Thursday, May 21, 2009

David Winters in OID

David Winters in the March 2009 edition of Outstanding Investor Digest:

Winters: So if you see a debt obligation that you might make 50% in as an arbitrage to reorganization, for example, and you look at a stock that you might make 1,000% in over time if you get lucky, I’d rather own the 10-bagger. And I think that’s the problem — that one’s really an arbitrage to reorganization, and the other one is ownership of a business that might pay off huge.

If you look at what happened in ’73-’74, you could have invested in a retailer called W.T. Grant, or even in the railroad reorganizations, and you’d have made good money. But if you’d purchased the equities of the best companies, you’d have become really rich.

Attendee: Some believe that a lot of money will be printed up and distributed wholesale throughout the world by the U.S., and that it may decrease the value of the dollar significantly. What are your thoughts about the possible devaluation of the dollar?

Winters: I think it’s part of the reason why you want to invest globally, and why you want to invest in companies that can raise their prices over time.

Very few people are talking about inflation right now. We’ve seen a big deflation. Every asset you can think of besides cash has gone down in value. Oil’s down by about two thirds since June. Housing prices are down. However, ultimately, printing all this money has to either result in an inflationary effect or a devaluation of the U.S. dollar.

That’s why we love countries like Switzerland — because the Swiss franc has actually appreciated over time. It’s a well run little country of 7.8 million people — and they have some of the best companies in the world.

            I mentioned Nestlé. But we also like Schindler — the elevator and escalator company. Roughly 50% to 70% of its business is maintenance and upgrades — with the balance consisting of selling new elevators.

Well, the world becomes more urban over time. And you have to maintain your elevators and escalators in order to have a safe building. Even if the service contract looks expensive, you pay the price. Can a building owner really say, “Tough — I’m not going to have safe elevators in my building?”

As an investor, you always have to think about what’s not happening. At the top of the market, nobody thinks about the market going down. Right now, you can’t find an optimist. And you can’t find anybody who thinks about the decline of the purchasing power of the dollar. Clearly, clothes are cheaper. Wal-Mart may lower their prices. And cars may be cheaper.

But for a lot of other things, the prices just go up. The prices of professional services go up. Plumbers aren’t lowering their prices. So you’ve got to think about it, diversify, and be in businesses that can capitalize on that over time.


Links to others in that same issue:

Seth Klarman in OID

Fairholme's Bruce Berkowitz and Charlie Fernandez in OID