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Interview with Allan Mecham


ShaiDardashti
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I have a problem that I've been ragging on for a while.  My question for him is this:

 

Arlington Value has a large investment in Cimpress, which uses a not-insignificant amount of stock options as compensation.  How do you think about employee stock options in terms of determining true owner earnings and valuation?  Do you just assume maximum dilution at the plan level and ignore the year-to-year non-cash expense? Take it year-by-year as options are issued? Or something else? 

 

Thanks!

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I've been reading a lot of Cal Newport lately, and have had some good success interviewing value managers to learn about their process. I find specific process-oriented questions to be the most helpful way to lean and improve- "teach a man to fish," etc, etc.

 

Here are my suggestions:

 

Describe the process, begin to end of the last new investment you've made.

 

Describe your average day.

 

What made you think you were ready to go out on your own?

 

What is different about your approach that yields better results?

 

What has been the hardest period for you in terms of self-doubt/performance/the mental game?

 

How many hours per week do you work?

 

What do you do to relax?

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What are your thoughts on the more rapid than anticipated decrease in Outerwalls revenue numbers lately and does the decrease in stock price strengthen your initial investment thesis ie more stock buybacks for the stockholders. What metrics do you look at when guaging progress management is making with this investment.

 

Does the recent debt covenant disclosure from Distribution now alter your investment thesis on its ability to benefit from the cyclical downturn.

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I've been reading a lot of Cal Newport lately....

 

Here are my suggestions:

Describe the process, begin to end of the last new investment you've made.

Describe your average day.

What is different about your approach that yields better results?

What has been the hardest period for you in terms of self-doubt/performance/the mental game?

 

I always forget about Cal Newport but like rediscovering the blog.

 

These are my questions also. I always like hearing about peoples process from start to finish.

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As value investors we like to think that markets are inefficient, but occasionally we get proven wrong (such as investments in Overstock and SandRidge Energy), acknowledging our mistake is easy in the rear-view mirror but extremely difficult in real time.

What is your process of thinking when an investment quoted price goes against you ? does it affect your confidence in your investment ? and if an investment you made is performing poorly after a significant time frame (5+ years) but you still believe in the original thesis, what would you do ?

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What are your thoughts on SOTP value investing vs picking quality and letting it run. An investment in LUK is a bet on management but in terms kf quality of the franchises, well lately they have not been doing well. How does your thought process work for such situations.

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Do you have any advice on those who would like to enter money management from other fields?

 

How does one raise funds without a background in finance?

 

Do you have any productivity hacks? What is your daily schedule (be as specific as possible)?

 

What materials have helped you the most on your road to value investing?

 

Would also be interested to know his thoughts on the Outerwall investment (long-term economics, competitive advantage, etc.) - if you look at per-kiosk revenue (or even watch a kiosk in real-life), it should not shock an observer that the numbers don't look promising whatsoever.

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How in the world did he have the confidence to manage other peoples money without a college degree and only a year or two of finance experience? Why did he decide to do this rather than taking a more normal track? Even Buffett worked under graham for a number of years before his partnership.

 

As others have mentioned - how difficult was it to raise funds without a degree and as a 20-something? In other words, how did other gain confidence in him to manage their money?

 

How does he get comfortable investing in a "tech" stock like TRIP which tends to be faster evolving than most industries? Also would be interested to hear his thoughts on Malone. Also why he likes distributors (DNOW, MSM, CHEF)?

 

OUTR, as others have mentioned, whats the end game here? Why is this not a form of greater fool investing?

 

Whats his ultimate goal? does he want to keep managing money and have a $5 billion fund in 10 years  or would he rather get more involved in owning/operating businesses?

 

Look forward to reading it! thanks shai and allan!

 

 

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How does he deal with drawdowns? It seems currently he is in a large drawdown both in absolute and relative terms. Does he tend to stick to his ideas and even double down, or cut losses somehow (say even for tax purposes like Ackman did with VRX)?

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  • 2 weeks later...

If it's still possible to propose questions, few more:

 

- How much information to collect / DD to do outside company's own (and competitors') filings

- Does he always do full DCF (vs. IRR, market multiples, etc.)

- What is his method of position sizing

- How often does he track portfolio companies' progress towards thesis (i.e. quarterly, more often, etc.)

 

???

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Do you have any advice on those who would like to enter money management from other fields?

 

How does one raise funds without a background in finance?

 

Do you have any productivity hacks? What is your daily schedule (be as specific as possible)?

 

What materials have helped you the most on your road to value investing?

 

Would also be interested to know his thoughts on the Outerwall investment (long-term economics, competitive advantage, etc.) - if you look at per-kiosk revenue (or even watch a kiosk in real-life), it should not shock an observer that the numbers don't look promising whatsoever.

 

+1

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I got some questions:

 

1. In the last interview he publishes some of his book picks like Nudge, How we decide, etc. Can he give us some of his all-time more stock related books, which inspired him the most ?

2. On which multiples (DCF, EV/EBITDA, APV) he actually technically value his picks mostly and why ?

3. Does he got some target price after valuate a company or does he just find the stock "cheap" and sell them, if there is a better opportunity ?

 

Thank you for maybe picking my questions :)

 

 

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1.  Do you look at other manager's13F filings for ideas? If so, who?

 

2. How much time do you spend researching an idea before you are willing to invest?

 

3.  Are you always a passive investor or do you talk with management outside of the conversations/information available to all investors? (Some stakes approach 5-10% control of companies)

 

4. How do you see the relative value between documents like the 10K,10Q, proxy  statement, etc compared to earnings calls, presentations/events (webcast, slides) and shareholder letters?

 

5. 

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