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Ask Jacob Wolinsky how he executes his value investing philosophy during market turmoil and he has a simple, honest answer. “I’m probably getting a little rusty at this point. So I’ve been investing more in beaten down industries or countries through certain ETFs to take advantage of volatility.”
Jacob’s broad approach to value investing was born more so out of happenstance than anything else. However, it doesn’t take away from his value investing philosophy, which has proven invaluable for his business, as well as his investing.
Since using his value investing strategy on ETFs, Jacob has been outperforming the overall markets. However, each person needs to have an understanding of the risk that they incur and how they handle it psychologically.
What is ValueWalk and what do you do?
Jacob Wolinsky: I basically, deal with a lot of things. I deal with content, topics, getting confidential information (for me), helping writers tell stories, dealing with hedge fund compliance (which is not fun sometimes), and the marketing. I wear many hats, but I try as much as possible to outsource some of it. It has certainly evolved a lot from where it started.
We’ve never taken VC funding. I never really wanted it, and we’ve been cash flow positive through the years. I probably missed some opportunities as the markets shifted. However, I took a very value oriented approach to the business. I never took on promises I couldn’t make. So I think it’s been the right move.
How did you get started with ValueWalk?
JW: It’s a funny story. It happened by chance, and now I do it full time. Basically, I saw some pretty bad advice about asset allocation on the internet. And I really thought it was interesting, I made some comments and analysis. And the person that actually contacted me was Alice Schroeder, and said she liked it. At that point I was trying to get a voice for myself. And I was initially doing it as a hobby. I was working at small firms at the time, so it was never a compliance issue because they were really small firms.
I also worked at SumZero for a period of time. However, I ended up leaving because I wasn’t earning enough there to support myself. And that’s when I started doing the site full time around late 2011. I was already making some money and I build things up conservatively. Right now we have a small team, but it has grown a great deal since those early days. So that’s how I got started. It was completely by chance. If you told me five years ago that I would expect to be running a financial website full-time — I would’ve thought you were crazy.
What does your typical day look like at ValueWalk? (If such a thing exists)
JW: Well, my day usually starts early with my two younger daughters waking me up. And I try to do some work while I cook them breakfast. Officially, everything starts at 9:00 am. All of our employees work remotely, I am the only one in New York. There are advantages and disadvantages to this. As far, as the content goes, I start at 9:00am and I see what’s happening in the news. I always try to do a mixture or value bend to particular stories.
For example, Goldman Sachs just said that oil was going to fall to $40. I think the last time they tried to call a momentum or continuation move in oil they were calling for oil to go well north of $150 per barrel. This corresponded almost exactly to the top in oil. So I always want put these types of stories into perspective. And I always try to show the writers the kind of angle we want to use as we approach stories. I have also been trying to do more value investing profiles lately too.
“The balance sheet is really important. It’s your margin of safety. This will be a main factor in purchasing a stock below the asset value of the business.”
It can be hard to just write about value investing all the time, however I always try to have that value investing bend in whatever we do. I always try to stay focused on that.
I also try to see if there are any interesting sell side reports. Even though the forecasts are usually awful, the research itself is usually top notch. Barring the outrageous assumptions, I think they do a great job in the actual analysis. I finish work around 5:30. I have dinner and put my kids to bed. Then I do a little bit more work at night and then relax a little before bed.
Who Are The people that inspire you the most? And why?
JW: First off, my parents gave me some money when I was younger. Thankfully it wasn’t a lot because I thought I was a genius and I made some money in the dot-com bubble. And then even as the market was going up, I started losing some money. Then I remembered seeing an ad from a website and it said, “Warren Buffett says this is the best book ever written.” I was initially skeptical because they wanted me to buy their product, but I took a look and of course it was Benjamin Graham’s, The Intelligent Investor. So I read it — And I said WOW!
I realized I was doing everything he said not to do in this book: don’t chase hot companies, always buy below the intrinsic value of the business, ect.
What he’s saying is literally what I was doing at that very point. All the mistakes I made were articulated perfectly in this book. It just hit me. It’s very difficult to explain, but it’s just a part of who I am now.
Value investing is very difficult to put into practice. So I guess it’s just a part of my DNA. So I would have to credit Ben Graham for pointing me on the path to value investing.
“As a deep value investor, you could really lose a lot of money if your portfolio is overly concentrated…Stay diversified.”
My father was also a major impact on my life and investing. He was extremely bright, and he graduated from a top 50 college as Valedictorian. Although he wasn’t a value investor, he had a very conservative approach to money.
He was a doctor so he had a very conservative approach on how to build his practice. He would always give me examples of people I knew that would spend a lot up front before knowing anything would succeed. As you can see, that is a very value oriented approach.
So I should probably give him more credit for influencing my approach as a value investor.
What are the top 2-3 books that people don’t think about, but should?
JW: First off, I don’t like giving investment advice to anyone (family or friends). My only advice is don’t listen to what anyone says. No matter how smart they seem. Investing is so complicated, and there are so many variables. Everyone is wired differently. How does a person know when to sell if they buy a stock? And some people can’t handle a focused portfolio.
So if someone is just starting, I would recommend William Bernstein’s book, The Four Pillars of Investing: Lessons for Building a Winning Portfolio. I don’t agree with everything he says. He’s obviously much smarter than me, but he’s totally passive. And it really is a great book. It gives the reader a great back ground and discusses behavioral finance.
Also, I highly recommend David Dremen’s book, Contrarian Investment Strategies: The Psychological Edge. It goes through a lot of behavioral finance. He was well ahead of his time when he started writing about this topic in the 80s. He doesn’t get enough credit. And he does excellent work.
Another great book is John Neff’s book, John Neff on Investing. I really like his approach. Even for a beginner it’s just a great philosophy. You want to buy more of what’s hated and what everyone is running away from, instead of the high-fliers.
What’s your philosophy and process to investing?
JW: I used to have a lot more time to research stocks. When I was an analyst a few years ago, we did a great deal of analysis and research on small caps (even micro caps). I like researching the small cap space because it’s much easier to understand the businesses. And there’s also much less coverage, and there is a lot of opportunity in that space as a smaller investor. I got more comfortable being away from the herd while being an analyst for micro-cap stocks.
In general, I just used to have more time to practice value investing. I am not investing in individual names as much right now because I have been so busy with ValueWalk. But I hope that changes. I’m probably getting a little rusty at this point. So I’ve been investing more in beaten down industries or countries through certain ETFs. It’s been working fairly well. 2014 was a tough year, but I’ve been beating the market since I started using this strategy.
“People don’t think about it in the moment, however cash becomes very valuable when no one has it. If you want to be able to take advantage of opportunities when things are cheap, cash is your best option.”
For example, in 2009 I didn’t know which banks were going to survive. However, XLF (financial EFT) had a 100 banks in there, and they had been beaten down to such incredible valuation levels based on a number of metrics. At that point is was a probability on the future of the banking industry surviving. And I thought that there was a very large margin of safety even if they didn’t survive. I didn’t think the entire banking system would disappear overnight, so I ended up buying more. And it was so mentally tough.
kept saying to myself, “why am I buying this? It’s just going to keep going down!’ And of course those are usually the moments that pay off most for investors. And I also purchased some other stocks around the lows in 2009, so that was nice.
I don’t try to time things. It’s basically impossible. So there was an element of luck. But I keep buying as it continued to drop in price. I don’t normally buy individual companies right now because I don’t have the time to do the due-diligence. So mainly all I buy these days are sector and country ETFs.
Do you do any screening for your broad sector or country investments?
JW: I used some screening, and I would also do some cloning. But I was always careful about the cloning. I would pick managers that I thought were good, and were buying big stakes in smaller companies. So I guess you could say I didn’t have a stringent investment process in place or totally crystallized per say.
Mainly I watch for industries and sectors that are beaten down. And it worked really well other than the last quarter of 2014. I still believe that it will bounce back eventually, so I am not worried at current levels.
What are the three main points you think an investor should focus on the most to achieve out-sized returns over the long-term?
The balance sheet is really important. It’s your margin of safety. This will be a main factor in purchasing a stock below the asset value of the business.
As a deep value investor, you could really lose a lot of money if your portfolio is overly concentrated. If you’re diversified, you’ll feel much more comfortable knowing that even if a company never does well again, that a bunch of the other companies in your portfolio should to do well to make up for the under-performers. What I felt comfortable with back in the day was about 30 to 50 stocks in my portfolio.
People don’t think about it in the moment, however cash becomes very valuable when no one has it. If you want to be able to take advantage of opportunities when things are cheap, cash is your best option.