You are hereSteve Forbes interviews mutual fund manager John Osterweis
Steve Forbes interviews mutual fund manager John Osterweis
Guys, here is a great interview. Looks like Steve Forbes is jumping into the value investors interview business.
From what I read in the tea leaves, John Osterweis' approach has a few points quite similar to Zenway Value-growth Investing. Cheers!
Osterweis: What we try to do instead is identify specific companies that maybe trading is of value stocks because they're troubled. They've disappointed, or whatever, but where there is some kind of catalyst that will get the company back on track and actually growing again. And so, the trick for us is to try to find that inflection point between value and growth. And so, we were buying value cheap. And then hopefully, the company turns the corner, turns back into a growth stock, and then the value goes up, as well.
There are a lot of different ways this can happen. One is a company could emerge from bankruptcy with new management, a cleaned-up balance sheet, and all of a sudden instead of being troubled, it's ready to go again.
The key metric is free cash flow.
Forbes: Which you define as?
Osterweis: As earnings after tax, add-back depreciation, subtract out maintenance CAPEX. And then if we want to get really strict if we're looking at a very leveraged company, we also subtract out required debt service, principal repayment. Because one of the big traps in looking at just free cash flow, if you're dealing with a leveraged company, is that that free cash really isn't free. It must go to debt repayment.
And do you also like to look at capital adequacy spending? How do you size that up if a company is doing right or doing too much or too little?
Osterweis: We look at it. And we judge it we try to figure out what maintenance CAPEX is, and then look at growth CAPEX on top of that.
Forbes: Now, you knew Roy Neuberger? Or Neuberger-Berman?
Forbes: And one of the things about Roy Neuberger was he just loved to trade. What did you learn from that, both how he picked stocks and why he just didn't churn. He just loved to go in and out, in and out, in and out.
Osterweis: He loved to trade. He was an inveterate tape reader. And he was a great trader. But his instincts--I'm not a trader; I'm a long-term investor--but his instincts of buying really good, solid companies when they get hit, and selling them when they go up, if you use a slightly different time frame, is the same process we use. We're looking for good companies that are out of favor selling cheap when they move back up. We use a much longer time period. But it's the same discipline.
Forbes: So, his approach was not dependent on patterns always repeating themselves?
Osterweis: In some cases, these would be patterns that would repeat over and over again. I once watched him double his money in free trades in a very sleepy company called Crown Zellerbach, which was probably the sleepiest of the Forest products companies.
Forbes: So, he knew in a certain range of buy and then sell?