(6,000 Words) Klarman Cub David Abrams On Value Investing In Ben Graham’s Times Vs Today- Punch Card Conference

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David Abrams, a Seth Klarman Protege and the managing partner of Abrams Capital, from the 2018 Punch Card Conference, held on the December 7th.

Q3 hedge fund letters, conference, scoops etc

I appreciate everybody being here. We’re talking about the investment landscape; a lot of people would like to refer back to Graham and whatnot. I think one of the important things to remember always is that the world as we know changes really dramatically, both what’s going on in the economy with businesses, there are the markets. Graham is famous for buying nets and that was after the crash and a decade of a depression in this country, that’s just completely a different environment than has existed for a very long period of time.

To go and use the exact same approach that somebody did back in 1952 I think is really a flawed approach. I think that the basic ideas are good, which is to think about risk and downside. When we do a very wide range of things, for those of you who don’t know me, we buy debt, we buy equity, we buy distress, we buy non-distress. We’re primarily bond only. We do public and we do private. If you do get into the actual portfolio, it’s actually really an eclectic wide swath of assets and companies that we own. Then people say, “Well, how do you do that?” The answer is, the very first question that we’re always trying to address is, what is the risk of any given asset or security.

Then sometimes you’ll find assets where things go badly, you’ll lose 80 – 100 percent of your money. Other cases, you’ll get back maybe 100 percent of your money or 75 percent of your money. Then sometimes there actually are cases where you can find things where even in the worst case, you’re going to make some money, if you think about a paying bond, that makes all of its payments, you’ll make money no matter what, regardless of what that bond trades in the interim before we churn it. I think that a lot of conferences, I think part of when you raise a question to me of how has the investment landscape changed over the years, I think that a lot of times people in investing are always looking for a short easy solution, a black box, a formula or something like that, so that they don’t really have to think about the world. I think that that search is really flawed.