Mario Gabelli is the value investor's value
Using a powerful value plus acatalyst stock-picking
methodology that has been described as "Benjamin Graham and David
Dodd plusWarren Buffett ," hisfund GAMCO has returned an average
return of nearly 12% ayear after fees for the past quarter of a
century. These solid and steady returns have made Gabelli a
Mario Gabelli's Biography
Born in 1942, Mario Gabelli is said to have bought his first
share ofstock at age 13. Having a passion for the stockmarket ,
he launched his own firm in 1977 as a broker-dealer. The company
has since expanded into a diversified financial management
company with more than $40 billion in assets.
Interestingly, Gabelli designed his business so that he does
not receive a salary, bonus orstock options . Rather, he is
compensated by a management fee structure. This pay method,
unique at the time, first landed him on the Forbes 400 list of
the wealthiest Americans in 2006. In 2011, Forbes estimated
hisnet worth at $1 billion.
Mario Gabelli'sInvesting Strategy And Big Wins
Gabelli's investing philosophy is built upon principles first
articulated in the book "Security Analysis" by Benjamin Graham
and David Dodd in 1934. Gabelli then adds Warren Buffett's ideas
about valuing a business and taking a large stake in portfolio
He uses a research-driven approach to investing, taking into
consideration trends inearnings per share andfree cash flow minus
the expenditures needed to expand the business.
Next he adds his own ideas of privatemarket value (PMV) and a
catalyst. PMV is the value an informed entrepreneur would pay to
purchase anasset with similar characteristics. It is determined
by a study of assets and liabilities (both on and off thebalance
sheet ) and free cash flow. He then compares these numbers with
actual transactions in similar businesses as a reality check. In
other words, he focuses on companies that appear to be bargains
relative to their PMV. This provides Gabelli withupside plus a
widemargin of safety .
After determining the stock isundervalued in relation to its
PMV, Gabelli looks for a pending catalyst to bring that value to
the surface. He advises that this catalyst can take many forms.
Examples would be a company or industry specific event, such as a
change in management, a spinoff, regulatory changes or
The goal of this research is to identify companies that have
the potential of 50% return over the next 24 months. Once a
particular stock reaches its PMV or if an expected catalyst fails
to occur, Gabelli sells thestocks . It's all part of a very
regimented process at GAMCO.
Gabelli's value-driven approach toinvestment doesn't lend
itself to big wins or big losses like those experienced by
speculators. The long-term consistency of returns surpassing his
self-imposed 10%benchmark is what has made thismoney manager
Mario Gabelli's Portfolio: What's He Holding Now?
GAMCO holds a total of nearly 800 stocks, with the portfolio's
three most heavilyweighted sectors being industrials,consumer
cyclical and consumer defensive. The fund added 41 new names in
the first quarter of 2013 and increased its position in 270
stocks. Here's a closer look at GAMCO's largest position increase
in this year's first quarter.
GAMCO's Largest First-Quarter Holdings
Gardner Denver (NYSE: GDI)
This engineered industrial machinery company boasts amarket cap
of just under $4 billion.Shares currently trade at just over $75;
the company has aprice-to-earnings ratio of 14.6 and a
price-to-sales ratio of 1.6. Gardner Denver has had average
annualrevenue growth of 12.6% over the past decade.
GAMCO increased its holdings in this company by nearly 3,400%
in the quarter, and the fund currently holds a bit more than 1
million shares, representing about 0.5% of its portfolio. Most
interestingly, Gardner Denver's management team increased its
holdings in the company by 35% in the latest quarter. This is due
to the fact thatprivate equity firm
KKR & Co. (
agreed to take over the firm for a reported $3.7 billion.
Obviously, this was the catalyst Gabelli looks for in his
value-driven stock picks.
Action to Take -->
Gabelli's research-driven value investing approach has proved to
be a powerful long-term investing method. Following in Gabelli's
footsteps by combining value investing principals with his PMV
concept and an expected catalystwill be certain to improve any
long-term investor'sbottom line .
Like most big-time money managers, Mario Gabelli
operatesmultiple funds . He is currentlybullish on housing,
fracking and commercial aviation. In addition to his pure
PMV/catalyst approach to investing, I find the premise to the
Gabelli Focus Five Fund (
) most intriguing, not to mention the simplest to replicate for
the savvy investor who wants to invest like Gabelli without
investing with Gabelli.
I think of the Focus Five Fund as a collection of high
conviction ideas from superstaranalysts filtered to represent the
Gabelli catalyst/PMV theme. The fund is managed by Dan Miller,
who launched the fund as an offshoot to a report in which Miller
surveyed top analysts and fund managers for their
highest-conviction ideas. The fund uses a similar universe of
stock picks then drills down, investing up to 50% of the fund's
assets into what Miller names as the top five stocks -- in other
words, the best of the best from the top analysts'
In order to help limit the number of stocks, Miller applies a
four-step process to the high-conviction stock group:
1. Miller has to have a personal interest in owning the
company in total
2. There must be clear communication between Miller and the
3. Shares must be trading at 30% to 50% discount tointrinsic
4. A catalyst to lift shares higher must be projected within
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