Oct 4, 2019
Today’s conversation is with Jennifer Wallace, a wonderful
expositor to the main ideas of value investing, but also a very
deep thinker when it comes to the interaction of value investing
and the market at large. Jenny is the co-founder of Summit Street
Capital Management, where she is the portfolio manager of the US
equity value fund. She's also a Columbian through and through as
she holds a BA from Columbia College and an MBA from Columbia
Business School. Jenny is a member of the advisory board of the
Heilbrunn Center for Graham & Dodd Investing and a great mentor to
me.
While working towards her MBA, Jenny joined the first cohort of
students to take the value investing class offered by Bruce
Greenwald. After being introduced to value investing, it became
clear to Jenny that to be successful she needed to develop a skill
set that would allow her to assess businesses, independent of
conventional wisdom. To gain that perspective, she first went to
work for McKinsey & Company. After leaving McKinsey, Jenny worked
alongside investing legend Bob Bruce, before ultimately co-founding
her firm.
On this episode, Jenny and I discuss her studies at Columbia
Business School as a student in the first cohort of the value
investing class, her early career with value investing legends, how
Summit Street was started, how Jenny developed her investment
philosophy, her approach to data analysis, the impact of the growth
of the passive investing industry on active managers, and so much
more!
Key Topics:
- The events program for the Heilbrunn Center during the
2019/2020 academic year (1:03)
- Why you should sign up for the center’s email newsletter
(6:15)
- Jenny’s experience as a student in the first cohort of the
value investing class (8:26)
- The structure of the first value investing class (10:20)
- Why Jenny decided to work for McKinsey instead of in investing
(11:33)
- How Jenny’s background in psychology helps her as a value
investor (12:56)
- The impact of Jenny’s time at McKinsey (13:28)
- Summit Street’s investment philosophy (15:42)
- How business’ operational efficiency contributes to investors’
downside projection (16:37)
- Bob Bruce’s pitch to Jenny (17:23)
- The importance of being able to read financials and let the
numbers tell you a story (19:20)
- Bob Bruce’s advice on building up your knowledge about select
companies (21:12)
- The opportunities and crises in the late 1990s market
(22:25)
- The parallels between the investment landscape of the 1990s and
now (24:19)
- The qualities that Jenny believes sets value investors apart
from others (25:37)
- Why Jenny thinks being a good value investor starts with a
certain type of person (27:23)
- How Summit Street was launched (28:32)
- The evolving focus of Summit Street (29:13)
- Jenny’s approach to data analysis and searching for investment
ideas (32:47)
- Jenny’s perspective on the changing significance of classic
value metrics (34:41)
- How Jenny use cash flow as a valuation metric to avoid value
traps (37:29)
- Why you should focus on the numbers in assessing the management
team of a potential investment (42:26)
- “Every stock that we buy has something working against it”
(44:23)
- Why Jenny considers leverage and return on invested capital as
critical quality measurements (46:17)
- Summit Street’s qualitative and quantitative valuation
methodology (49:25)
- Summit Street’s research and evaluation process for potential
investments (52:53)
- Why models are so useful for testing your assumptions
(55:36)
- Jenny’s approach to exiting a position (58:59)
- The importance of using guardrails to force investment
discipline (1:02:35)
- Jenny’s opinion on the growth of passive investing and its
effect on the practice of value investing (1:05:29)
- Why Jenny believes that the fee race to the bottom for
exchange-traded fund (ETF) products are not necessarily good for
investors (1:09:25)
- The façade of diversity being offered by ETFs (1:10:45)
- The opportunities created by ETFs for active managers by ETFs
(1:16:11)
- And much more!
Mentioned in this Episode:
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