Benjamin Graham, the godfather of value investing, has helped many of his disciples create outsized wealth. As of 2015, his most well-known follower, Warren Buffett, is the world's third richest man with a net worth of more than $72 billion. The concept behind the value investing philosophy is simple: investors can realize tremendous gains by purchasing securities that trade well below their intrinsic value. In his books "Security Analysis" (1934) and "The Intelligent Investor," (1949) Graham explained to investors that, "a stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price." (For more, see The Intelligent Investor: Benjamin Graham.)
Although Buffett has received a large amount of attention for his ability to flawlessly execute the value investing philosophy, he is not the only investor who has benefited tremendously from adopting Graham's approach to investing. Below are five value investors that aren't very well-known despite having an impeccable track record for beating the market year after year.
Michael Lee-Chin is a remarkable value-investor whose mantra is “buy, hold and prosper”. Born in 1951 to a teenage mother in Jamaica, Michael Lee-Chin is one of Canada’s most benevolent billionaires. After finishing high school, Lee-Chin migrated to Canada to further his education in engineering. He entered the financial sector at the age of 26 with a job as a mutual fund salesperson. As Lee-Chin went door-to-door trying to convince households to purchase mutual funds, he developed an obsession for wealth creation. His goal was to discover an invariable wealth creation formula that he could use to make clients wealthy.
Years later he found that formula and codified it into five characteristics shared among wealthy investors:
- They own a concentrated portfolio of high-quality businesses.
- They understand the businesses in their portfolio.
- They use other people’s money prudently to create their wealth.
- They ensure that their businesses are in industries with strong, long-term growth.
- They hold their businesses for the long run.
Armed with those five laws, Lee-Chin borrowed half a million dollars and invested it in only one company. Four years later, the value of his shares increased sevenfold. He sold those shares and used the profit to acquire a small mutual fund company that he grew from $800,000 in assets under management to more than $15 billion before he sold the company to Manulife Financial (MFC).
Today Lee-Chin is the Chairman of Portland Holdings, a company that owns a diverse collection of business throughout the Caribbean and North America.
With very little marketing and fundraising campaigns, David Abrams has built a hedge fund with well over $8 billion worth of assets under management. As the head of Boston-based Abrams Capital Management, Abrams has been able to perform better than 97% of hedge fund managers by realizing an annualized net return of 19% for investors. According to HedgeFund Intelligence, this track record is almost unheard of for such a large fund.
A look into Abrams Capital's most recent SEC Form 13-F filing reveals that the firm holds a very concentrated portfolio with very large stakes in each of its holdings. Two of Abrams’s large holdings are a 5.4% stake in MoneyGram International Inc. (MGI) and just under 4% of the outstanding shares for The Western Union Co. (WU).
Well-known for spending more than $650,000 for the opportunity to have lunch with Warren Buffett, Mohnish Pabrai follows the value investing dogma to the tee. According to Forbes, Pabari “has no interest in a company that looks ten percent undervalued. He is angling to make five times his money in a few years. If he doesn’t think the opportunity is blindingly obvious, he passes.”
After selling his IT business for more than $20 million in 1999, Pabrai launched Pabrai Investment Funds, an investment firm that was modeled after Buffett’s investment partnerships. His “heads I win, tails I don’t lose much” approach to investing is obviously working. Between 2000 and 2013 Pabrai has been able to realize a cumulative return of more than 500% for investors. To date, Pabrai Investment Funds manages more than $500 million in assets.
Allan Mecham is not your typical hedge fund manager. He is a college dropout and lives in a small town in Utah, far from Wall Street. With nearly $700 million in assets under management, Mecham executes a value investing strategy for his clients. He makes about one or two trades a year, holds anywhere from six to twelve stocks in his portfolio and spends most of his time reading annual reports of companies. In 2013, it was reported that investors who invested with Mecham a decade ago would have increased their capital by 400%.
As head of the asset management division for Markel Corporation (MKL), a reinsurance business that has a similar business model to Berkshire Hathaway (BRK-A), Tom Gayner is in charge of investing Markel's float. The float is the funds provided by policyholders that are held prior to Markel’s insurance subsidies make claim payments.
Since its IPO, Markel has increased its book value by 20% each year. On top of that, Gayner has outperformed the S&P 500 by several hundred basis points every year. His strategy is to allocate funds into a concentrated portfolio of businesses that are undervalued by the market.
The Bottom Line
Warren Buffett is not the only value investor that the market has rewarded. There have been many investors who have benefited greatly from faithfully executing Benjamin Graham’s strategy of selecting stocks that trade for less than their intrinsic values.