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Wilbur Ross: Lessons from the IRE Saga ( 2014 Value Investing Conference)


phil_Buffett
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Thanks for sharing

interesting points

- perceived risks vs real risks

- better to come late into the game of turnarounds and get better data points

- deep value investing often needs a catalyst such as a buyout

- Prem waited 6 extra weeks for Wilbur to be able to sell his shares even though they had already received a high bid... Quite telling of Prem as a business partner :)

 

Gary

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Thanks for sharing

interesting points

- perceived risks vs real risks

- better to come late into the game of turnarounds and get better data points

- deep value investing often needs a catalyst such as a buyout

- Prem waited 6 extra weeks for Wilbur to be able to sell his shares even though they had already received a high bid... Quite telling of Prem as a business partner :)

 

Gary

 

interesting gary as you mentioned, wilbur said better to come late into the game. now with their next Investment Eurobank in greece they invested now. so iam very interested in it. ross didnt put as much as into bank of ireland (only 37mio) but still he invests. fairfax put in Eurobank 400mio.

 

i think greece will recover and Eurobank will be not the same as IRE but will also come back strong.

 

thoughts on this?

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i am no bank expert... many others on this board are

i have been lucky though to do reasonably okay with banks because they are generally the first to benefit when the macro environment starts to change -

it is less clear to me what they see in Greece....  Ireland is something I can easily understand: low tax rate; high tech (IT and pharma); and the exposure to the UK economy is also something I liked.  So even for an ordinary person like me without knowing all the nuts and bolts that Wilbur and Prem did - one could do well just like Band of America when the US economy turned.

 

Greece - what does it offer to the EU / world economy?  What is their competitive advantage? low tax?  I'm having a harder time seeing the rationale...

 

I should add David Einhorn added to Alpha Bank - another Greek bank -  so clearly they are seeing something.  I think it's probably just a bet on Greece return to 'normalcy' - so the comeback could be very strong; but probably not as such a home run as Ireland.

 

Gary

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i am no bank expert... many others on this board are

i have been lucky though to do reasonably okay with banks because they are generally the first to benefit when the macro environment starts to change -

it is less clear to me what they see in Greece....  Ireland is something I can easily understand: low tax rate; high tech (IT and pharma); and the exposure to the UK economy is also something I liked.  So even for an ordinary person like me without knowing all the nuts and bolts that Wilbur and Prem did - one could do well just like Band of America when the US economy turned.

 

Greece - what does it offer to the EU / world economy?  What is their competitive advantage? low tax?  I'm having a harder time seeing the rationale...

 

I should add David Einhorn added to Alpha Bank - another Greek bank -  so clearly they are seeing something.  I think it's probably just a bet on Greece return to 'normalcy' - so the comeback could be very strong; but probably not as such a home run as Ireland.

 

Gary

 

gary iam with you, and think it is a bet on greece return to normalcy. greece is not that great as ireland for example. still huge huge debt, completly false structure in the System, no good tax System and so on. but it was beaten so hard, so any Little step to a improvment will reward the stocks allot and especially then Eurobank here as a bank.

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Guest hellsten

Thanks. Very interesting to hear how he thinks and what happened behind the scenes with him, Prem, and IRE.

 

My random notes: 

Wilbur Ross' rate-of-return since 1997 ~44% per year.

 

A big bank in a small country is really a warrant on the local economy.

Blue pills come from Ireland :-*

 

It did not have the long-standing and systemic problems of the "club med" countries.

 

35% of pro-forma book value.

 

The questions then became management quality and a host of complex issues related to the organizational and capital structures of the bank.

 

Richie Voucher was the right man for the job.

 

The UK was almost half of the balance sheet.

 

It had the New Ireland Assurance company.

 

Avoid any further equity issuance until it could be done at a premium to book value.

 

The price was more than three times the original price…We sold a bit more than a third of our positions.

 

We sold because the appreciated market value of our positions had become too large relative to our respective portfolios.

 

This saga also reinforced several lessons we had learned earlier about distressed investing. First was that the more complex the situation, the less chance there is of competitors bidding up the price.… Second was our theory that you often get paid generously for perceived risk, but that you don't necessarily get paid for taking real risk. So we spent a lot of time figuring out which is which. Investors who just read the headlines without doing detailed analysis thought we were nuts going into IRE.

 

Plaque: I would rather back a mediocre idea that is brilliantly executed than a brilliant idea that is poorly executed.

 

Timing is everything…I'd rather get in a little bit later and pay for higher quality data points.

 

Plaque: Duration is the natural enemy of rate of return.

 

Plaque: Time = risk.

 

The key determinant of rate-of-return is how long it takes for the gap between value and price to close. If you look at a typical deep-value portfolio, the realizations tend to come most often from a 3rd party take over of the company, not from a change of market sentiment.

If not a takeover it maybe a stock buyback, a leveraged recap dividend, a spinoff of part of the business, a new management, some important event that shakes up the status quo.

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