A portfolio manager at a $4.6 billion shop breaks down his Warren Buffett-inspired approach to investing — and shares 3 stocks he loaded up on in a 'really attractive' market upended by coronavirus
- John Buckingham — the principal and portfolio manager of the $4.6 billion investment firm Kovitz, and editor at the Prudent Speculator — borrows aspects Warren Buffett's famed investing methodology to help dictate his market maneuverings.
- Today, he thinks stocks are "really attractive" given where interest rates are pegged.
- In the midst of the coronavirus-driven market rout, Buckingham was picking up shares of companies that he had long admired but were previously too pricey for his liking. He shares those recent additions.
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John Buckingham — the principal and portfolio manager of the $4.6 billion investment firm Kovitz, as well as editor at the Prudent Speculator — has had his finger on the pulse of the market for over 30 years.
"I've been at it since 1987," he said on the "ValueWalk" podcast. "In our world, the stock market often gives you plenty of opportunity, given that so many people are emotional about investing."
The aforementioned world that Buckingham refers to is none other than that of value investing. Allow him to explain.
"We try to buy stocks that are undervalued and out of favor," he said. "We try to do what most people do in their everyday lives, which is to search for bargains to get deals."
Buckingham's investment philosophy and strategy mirrors that of the world's most famous investor, Warren Buffett.
Metrics such as price-to-earnings, price-to-sales, and price-to-book value — staples of a value-centered approach — stay at the forefront of his attention. But Buckingham also puts an emphasis on a company's dividend.
This way, he can still produce cash flow even if a stock is taking longer than expected to appreciate. Generally speaking, he views each potential position through the lens of a three- to five-year time horizon.
"You have to look at things differently when interest rates are at the level they are today — and I think stocks are really attractive," he said. "I think the market is pessimistic in its view of equities, because it should be substantially higher given where we are with interest rates."
If the reasoning behind Buckingham's sanguine perspective on stocks is starting to sound familiar, it's because Buffett held a similar view — with similar reasoning — of the market a little over a year ago.
In May of 2019, in an interview with CNBC, Buffett said "I think stocks are ridiculously cheap if you believe ... that 3% on the 30-year bonds makes sense." For context, today, the 30-year US Treasury bond trades around 1.47%.
"When you're looking out longer-term, we do believe that ultimately the global economy will rebound," he said. "Life will get back to somewhat normal — and businesses will ultimately get back to the business of doing business."
For that reason, Buckingham thinks a rebound in corporate profits is on the horizon. However, that doesn't mean he's indiscriminately picking up cheap stocks. He knows the very nature of this market is fraught with uncertainty.
Three stock purchases
"You have to keep in mind that these are unusual times, and shutting down the economy has major ramifications," he said. "We want to ensure that the businesses we have can survive — but also so they can survive with our ownership interest intact."
He added: "Balance sheet strength is super-important today."
He describes his picks as "high-quality businesses" that he's long-admired and wanted to own, but couldn't pull the trigger on due to high valuations that were prevalent pre-COVID-19.
"Those are three ideas of — what I would say — quality names that we bought here recently," he said. "Take advantage of what the market is giving you."