Before today, I never heard the name Brian Bares even though I follow value investing world closely. I came across this interview and thought it’s definitely worth sharing.
Brian Bares is the founder and CIO of Bares Capital Investment, a Austin based small/micro cap focused value money manager. He studied math and worked for a quantitative value investing shop before he started his own fund in 2000.
I’m impressed by his clear reasoning when addressing questions and the differentiating position he set for the firm by specializing in concentrated small/micro cap strategies.
- Bares had a Math degree and came from a quantitative (factor) investing background. This is very interesting to me because I had similar background and same interest in understanding businesses. Ideally, I would like to follow a similar path from quantitative value to deep value.
- Very concentrated position, holding about 10 names usually.
- Qualitative first, try to find gem firms with competitive advantage before they were reflected in the accounting numbers. They do on-site research and meet with management team extensively
- Clients are mostly long term focus non-profit endowments which enables the firm to keep the true long term investment style.
- Liquidity is the biggest challenge for small/micro cap strategies. He had to give back investors’ money and turn down new investments to keep the portfolio size small.
- Trading/implementation cost: It usually takes weeks to get in and out of a position. Not only to measure the implemented positions, also need to measure “implementation shortfall” which Bares used to refer to “missed opportunities”.
- About marketing and gaining institutional capital’s attention: “For small, young shop, you don’t have to have a period of great performance to market yourself to get institutional dollars. What the best institutional investors look for is a robust process and investment philosophy, as well as the ability to execute them as an organization. If you can prove your firm has repeatable investment edge, you can start market yourself.”
- Use 10% as a constant discount rate for DCF valuation.
- Books to recommend: 1) anything related to Buffet and Munger; 2) Business Biography (for understanding the common characteristics of great management) 3) As many annual report as possible; 4) Value Line
Thanks to The Manual of Ideas, check out the interview below: