of wringing out Avon, they got rid of Avon, except they kept Avon Latin America, and they were merging Avon Latin America into Natura. So there are two sales forces, two different sets of products and different compensation schemes. And there's a whole complicated thing that happened during the latter half of last year. And one of the problems was bringing the Avon people into the Natura ecosystem, where they were trying to make them Instagram influencers. Now, this is, of course, I don't have Instagram. And yes, I have heard of influencers and what they do to industries and products and so forth. But Natura is, I don't want to say knee deep in that, because that is something that plays very well country by country, culture by culture. You know, Peruvian influencers are different from Brazilian influencers, for example, I suspect. I mean, that's just me talking, you know, probably with some level of ignorance, but they are very much involved in that. And so Natura has tried to incorporate more contemporary practices rather than person-to-person stuff. But, you know, person-to-person is how they started. In fact, they started as a bricks-and-mortar operation in 1969. It was only in 1974 that they realized the person-to-person stuff would be something that would become a viable model. And that expanded and took off, initially Brazil, and then across the West of Latin America. And now, of course, they're migrating to this practice of, in fact, that was very much a question we asked ourselves, because a lot of this had moved online, a lot of it. And the marketing of these products is, I mean, I don't want to say turbocharged, but certainly is very much a part of it. And yeah, Natura does absolutely is doing more and more of that. And that was part of the teething pains of sort of migrating Avon into its own ecosystem. I wanted to touch on that because I think it shows up in your experience with Natura, but I think more broadly is something that has been a common theme in your portfolio in recent years, which is what you've referred to as value accretive corporate activity. So asset sales, spinoffs, buybacks, et cetera. Is this purposefully, intentionally something that you're looking for? Why has this been a recurring theme in your portfolio? And is it something that you can even do intentionally? Or is it just kind of more emblematic of kind of an artifact, almost an outcropping of your approach? Over the latter. So what we try to do is buy a business cheap, cheap in relation to what somebody in the industry would normally purchase in a cash transaction. So the businesses usually have a number of characteristics which are interesting to us and potentially to somebody else. One, they have businesses which are the core, actually good businesses, which may, at a point in time, it requires them, be underperforming or go through some sort of cyclical downturn. Something like that has depressed the performance and replication of the price. Often, these businesses, and because they're well capitalized, they're usually a downsheet, they could have surplus assets. And so, they do lots with these businesses. So, when you buy them cheaply, as I mentioned, our approach to cheapness focuses on what you can sell. You can basically, it's asset-based investing in terms of what can the businesses, what will they transact for in a sane, valued transaction? That is, you know, assets A, B, and C, here and now, what could you sell these assets for? You know, almost a cash transaction. I'm not a distressed transaction, but in arms, I mean, you're buying a distressed transaction, distressed valuation. So that is an attraction to us. If we have done our work correctly, this should be, I mean, catnip to an acquirer. You'll take a bit. Now, ideally, and I say ideally because, you know, we've had some, we've got mishaps. We've had takeovers at prices I wish were much higher. Our good companies get taken over at prices I wish, you know, we want more, obviously. So you wind up buying these things and we buy businesses cheaply. And we let you own them for long periods of time, over which as businesses emerge from their funk, they do better and better. As things normalize, they will do better and better and better. And we do well alongside them. We obviously, we have to have a sensible management. You have to have obviously the right sorts of conditions, which may take time to emerge. The environment in which they operate, it could take time to emerge. But usually, in the passage of time, things sort of, you know, normalize, so to speak, and we do okay. So, you know, companies that are overcapitalized may have excess assets, and they might end up selling one or more of these assets. And they may wind up either, you know, keeping the cash on the balance sheet for future acquisitions or buying that shares or returning it to us via dividends. I mean, obviously, relative tax efficiency, there's different degrees of tax efficiency in these different transactions. But, you know, that is one of the ways in venture value is realized, crystallized, maybe returned to us. It is a byproduct of what we do. You know, buying reasonable businesses, decent businesses, really cheaply allows this to happen. And for example, I mean, over the last year, I mean, in the case of Batur, of course, what they've been doing is they've been selling businesses. They've been cleaning up their act and they're returning to, say, where the balance sheet is decent, the businesses are ticking away, and hopefully probably all that restructuring stuff is behind them. Or last year was a year when there was a big glut of oil. God, it feels like an eternity with all the stuff that's going on now. Glut of oil? I mean, that was a huge glut. But China is never going to come back. You know, China's in a perpetual depression and nobody needs oil and on and on and on. And we're all going to have EVs and all that. Those are stories. Now, in a world like that, oil service companies can get very cheap. I mean, just to give you an example, I was so important, Tidewater and Belarus. Both companies have over the years gone through bankruptcies, emotional bankruptcies, good balance sheets. And Tidewater itself is an instructive story. Give me a bit to tell you that. I'll come to the present. Here's a Tideboarder provides boat services to offshore rigs. And the company, Emotional Bankers, she put a completely clean balance sheet, which, you know, a balance sheet that was, you know, allowed it to operate in a depressed, very depressed environment for its operations. So they could, you know, sort of eke out a little bit of money, make some money, lose a little bit of money, but had a really, a fortress-like balance sheet, and a cash balance sheet. This was in 2017. And we bought it at 12-something, a share. Then we had the pandemic. Oil prices went negative. Target was stock price went to $4 a share. It was howling all around. I said, my God, this is terrible. So we bought some more. Because, you know, I mean, the business was fine. Its competitors was going under even faster. And so the world was consolidating around it. So we bought a bunch more at four, brought our cost down. Then, you know, so that was in 2020. By 23, we were summing those shares at over $100 a share. So fast forward. Remember, 2023 was sort of the sort of hangover from the invasion of Ukraine and oil prices went up and everything's oil running up. And so, you know, 23 was a great opportunity to sort of move on. Fast forward. 2025. We have a situation where there's lots of oil. You know, it's oil is going out of fashion. Oil is never going to be used. All those stories went on. I mean, they will return. I promise you they will return. So what happens is we are able to buy Tidewater and Volaris very cheaply. And the thing about these companies is the industry, the oil source industry historically, while the individual assets are extremely expensive, I mean, the prices of the stocks of the companies that own these assets swing around wildly. So you can buy these assets very, very cheaply, like very cheaply, at a fraction of what would cost to replicate a business like that. So about Velaris and what type? Fast forward to this year. Velaris is the object of a takeover bid in Q1. And my God, I mean, really, it made our Q1. It was up about 95% during the quarter. Tidewater made a very well-priced acquisition, and it was up 60%, 70%. It was up a lot, a lot during Q1 this year. So this sort of stuff happens when you are buying businesses cheaply. They become very attractive to acquirers. It's a byproduct. And again, companies can do this stuff on their own. They can spin off assets. They can spin off assets, do very large share buybacks. And there are a number of levers to pull, create value. Marty coined this term resource conversion for these known operating ways in which you can create value. A comment about this, it's lumpy. It's lumpy that it doesn't happen every day. It happens prerogative with companies and businesses. And the thing about that is it is also, I think, I would contend in my conjecture, it happens in waves when stock prices can be used for acquisitions. And so there are periods where none of this happens. Then there are periods where a lot of it happens. But to the extent you have businesses that are overcapitalized, have surplus assets, you can see them realizing value and doing good things about their shareholders. So you touched on some of the wild swings we've seen in oil supply and oil prices. And looking at the portfolio overall, you have pretty significant exposure to natural resources and basic materials related businesses. but you have said that you're not making calls on commodity prices. And I'm curious, how do you disentangle that from the fact that commodity prices will have significant influences on earnings and cash flows for many of these companies? So a couple of observations. One, let me answer it directly and then sort of be a little bit more, I'm not going to attempt to obfuscate, but let's plunge you to this thing. So, commodity prices will have an impact. And then let's go back and step with the Tidewater, Bolaris example. Higher oil prices may, in the long term, affect their well-being and doing well. They have not, by the way. In fact, people are terrified that they have the assets in bad parts of the world right now. But that said, the returns on our holdings may or may not be linearly linked to commodity prices. The return on Valaris happened before oil prices spiked. There was a takeover. And the return on Tidewater, which made a very good acquisition in Brazil, also happened before the world prices spiked just by way of example Now it the nature of the business So these are not direct bets so to speak I hate that word bets on the commodity The companies engage in businesses related to commodities and the relationship might not be as direct as it seems. One great example will illustrate this, Dundee Corp. Dundee is, as you up there, is one of our holdings. Dundee was a holding company which had many, many, many businesses when we invested in it. It had real estate. It had cattle farms. It had fish farms. It has an investment in auto parts manufacture. It has an investment, even now, in a private company that is working in the cure for Alzheimer's, and on and on. There was a whole slew of things. The founding owner passed away. The son took over. We've known the Sun's, the Sun is a brilliant resource investor. The stock was very cheap because it's a mishmash of many things and not making much money. So, you know, he started the process of liquidation of everything, everything, to the point that he could narrowly focus the company's business in providing funding to mining companies, earlier stage mining companies. His background was he's a mining engineer and is also a finance director of MBA too as well. and has been doing this for decades. I've known him a few decades ago. It was done to Precious Metals, separate distinct company. It was very good. So the company, the attraction to us was, he had liquidated enough. The company was a Ben Graham net-net. It was a classic, you're buying less of the cost of liquid holdings, net or liabilities, and you got everything else for nothing. Then when I said nothing, you didn't know it was worth more than nothing. I had no idea what to value. a company, a biotech company that's about making, working on a cure for Alzheimer's. We shall see. I mean, if it's nothing, that's fine too, because I have value as nothing. If it's value as something, I'd be a very happy person. So the process of liquidating those things continued to build value and he paid down all the encumbrances, shrank the costs and on and on, did all the right sorts of things. And then proceeded to slowly build up a portfolio of investments, providing direct financing to companies in the world of mining, be it copper, nickel mining, be it gold mining, and so forth. So that's how that came about. It is absolutely true that this company's future and prospective fortunes will be influenced by the valuation of these underlying equity holdings or royalty holdings. Actually, they just sold the royalty. But that, in turn, is also going to be influenced by the natural resource price. But you're paying very little. What we paid for was a portfolio for businesses. You're buying this company at less than the value of its net card assets. And that was a starting point, to buy something for nothing. We also have wheat and precious metals. When we bought it, our holding goes back, initial holding goes back to 2016 when the fund started. It was a very bad year for gold and silver, and I don't particularly care. Gold is a very strange thing to invest in. I have no sort of intuition of what it's worth. Honestly, I just don't. What I did know was this company was in the business of providing capital to individual mines and basically having royalties on the individual mine operation or getting a portion of the output of said mine at a deeply discounted price. Now, clearly, as the product does better, you know, like gold and silver, cobalt, or prices do better, clearly this company does better. No question about it. On the other hand, its business is providing financing. When prices are poor for gold, cobalt, and silver, and so forth, the competing sources of finance for mines are few and far between. And this company is always cashed up. And it's got a pristine balance sheet, large access to capital on or off balance sheet, and is able to provide funding. So yes, operationally, the earnings will do better in good times with resource, in bad times, which is when they build the business, they do much better in terms of actually building cash-flowing businesses in bad times. So yes, commodity prices do play, but it's not a linear one-for-one thing. I don't know. I'm not really hearing commodity bet per se. The bet is on their business model per se. And the trick is what could help them succeed is making intelligent investments in businesses. That makes sense. Thank you. With the last few minutes we've got left, I'd like to take stock of where we're at this current moment in markets in many ways. I think there are parallels that could be easily drawn to a moment that took place decades ago, the bursting of the dot-com bubble, which was sort of the moment that launched 1,000 value mutual funds across the U.S. landscape of varying degrees of quality. And you've remarked in your letters to your investors that you're a relatively rare breed these days. And I'm curious, is what we're looking at right now, market concentration, fascination with all things, AI, et cetera, a setup for a similar moment, a prospective scenario whereby value could finally have its long hoped for comeback? Jack. So I have, oh, the last couple of years. When we started Warris, it was probably the worst time ever. And I'm a really horrible timer. You know, look, we started Warris as a firm in 2015, the mutual fund in 2016. And then, of course, you were hit by this onslaught of everything imaginable. You know, everyone was obsessed with technology, high growth, and on and on and on. There's always been a new theme which seems to dominate everything, which is fine. Which is absolutely fine. Now, a number of our peers chose to go down the path of, well, you know, the sincerest form of flattery, his imitation. And so, you know, the growthy kind of investment crept into many people's portfolios. And, of course, this madness sort of blew up in 2022. And I think you should just look across all the people, the proclamations, proclamations, Valuing investors who got nailed in 2022. I mean, just as a footnote, I was managing money during all this craziness that went on in the late 90s and early 2000s. And I mean, we bought the same miserable, horrible stuff that we buy now. And we came through that period. I mean, I bought a lot of stuff during Asian crisis. I mean, this is the sort of stuff that causes career risk, you know? But that said, that's the stuff that saved our performance in 2000, 2001, 2002, before 2003 came and saved everybody. But we made money in all those years because we both, as I said, these terrible things that were very cheap that were gradually themselves digging themselves out of the hole. So 2022 is an interesting, it should have been a wake-up call for people, but apparently it wasn't. So fine. And the attrition in the world of value investors has been fierce. It really has been fierce. I mean, I watched friends, dear friends of mine, just wind up close up shop, one by one, and the attrition in the number of funds. I mean, the funds, for example. So we're in the world of our little sandboxes, I suppose, called international, smid, what have you. I mean, people have chosen to categorize. It's just probably true. Now, the number of people who roll their international funds into global funds, you know, so as to, I mean, the global funds clearly, because lots of U.S., have done much better. And so, of course, you know, these funds are out of sight, and so they disappear. And so what I found, and a manifestation of that, is the last number of years, people had groused that there's nothing to do with the world of value. Oh, God, there's lots to do with the world of value. We find more and more and more things. So the last three, four years happened, I think, quite good, quite good. After 2020 and the craziness that went on in that year, post-2021 has been a very interesting period for us. All I can say is the availability of opportunities, and that's how I judge the environment. I mean, people judge the environment by looking at aggregate market statistics, aggregate market value issues, which I think are wildly misleading. The U.S. is highly overvalued. Fair enough. And the aggregate, yes. But there are pockets of value sitting inside it. So, I mean, you know, I will not dismiss the U.S. as a complete desert for value. The rest of the world is interesting. And you have episodes of unpleasantness, like the current one that we're going through, which is going to, I mean, if it continues and persists, we're going to have lots to do with the world. I was away from the U.S., parts of the world that are affected by the stuff that's going on in the Middle East, for example, and the fallout. There's a whole country that's running out of cooking fuel, India, for example. I mean, India is certainly under the gun right now. Does this mean there's going to be interesting things to do with it? Maybe. It's an unpleasant way of getting there. I really don't want to see people starving. It would be terrible. So opportunities are there, and I think we'll gradually proliferate, but in different areas over time. Amit, I want to thank you so much for joining us today and sharing your experience, your insights, and a unique perspective on all the myriad opportunities that exist. It just, I think, depends on your perspective and whether you're even looking for them or not these days. Well, to those who look with a curious eye, I think there's stuff out there. And the diminution of competition in the world of value, at least our end of the value tent, is actually kind of good. It's good. The field of opportunity is actually gradually expanding because of that. Well, Amit, thank you again for being here with Amy and I today. We really enjoyed the conversation. Thank you very much. This is much appreciated. Thanks again, Amit. Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts. You can follow me on social media at mstarbenjohnson on X or at benjohnson, cfa on LinkedIn. And at Amy Arnott on LinkedIn. George Castody is our engineer for the podcast. Jessica Bevel produces the show notes each week. And Jennifer Garrett copy edits our transcripts. 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