Finding Opportunities For Net Nets
ValueWalk’s Raul Panganiban interviews Evan Bleker, founder of Net-Net Hunter, and author of “Benjamin Graham’s Net-Net Stock Strategy.” In this part, Evan discusses his finding opportunities for net-nets, his favorite books, his hobbies during the quarantine, and having a good investment strategy. See the full transcript.
Get The Full Warren Buffett Series in PDF
Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues
Q2 2020 hedge fund letters, conferences and more
Where Do You Find Opportunities For Net Nets?
I mean, I don’t understand the the preference people have for investing. Just in their home country. And I’m not just talking about Americans but you know, Canadians, I’m Canadian, British, you know, Australians, people in general have a preference for their own country, I guess called home bias but as soon as you stop and think for a bit, and you realise that you know, as a Canadian um, you know, Canada has very, very strong financial markets and strong rule of law. A lot of companies there.
Many of the best-known hedge fund managers in the U.S. also dabble in philanthropy through their own foundations. Bill Ackman is one of them through his Pershing Square Foundation, and we can get an idea for some of his hedge funds by looking at where his foundation invests its money. Funds owned by Pershing Square Read More
But, you know, the US is much bigger with strong rule of law. Australia is very similar to Canada, you start realising that there’s a significant amount of you go abroad. So I personally, I always look for stocks in a range of markets. I tend to stick to the first one say first world essay developed, developed markets with strong rules. of law. That’s what that’s where I like to fish. And I also like to look at markets that have that have declined a lot recently. So john templeton was a big fan of this. Basically, the cheaper the market, the more net nets are likely to surface in that market. The net nets also tend to be mostly found in larger markets. So by larger markets, I’m specifically referring to the number of companies in those markets. So you know, not surprising, Japan has been a huge source of net nets. Recently, the market, at least on a price to book basis has been incredibly cheap. And it’s also an enormous market. I mean, there’s tonnes and tonnes of companies there. So yeah, you’re gonna find a lot better opportunities when you go abroad.
What Are Your Favourite Books?
Oh, very good question. Um, I love the book Life of Pi. I think, you know, I read that book for, you know, it took me only a couple days to get through it at a time when I wasn’t really reading much I hadn’t really caught on to reading but it really really hooked me as a book. Yann Martel’s incredible writer. Also, I think the first book that really hooked me on reading was Z for Zachariah. I read that in high school. And I remember I remember picking the book for a class and thinking oh, great after read something else, waste time doing this bullshit. And then I got into it, I just couldn’t put it down. It was just so engaging. So those those are my two things fiction books in terms of investment books.
Obviously Security Analysis ranks well up there. I read the 1950 edition, I believe, twice and then I got the seventh edition with all the bonus commentary I’ve read that twice really studied those books really, really well. So if you’re a value investor and you haven’t read Security Analysis, especially one where there’s a lot of grammar in it, the later you don’t have as much of them in it. You owe it to yourself in order to Yeah, you really owe it to yourself to read it. Other investment books that I like I really like Peter Lynch’s books. If you don’t know much about qualitative analysis or you know, qualitative factors that might go into stock selection, One Up On Wall Street and Beating the Street are very, very good books in that respect. So I highly recommend those books as well.
What Are Your Hobbies?
Well quarantine hobbies include going crazy. Too much beer? No, no I’m I’m lucky enough to be in a role where we weren’t really hit by the pandemic is hard. So we really had it down self. your listeners probably remember that, you know, South Korea was one of the one of the countries that was hardest hit early.
But that really happened in southern Sydney. So we were lucky to escape most of that Solas in northern South Korea, so. So I’ve had a lot of good opportunity to go hiking. I love spending time hiking, Seoul has some great hiking trails. In around Seoul. If you’ve ever been to South Korea, you’ll realise that the country is basically just a giant mountain range. There’s mountains Everywhere. So that’s quite exceptional, especially if you if you’re living in a city and you don’t spend much time outdoors, I always find that as soon as I go out, you know to the trails spend time in nature. It’s really refreshing for the full. I guess I’m on record now. And then also jujitsu, Brazilian Jiu Jitsu.
I can’t say I’m good at it, but I like getting beaten up at the gym. That’s, there’s something really rewarding about, you know, going out and doing something physical like that. And it keeps you grounded. It keeps you humble, especially when you know there’s senior citizens that are half your size beating you up on a regular basis. I mean, that’s, it’s really incredible. If you haven’t looked into Brazilian Jiu Jitsu, definitely do it. It’s worth it. And then motorcycles. I love motorcycles. Though I ride one when I’m back in Canada, right a tribe, and I started a dirt bike site, mud bike.com. So yeah, those are those are my hobbies when I’m not picking stocks or changing diapers or you know, feeding the baby, so.
What Are Your Closing Thoughts?
Yeah, I’m not really sure what to say for closing thoughts. Nothing, nothing incredibly profound but I know that as a small investor, you definitely can beat the market if you pick a really good strategy that you think you can execute well on. I’m not necessarily saying to invest in net nets, obviously your own strategy is a personal it’s a personal call. Maybe you you don’t like net nets, maybe want to focus on earnings or whatever.
But when you’re assessing your strategy, have a strategy yours choice, make sure that you’re looking for one that has a lot of academic backing, that shows that it works don’t look just for the confirming evidence also look for evidence that it doesn’t work. And then I would say also look for evidence that people have been able to apply it successfully in practice. So I’ve tried to do that before I really committed wholeheartedly to net nets. I went out I looked at for as much academic studies that I could possibly find. I’ve read comments from you know, Buffett, Walter Schloss, Benjamin Graham, really trusted people who said that they use the strategy.
Well, I know Benjamin Graham, particularly in in 1976, said, you know, basically all you have to do is put together a portfolio of net nets and, and run the strategy in a mechanical way over the years. You’ll be able to Well, so yeah, definitely do your homework and then arrive at a strategy that you like, and you can use over the long term. And that you can, you can actually legitimately do with your skill and knowledge that you have. And then just stick to it.
One of the biggest, one of the biggest problems that retail investors have that I’ve, you know, found over the last seven years, is they just bounced from strategy to strategy to strategy, and that’s a recipe to get you nowhere. So if you really want to excel at investing, and stock picking, you really have to know the strategy, and you have to stick to it because you’re going to go through bouts of underperformance especially in value. If anybody’s been a value investor over the last 10 years, you know, I mean, there’s going to be periods of underperformance and you just have to weather those. Yeah. And then Guess the last thought I had, or I have is, when I started with net nets, I did something that was pretty boneheaded.
I ended up picking two or three stocks. And I had the, we’ll see how they will do over this year to whether I will continue with that nets or not. That’s probably one of the worst things you can do. Because, you know, if you’re investing in a diversified group of stocks, some of them are going to do well, some of them are not going to do well. And it’s really the average return of each one of your socks that counts.
So you needed to, you need to look at the portfolio as a whole in order to judge how you’ve done and you need a good number of instances in that portfolio in order to have I guess, a representative idea of how the portfolio will perform but you don’t just need a good number of stocks in your portfolio. You also need to run a portfolio over a number of years in order to get a sense of, you know, how the strategy will do. And, you know, obviously, if you’re picking a strategy, that is not an ideal way to go, because you don’t want to spend, you know, five or six years with all, you know, trying to assess a strategy before you, you adopt it.
And that’s why going back and doing the research, in terms of the studies and the commentary from trusted investors. That’s why that’s so valuable. So final thoughts.
Net nets investing in full transcript.