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smart woman securities

Value Investing: “Doing what comes [un]naturally” Andrew Weiss President and Chief Investment Officer Weiss Asset Management. smart woman securities. October 18, 2006.

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smart woman securities

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  1. Value Investing: “Doing what comes [un]naturally”Andrew WeissPresident and Chief Investment OfficerWeiss Asset Management smartwomansecurities October 18, 2006 This presentation is made only for informational and academic purpose. This presentation neither constitutes an offer to sell nor a solicitation to invest in any of the funds managed by Andrew Weiss (collectively, the “Funds”). Solicitations to invest in the Funds are made only by means of a confidential offering memorandum and in accordance with applicable securities laws. This presentation has been prepared from original sources and data and information contained in the presentation is believed to be reliable. No representations are made as to its accuracy or completeness.  An investment in the Funds involves a high degree of risk and is suitable only for sophisticated investors.  There is no assurance that either Fund continues to invest or will at any time in the future invest in any of the securities referenced herein.  Past performance is not indicative of future results and there is no guarantee that the Funds will meet their investment objectives or be profitable.

  2. Rules for Daily Life vs. Logic Driven Analysis Rules for Daily Life Logic Driven Analysis VS

  3. Rules for Daily Life vs. Logic Driven Analysis Rules for Daily Living Logic Driven Analysis VS

  4. Rules for Daily Life vs. Logic Driven Analysis Rules for Daily Living Logic Driven Analysis VS “In the fight between you and the world, back the world.” – Kafka

  5. Rules for Daily Life vs. Logic Driven Analysis Rules for Daily Living Logic Driven Analysis VS

  6. Rules for Daily Life vs. Logic Driven Analysis Rules for Daily Living Logic Driven Analysis VS

  7. Aren’t you on the team?!

  8. Value Investing Is Psychologically Difficult Uncertainty Aversion RiskAversion VS

  9. Value Investing Is Psychologically Difficult Logic Driven Analysis Slogans VS

  10. Value Investing Is Irreligious Slogans Logic VS

  11. Value Investing Is Psychologically Difficult Logic Driven Analysis Predisposition VS

  12. Disciplined Analysis is Emotionally Stressful Market Discipline Predispositions VS

  13. “All human errors are impatience, a premature breaking off of methodical procedure…” -Kafka Evolutionary Success Investment Success VS

  14. “If, after the first twenty minutes, you don't know who the sucker at the table is, it's you.”  ~Author Unknown Rational Skepticism Evolutionary Success VS

  15. Our Evolutionary Legacy Learning Patterns Inventing Patterns VS

  16. Our Evolutionary Legacy Pre-literate Analysis Quantitative Analysis VS

  17. Our Evolutionary Legacy Our Evolutionary Legacy Rational Skepticism VS

  18. Our Evolutionary Legacy Pre-numeracy rules of thumb Quantitative Analysis VS

  19. Russia: high risk, long term investment • In 1996, entire Russian stock market was valued at less than Home Depot. • Funds had fixed expiration dates, some owned domestic shares of Gasprom which were priced at fraction of ADRs.

  20. Kazakhstan: moderate risk, long term investment • Price of Kazakhstan Fd. crashed after Russia crisis. • Bought KIF for less than cash. • Cancelled shareholder obligation to put up more money –returned cash; cost basis near zero. • Sold assets cut expenses and returned more cash. • Remaining asset: $13 million of cash • Possible lawsuit against previous investment manager • We own 68% of the shares.

  21. Vietnam: moderate risk, long term investment • Bought Beta Vietnam Fund for less than cash and less than 30% of our valuation of the net worth. • Gained majority control, replaced management, distributed cash, sold assets.

  22. China B Shares: moderate risk, short/medium term investment. • China B shares were selling for less than ½ price of identical A shares. • Senior advisor said domestic investors should be allowed to buy the B shares. • China B share investment trust redeemable monthly, traded at discount to B shares, bought and redeemed repeatedly. • B and A share prices converged.

  23. Taiwan Fund: low/moderate risk, short term investment • Redeemable index tracker fund, one week of market risk. • Shares priced at midpoint between today's and yesterdays close. • Brokers were given limited allocations. • Established relationships, bought $14 million at 2+% discount with one week of market risk – could hedge with future contract.

  24. Thailand: moderate risk, medium term investment • Thai domestic funds with fixed wind-up dates, large annualized excess returns, illiquid. • Placed orders every day for roughly 30 funds at discounts generating 20+% excess returns.

  25. Turkey: short/long arbitrage • Bought Turkey Growth Fund in Luxembourg at 17% discount, shorted Turkey Fund in U.S. at 75% premium. • Closed position when spread narrowed to 35%.

  26. Macro-Economics and Fundamentals • 1993-4 Philippines trading at 16 times earnings with no electricity and barges with gas generators sitting in Manila harbor – first stock tip when I spoke to this class. • 1989-90 German re-unification, German stock market boomed, Germany fund traded at 50+% premium –short.

  27. Macro-Economics and Fundamentals • 1993-4 Philippines trading at 16 times earnings with no electricity and barges with gas generators sitting in Manila harbor – first stock tip when I spoke to this class. • 1989-90 German re-unification, German stock market boomed, Germany fund traded at 50+% premium –short.

  28. The Other Side Why Others Don’t Do What We Do

  29. Why other investors don’t buy what we buy

  30. Value Investing Can Hurt

  31. Value Investing Can Hurt

  32. Hard to Attract Investors • Institutional Investors Rely on “Signals” Investors fear unfamiliar names • Kazakhstan Investment Fund • Beta Vietnam Fund • Ukraine Fund • ICP-SEMF Pakistan

  33. Value Investing is “Hard Work” • Uncertainty about amount and entitlement to undistributed revenue: prospectus may conflict with Articles of Assoc. • Option value: effectively zero preference shares have written a long dated call to the ordinary shares • Value voting rights The board can reallocate expenses, change dividends, repay bank debt, change portfolio allocation. • Positive spillovers from real value of splits being realized. • Difficult to compute optimal hedge.

  34. Choose Your Battles • Invest in under researched markets – avoid competing against Goldman Sachs. • Gain sufficient expertise and develop contacts with market participants so that competitors suffer seriously from winner’s curse.

  35. Shareholder Activism • Do Well by Doing Good. • Replace Boards of Directors • Speak at conferences, write articles, give interviews. • Litigate when necessary – establishes reputation for fighting for investors. • Negotiate early liquidations

  36. Results from Analytical Approach No losing years for diversified funds since inception in 1992. Alpha approximately 20% Gross Return since reorganization in 2002: 52% in 2003, 42% in 2004. Market risk was fully hedged.

  37. Q&A

  38. Market Returns Popular Stocks Excess Profits

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