Tuesday, August 12, 2014

Mario Gabelli: "Activism - New Catalyst to Surface Value... Good or Bad?" - Notes

I attended an enjoyable luncheon today titled "Activism - New Catalyst to Surface Value... Good or Bad" with Mario Gabelli, Founder, CEO, and PM for the value strategies at GAMCO (GBL), he's as talented of a speaker as he is a value investor.  Here are some short form notes I took and wanted to document:

  • Gabelli manages the Gabelli Asset Fund, a $3.8 billion dollar five star fund with an amazingly low 6% turnover ratio, he mentioned several names that he's held for over 20 years
  • He's a believer in "POSP" or Plain Old Stock Picking, he researches one stock, one industry at a time and doesn't spend a lot of time worrying about economic indicators (showed a cartoon of an analyst flipping a coin) or overvalued sectors like biotech or social media - I particularly liked this point and its how I try to approach investing, it's fun to discuss where we are in the economic cycle, but I don't think there are many people smart enough to consistently exploit it
  • Shareholders own the company; think like an owner
  • In 1988, he posted a "Magna Carta of Shareholder Rights" and still stands by it today:

  • He's fiercely against poison pills and actively works to remove them, compared the poison pill to the Berlin Wall and management trying to keep the shareholders out, entrenching themselves
  • Wants short sellers to disclose their holdings, same with distressed debt buyers attempting to gain control of a company going through a restructuring
  • He looks for companies trading below private market value that have a catalyst in place to close the gap, he's recently added activism to his list of potential catalysts alongside (1) regulatory changes; (2) industry consolidation; (3) death of founder; (4) stock repurchases; (5) sale of a division; and (6) management or capital succession
  • Activism is a net benefit to shareholders
  • Large inflows in recent years at activist funds, lots of OPM (Other People's Money) to play with
  • Be aware of activist fund intentions, the 2&20 fee structure encourages activism, need for a big quick win, good for publicity to raise assets
  • Lots of special situations as a result of activism (spinoffs, splitoffs, mergers, and liquidations), went through a few local Chicago examples like Fortune Brands and Kraft
  • During the Q&A he dropped a quick stock pitch for GATX Corporation (GATX), a railcar lease company that should earn 12 or 13% CAGR over the next decade
  • Also likes content and media companies, been on TV recently discussing Twenty-First Century Fox (FOXA) and others
He's an active alumnus of the Columbia Business School (interviewed in the Fall '11 copy of Graham and Doddsville), good to get a little Dodd/Graham philosophy reminder every now and then.


  1. Nice post,

    Why would Gabelli be for Golden Parachutes? Wouldn't you argue that you probably have a negligent board who gives away too much when they allow Golden Parachutes? Also this just pushes the CEO to settle with any acquiring party at any price as he would be compensated greatly?

    1. Nice catch, I noticed that too.. unfortunately, it went a bit long and questions were more about current valuations and specific M&A deals. Looked further on his website and he gave this explanation:

      "Why? Because we want management to think about harvesting for us and not worry about the next job."

      Could be because he's highly compensation at GAMCO? But he did write this in 1988, long before he took his firm public in 1999.