Yesterday we wrote about the 1989 Fortune article titled “The New Warren Buffetts”, which identified the best young investors at the time. The article included the names of what seemed to be unknown and obscured investors at the time. However, today they are among the best investors around. Investors highlighted in the article included value investing luminary Seth Klarman, hedge fund manager Eddie Lampert, and TV personality Jim Cramer.
Today, we identify the most promising young investors (under 45). This new generation of investors never had a chance to personally meet or study under Ben Graham, but some have been lucky to work with some of Graham’s former students. In other words, the investors we highlight today may be considered Graham’s grandchildren, but they are not necessarily dogmatic Grahamites. Some of them may not even see themselves as value investors, but they do follow two fundamental principles of value investing:
1) Stocks are not just moving tickers; they are businesses whose fundamentals have an impact in long-term stock performance.
2) Great investments are those purchased at bargain prices relative to their true worth.
This group is smart and confident enough to ignore short-term market fluctuations for the sake of long-term return. A lot of them already enjoy great success, but for one reason or another they may not be well-known outside the investing circles. Some will fail. But the odds are that, just as those highlighted in the original 1989 Fortune article, a few will go on to investing fame, and most likely lead their clients to great fortunes. Our picks are:
David Einhorn, 39, Greenlight Capital
Einhorn, a soft-spoken poker guru, is President of Greenlight Capital, a “long-short value-oriented hedge fund”, which he began with $1 million in 1996. Greenlight has historically generated greater than 25% annualized net return for partners and investors. Einhorn is also the Chairman of Greenlight Capital RE, Ltd, a Cayman Islands-based reinsurance company and one of its major shareholders.
He has been a critic of investment-banking practices, saying they are incentivized to maximize employee compensation. He cites the statistic that investment banks pay out 50 percent of revenues as compensation, and higher leverage means more revenues, making this model inherently risky.
In May 2002, Einhorn made a speech about a mid-cap financial company called Allied Capital, and recommended shorting it. The stock opened down 20% the next day. Starting July 2007, Einhorn became a short seller in Lehman stock. He believed that Lehman was under-capitalized, and had massive exposures to CDOs that were not written down properly. He also claimed that they used dubious accounting practices in their financial filings.
In May 2008, Lehman CFO Callan had a private call with Einhorn and his analysts to give Callan a chance to explain discrepancies Einhorn had uncovered between the firm’s latest financial filing and what had been discussed during its conference call about that filing. Ms. Callan is said to have fumbled some of her responses to questions on Lehman’s asset valuations. When Einhorn went public with the conversation, the declining Lehman share price took a further knock and Callan was fired a few weeks later. Lehman went bankrupt in September 2008.
Einhorn is a graduate of Cornell University, where he graduated summa cum laude with a BA in Government. He currently serves on the board of the Michael J. Fox Foundation.
Paul D. Sonkin, 39, Hummingbird Value Funds
Paul D. Sonkin has served as the Chief Investment Officer to Hummingbird Value Fund, L.P., a Delaware limited partnership, since its inception in December 1999. The fund has achieved a 17% annual return since inception. Mr. Sonkin also serves as an adjunct professor at Columbia University Graduate School of Business, where he teaches courses on securities analysis and value investing. From May 1998 to May 1999, Mr. Sonkin was a senior analyst at First Manhattan & Co., a firm that specializes in mid and large cap value investing. From May 1995 to May 1998 Mr. Sonkin was an analyst and portfolio manager at Royce & Associates, which practices small and micro cap value investing.
Mr. Sonkin was the youngest investor profiled in the book “Value Investing: from Graham to Buffett and Beyond” written by his former professor at Columbia Business School Brunce Greenwald.
According to Greenwald, Paul Sonkin isn’t going to impress anyone at cocktail parties by discussing the companies he owns. He would probably impress with his returns, however.
Sonkin finds value in small-caps and micro-caps: companies so small, that value can often be found for one of several reasons:
1) Many funds can’t own them
2) Fewer analysts following the company
Sonkin often indicates that he likes small companies because they are easier to understand. Their business models are far simpler, and thus value can be found without having to understand several lines of business or complex financial statements.
Whitney Tilson, 42, T2 Capital Partners
Whitney Tilson is the founder and Managing Partner of T2 Partners LLC, a $100 million hedge fund based in New York City. Mr. Tilson was one of five investors included in SmartMoney’s Power 30, was named by Institutional Investor as one of 20 Rising Stars. T2 Partners has achieved an annual return of 8.6% since inception, compared to -1.4% for the S&P500 and 1.7% for the Dow. Mr. Tilson received an MBA with High Distinction from the Harvard Business School, where he was elected a Baker Scholar (top 5% of class), and graduated magna cum laude from Harvard College, with a bachelor’s degree in Government.
Prior to launching his investment career in 1999, Mr. Tilson spent five years working with Harvard Business School Professor Michael E. Porter studying the competitiveness of inner cities and inner-city-based companies nationwide. He and Professor Porter founded the Initiative for a Competitive Inner City, of which Mr. Tilson was Executive Director. Mr. Tilson also led the effort to create ICV Partners, a national for-profit private equity fund focused on minority-owned and inner-city businesses that has raised nearly $500 million.Before business school, Mr. Tilson was a founding member of Teach for America, a national teacher corps.
Mr. Tilson is also the co-founder, Chairman and co-Editor-in-Chief of Value Investor Insight an investment newsletter, and is the co-founder and Chairman of the Value Investing Congress a biannual investment conference.
Karen Finerman, 43, Metropolitan Capital Advisors
In 1992, while still in her late 20s, Karen Finerman co-founded hedge fund outfit Metropolitan Capital Advisors. Before launching her hedge fund, she was a lead research analyst for the risk arbitrage department at Donaldson, Lufkin & Jenrette, and before that a trader at First City Capital, a risk arbitrage fund for the Belzberg family.
Metropolitan Capital Advisors is a special-situations, long-short hedge fund which Ms. Finerman assembled with her partner Jeffrey Schwarz. The fund, currently has $400 million in assets and has produced 14% percent annualized returns since its 1992 inception.
Ms. Finerman received a B.S. in Economics, from the University of Pennsylvania’s Wharton School in 1987, with a concentration in Finance. She is the Chairwoman of the Development Committee of the Michael J. Fox Foundation for Parkinson’s Research and serves on its board. She is also a Trustee of the Montefiore Medical Center in the Bronx, N.Y. where she serves on their Investment Committee.
Curtis Jensen, 36, Third Avenue Funds
Alongside Martin Whitman, Curtis Jensen is Co-Chief Investment Officer of Third Avenue Management. He also manages the Third Avenue Small-Cap Value Fund and several sub-advised portfolios. Additionally, Mr. Jensen is Co-Manager of Third Avenue Variable Series Trust.
Mr. Jensen received an M.B.A. from the Yale School of Management, where he studied under Third Avenue Management’s founder, Martin Whitman. He joined Third Avenue Management in 1995. Previously, Mr. Jensen held various corporate finance positions with Manufacturers Hanover Trust Company and Enright & Company, a private investment banking firm.
Jensen’s work at Third Avenue Management takes on a number of roles that have grown as the company has become a major Wall Street investment firm. “The first and probably biggest piece of it is working as an analyst,” he often says. In an interview with the Yale School of management, Mr. Jensen outlined his responsibilities at Third Avenue:
“Whether it’s property-casualty reinsurance, semiconductors, oil and gas, we need to figure out the businesses we’re invested in, or looking to invest in. The second piece would be as a portfolio manager. I manage one of our funds here. So that’s taking those ideas and constructing a portfolio out of the ideas, and managing that portfolio on a day-to-day basis. For us, we tend to be very long-term oriented in our investing. There is no furious buying and selling of securities here”
Since its inception, Third Avenue Management’s returns have been among the highest on Wall Street. The six-year old International Value Fund has earned more than 20% per year, while the flagship Value Fund has averaged more than 16% returns since 1990. Jensen manages the firm’s Third Avenue Small Cap Value Fund, which has consistently outperformed the S&P 500, delivering annualized returns over five years of just over 19% and about 12% per year since the fund was founded in 1997.
Mr. Jensen currently serves on the Board of Opportunities for a Better Tomorrow, a nonprofit organization, which provides academic support, job training and life skills primarily to disadvantaged and at-risk youth.
Thomas S. Gayner, 45, Markel Corporation
Tom Gayner is the Executive Vice President and Chief Investment Officer Of Markel Corp and President, Markel Gayner Asset Management, Inc., the investment subsidiary Of Markel Corp since December of 1990. The asset under management is about $2 billion. Over the last 10 years, Mr. Gayner has averaged an annualized return of 14.3%.
Since 1990, Gayner has served as president of Markel Gayner Asset Management; he also served as a director of Markel Corporation from 1998 to 2003. Previously he had been a certified public accountant at PricewaterhouseCoopers and a vice president of Davenport & Company of Virginia.
As the CIO of Markel Corp, Tom Gayner is certainly a value investor. He thinks stock is part of a business and the business is worth what the present value of the future cash flows are. He often says that his portfolio operates with a Margin of Safety and that he has also relatively concentrated portfolio. As Buffett, he believes that he can earn the best returns by concentrating his focus and portfolio in promising areas where he has the best understanding and knowledge.
Gayner serves on the Board of Directors of The Davis Funds in New York City and First Market Bank and Colfax Corporation, both in Richmond, VA.