With Preston Athey at the Baltimore CFA Society

I don’t think I have mentioned this publicly, but I am on the board of the the Baltimore CFA Society.  My main task is to be co-chair for Programs, though I also like working with college students via the CFA Institute’s Global investment Research Challenge.

In general, I help where I am asked to help.  The two times that I have been on the board of the Baltimore CFA Society, I joined because I was asked.  I don’t need to lead.  I am very happy to not lead, except when things are confused, and no one is leading.

One of the fun things about being on the program committee is that you get to interact with a bunch of interesting potential speakers, some of whom turn you down, and others that accept the invitation.

And so it was my great pleasure to introduce Preston Athey (AY-thee), to speak to the Baltimore CFA Society.  He manages the T. Rowe Price Small Cap Value Fund.  That fund has 4 stars from Morningstar over 3 and 5 years, and 5 stars over 10 years.  It has other awards from Money Magazine and Kiplinger’s, and I’m pretty certain a number of others.

When he sat down at our table, prior to the talk, we talked about finding good companies in bad industries, which is a concept near and dear to me.  So he asked us what industries are hated now?  I volunteered shipping and coal, and later mentioned steel.

I then introduced him to the Society, and he gave his talk.  He highlighted four things:

  1. The CFA Institute has capitulated to the academics who teach the nonsense of the CAPM.  Volatility is not risk.  Risk is the permanent impairment of capital.  (I commented that when the economics profession went mathematical in the ’40s and ’50s, they felt everything had to be quantified, whether it was correct or not, and that anything that made the math simple was a boon to being able to publish “research.”
  2. The companies that actually do buybacks, as opposed to merely announcing them, do very well, and that is intensified for those that buy back stock at high free cash flow yields.
  3. Lower turnover in mutual funds tends to lead to better performance.  He attributed it to having more conviction in the companies that you buy.  His turnover rate is 10%, and half of that is due to buyouts.
  4. As a result, he talked about letting your winners run, though he also mentioned trimming positions to reduce risk.  That is similar to what I do.

He also mentioned how new management with a company that has gone nowhere can produce large returns.  Analyzing the nature of the new management is necessary — their past track record, current incentives, etc.  During the Q&A, he handled a number of questions — one that stuck out to me was industries where there are non-economic competitors.  I think of Chinese steel companies as an example that has finally failed.  The world does not need that much steel, even at current prices.

Aside from that, he was a Gentleman, as a few informed me he would be… a really nice guy.  Wish I had gotten to know him earlier.

Now if you want to know more about him, I have some articles here:

We had a great time with Preston Athey today, and for those that hung around thereafter, he answered many more questions.  Truly generous with his time, and gracious.