Understanding Michael Price’s Portfolio Management
Michael Price had a long and successful investment career. After earning his B.A. he accepted a job in Heine Securities in 1974. He became a full partner in 1982, and after Heine died in 1988 he took over as a chairman and a president. He was known for his value investing principles, but he wasn’t shy of adopting an activist stance if needed. Understanding Michael Price’s portfolio management demands a deep analysis of his career.
After his death, his firm, MFP Investors continued to work in a lower capacity. Their AUM went from $937 million in March 2023 to a current $10 million. In their portfolio are just two positions, S&W Seed Co and Trinity Place Holdings Inc.
Unlike most of the value investors Price didn’t care much for complex financial models. His strategy focused on a qualitative approach, and analysis of underlying business health. He was often included in Forbes 400 lists, but he kept downplaying his net worth. To better understand his career we will analyze his investment philosophy, how he handled risk, and some of his highs and lows.
Key Holdings
- S&W Seed Co (NASDAQ:SANW)
Price started investing in S&W Seed Co in 2015 when he bought a massive 2.47 million shares stake in the company. Until he died in 2022 he kept increasing the stake, raising it to 17.4 million shares. Most of the trades were at prices between $4 and $2. The current value of the stock plunged to $0.5. Total investment in this holding is valued at $59.1 million, while the current value is $8.27 million, generating a loss of 86%.
- Trinity Place Holdings Inc (NYSE:TPHS)
Trinity Place Holdings is following the same thread as the S&W Seed Co. holding. Massive investments starting in 2015 that were constant until Price’s death. The fund owns 9.23 million shares that cost $39 million. The present value of the holding is $1.34 million with a loss of 97%. The stock price went from $7 to current $0.14.
Sector Allocation
The whole portfolio is allocated in the Consumer Discretionary sector and is valued at $9.61 million.
Take A Look At Sectors UpClose: Should Consumer Discretionary Stocks Be an Investor Staple?:
Michael Price Investment Philosophy & Strategies
Risk Management Strategies
Like most value investors Michael Price used techniques that value investing offered to minimize potential losses. The first was the margin of safety. While buying below the intrinsic value of the stock, he would at the same time protect his investment. In case the stock would go down for a certain amount he would have a hedge of margin of safety.
His activist perspective would push him to make risky investments and bet on companies that are in trouble. He would infuse them with money needed to survive, but before that, he would conduct a thorough bottom-up analysis.
Price would check the fundamentals and decide if that risk is worth taking. Is the company capable of coming back after infusing new capital? That would include checking the economic characteristics of the company, its cash flow, and debt levels. The company needs to have a potential competitive advantage which would help it fight off the competition.
So, buying companies that have a potential for a return while trading at discount prices was Price’s best risk management technique.
Diversification Strategies
Michael Price was known for holding portfolios with over 100 holdings. Position sizing was a crucial part of his strategy, and he developed it while he was a mutual fund manager. He would aim for the biggest 5 holdings to take 5% of the portfolio each. The next 5 will follow with 3% of the portfolio, and the rest will go as high as 1%.
Michael Price Portfolio Performance Analysis
Historical Performance
When Michael Price’s career was on top he was managing four separate funds – Mutual Shares, Mutual Qualified, Mutual Discovery, and Mutual Beacon. The combined AUM of these funds came up to $16 billion.
In over a decade, the funds generated double-digit returns, often going over 15%. Mutual Shares, his pinnacle fund for over two decades came close to creating 20% annual returns.
Notable Failure
In the late 80s Price had stakes in several mergers. But, in the summer of 89, the Fed stopped credit for mergers and hostile tender offers. Stakes that he owned in mergers went down.
At that time he also had a big stake in Time Life. When Paramount made a solid offer to the company’s board which they turned down, that triggered a downturn for the company. After that decision, the value of the stock went from $180 to $80.
Notable Success
Price continued to manage Heine Securities after the death of Max Heine. He continued to generate solid returns for the shareholders but pushed for a merger with a Chemical Banking Corporation. Through this deal Price and his funds, he netted about $300 million.
The terms of the deal included that Franklin Templeton would pay Price $550 million in cash and 1.1 million Franklin common stocks for the Heine and the Mutual Series’ four funds. After the deal, Franklin shares soared from $2.125 to $59.625 generating a massive gain for Price.
Final Thoughts
Michael Price had a long and successful investment career that took different shapes during the decades. He at first worked in a mutual fund which helped him in defining his latter investment approach, and later as a value investor in a hedge fund.
But, besides being a portfolio manager he was known for his philanthropy activities. Throughout his life, he never forgot the University of Oklahoma, to which he donated tens of millions of dollars. He was also a loyal employee, and after the death of Max Heine, he was chosen as his successor, but he decided to keep the name Heine Securities.
His investment approach which combines value investing and activism is still a guide for many young managers who are looking to bring real and long-term value for both companies and their stakeholders.
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