David Iben (Kopernik Global Investors): Why are you investing globally?
- David Iben had about a third of the Kopernik portfolio in emerging markets (2019).
- Less than 10% of the portfolio was in the United States, where he saw the highest prices ever (2019).
- The approved list held over 100 companies, the portfolio about 70 (2019).
- A turnover of 25% means holdings turn about every four years, he says (2019).
- In 2002/03 and 2008/09, turnover was closer to 100% as Kopernik’s team bought stocks that had fallen 80 or 90%.
Why does David Iben invest globally?
TL;DR: Markets are not efficient. Kopernik looks at all countries, sectors and market caps and had a third in emerging markets (2019).
Inefficient markets and a bigger opportunity set
Tilman Versch [00:00:07] So Dave, welcome back to the interview. We trust that we want to discuss your global focus. You’re a global investor. Why are you that?
They can become very irrational from time to time, and that gives us the opportunity to find bargains. We wait for the market to make mistakes. Now, it’s not easy looking for those mistakes. So the greater the opportunities the more likely we will be able to take advantage of the mistake.
So why not look at the whole world? Why not look at all the market caps? So that’s what we’ve done. We’ve maximized our opportunity set. So all countries, all regions, all industries, all sectors, all market caps. And usually, there’s one of those things that the market is skittish about, and that’s where we can buy really good companies at bargain prices.
Any country, at the right discount
Tilman Versch [00:01:18] Do you say that you don’t invest in certain countries, or are you doing all the countries?
Good prices in Korea, Russia and emerging markets
Tilman Versch [00:01:45] Do you like a certain market at the moment especially?
They’re willing to give us good prices in Ukraine and here and there and China and places like that, emerging markets in general. So we don’t try to have a preconceived notion or where we just, you know, our utility analysts will say, I’m finding a bargain here in our phone company and also say I’m finding a bargain there, railroads will find somewhere else.
And then we find from the bottom up that we right now have a third of our portfolio in emerging markets, and we have, well, less than 10% of our portfolio in the United States. Now, we love the United States, but the market really, really loves the United States. And so they’re paying the highest prices ever.
So we’re finding a way better, you know, risk-reward scenarios elsewhere, especially in emerging markets and especially in Canada. Canada right now has a lot of those companies that I talked about earlier with gold mining and with uranium mining in special situations.
How does Kopernik pick and trade its companies?
TL;DR: An industry template first, then a risk-adjusted price. Over 100 approved names, about 70 holdings and about 25% turnover (2019).
An industry template, then a risk-adjusted price
Tilman Versch [00:03:13] What qualities do you look for in certain companies?
If somebody starts making money or supply flooding in, or are there barriers that keep it out? Then we say, what is the winner likely to look like? Is this an industry where it makes sense to borrow money, such as a hydroelectric dam? Or is it an industry where borrowing money is often the kiss of death like technology?
And so we’ll say, is the balance sheet appropriate for the business? We’ll say, how good is the management team and also how important is the management team? If we were to own Nestles, which we don’t own right now, we would consider management to be partly important?
But it’s such a great franchise they have that an average manager could do. Okay, where we look at smaller companies or turnaround situations or highly leveraged situations, then will say management is very, very important. And so once we’ve looked at all those key variables, we identify the companies that we want to be long-term owners of.
Now, once we’ve identified that, then we say, how are we going to value this? We look at a lot of metrics are we value add on replacement value or liquidation value or book value or earnings and come up with our price. We risk adjusting that price based on the things we talked about, what we think about the industry, and the geopolitics if it’s gone through all that and we still like it. It gets on to our approved list.
If it is not going through that, it cannot be bought into anybody’s portfolio. Once it’s in the portfolio, then we say, how cheap is it relative to what we think their risk-adjusted prices and we put it in an appropriate position.
Over 100 approved names and about 70 holdings
Tilman Versch [00:05:24] How many companies am I currently watching or on your watch list?
Low turnover with many small trims and adds
Tilman Versch [00:05:41] And how big is the turnover of a company? Do you have certain holdings you have from the beginning of your funds in there?
Another thing is we seldom buy a company and then sell it. We’ll say, let’s say a company is worth 30 in our mind and we could buy it at 20. We don’t buy it at 20 and sell it at 30. We buy a couple of present positions at 20, the stock goes up to 23. We’re going to take it down to one and a half percent, 25 or six, we’ll take it down to 1%, drop to 17, we’ll take it to two and a half.
So lots of little trims and adds. So that’s another important and then a last important point. Times like 2002 and ’03 and 2008 and ’09, when the market was just horribly volatile. That was a wonderful thing, very a value of manager, of an active manager. So our turnover, both of those periods were closer to 100%. We were able to buy a bunch of growth stocks after they fell 80 or 90%. We were happy to do that. So turnover depends on opportunity.
How do trading and momentum affect returns?
TL;DR: Trims and adds add return. Momentum markets like 1999 hurt, while 2000 to 2002 and 2016 were great years (2019).
Trading volatility adds a lot of return
Tilman Versch [00:07:05] Does this trading at return?
Our gold stocks have gone up or our energy stocks have gone down. So we’re not perfect. But we’ve, I think, done we’ve done better in emerging markets than the emerging market indices. Better in gold than the gold indices. So if you’ve got stocks that are fluctuating up and down, I don’t know why people consider that risk. That is opportunity. So we have definitely added a lot of value.
Momentum markets hurt more than growth markets
Tilman Versch [00:07:56] How is your performance linked to the performance of Value versus Growth?
He sees a great time ahead for value
Tilman Versch [00:08:53] Do you have something to add?
Where does David Iben see opportunities?
TL;DR: The US looked way overvalued, Europe and Japan interesting, and emerging markets and Canada very cheap at single-digit P/Es (2019).
Europe and Japan interesting, the US way overvalued
Tilman Versch [00:09:20] Do you see opportunities in Europe?
Tilman Versch [00:09:39] Emerging markets in Canada?
Lots of tech in 2002 and 2009, little now
Tilman Versch [00:10:07] Do you also do tech?
Tilman Versch [00:10:22] Thank you very much for the interesting interview.
