Businessweek Interview with Larry Coats

BusinessWeek's Karyn McCormack met with Larry Coats in New York on Aug. 14, and they talked about how he's navigating the market storm. Like Warren Buffett, Larry Coats of Oak Value Fund sticks with companies that are understood and valued.

I highlight some insights from this interview :

  • Risk always gets mispriced. It becomes mispriced on the positive side, and then somewhere along the way it gets mispriced on the negative side. And therein lies the opportunity for people who are willing to take a long-term view.
  • We sell for one of three reasons. Either a stock reaches our price target, we have a change in the fundamentals—which is a nice way of saying our investment thesis was wrong—or we have a better opportunity.
  • We're attempting to buy a stock at 65¢ or 70¢ on the dollar, so a 30% to 35% discount.
  • We use a discounted cash-flow model, using an 8% discount rate. The magic in that sauce is not around the discount rate, it's around the terminal multiple that you put in the valuation equation. Because at the end of year five, you have to assign something as the present value of the future cash flow.
  • 3 basic principles of Benjamin Graham
    • One is if you're going to own equities, you should own them as businesses, recognize that they're not pieces of paper, and understand the business.
    • Two, always require a margin of safety.
    • And know what the business is worth—the valuation discipline is important.
  • People are selling things because they don't know what they're worth. This is a great time to be able to say: I know what this business is worth. It makes it a lot easier to sleep at night.
  • Worry is a wonderful thing. One of the interesting challenges is people become so overwhelmed by the emotion, and by the fear (of what, they don't know).
  • It's one thing to know what you don't know, but it's another thing when you realize how much you don't know.

Direct Link - Riding Out the Storm with Quality Stocks.

*You can also watch "MarketWatch Interview with Larry Coats (Video)".

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