Episode Summary
Executive Summary: Tano Santos opens a new season with Andrew Wellington and Dan Kaskowitz of Lyrical Asset Management, exploring how they learned value investing, how Lyrical’s process works, and why value, quality, and analyzability must all be present. The conversation covers international investing, screening the cheapest quintile for “gems among the junk,” the treatment of intangibles in ROIC, value’s long drought, and two example strategies: an ETF for cheap stocks and an impact-value fund.
Main Topics: Career origins and apprenticeship in investing (Priority: 5/5): Andrew and Dan describe non-investing backgrounds that led them into research and value investing through consulting, university stock research programs, and early mentorship at Pisina/Elm Ridge. Lyrical’s core philosophy: value, quality, analyzability (Priority: 5/5): The firm’s framework requires every investment to be cheap, high-quality enough to sustain earnings, and simple enough to analyze with confidence and behavioral discipline. Structured idea generation and the cheapest-quintile process (Priority: 5/5): Lyrical uses a quant-informed screen to focus on the cheapest stocks, then applies deep manual fundamental research to separate attractive businesses from junk. International value investing and developed-market opportunities (Priority: 4/5): Dan explains that the same process works outside the U.S., particularly in Europe, Japan, and Canada, where indices are weaker and active management can add more value. ROIC, intangibles, and how quality is measured (Priority: 4/5): The discussion examines whether accounting for intangibles materially changes valuation or quality assessment, concluding that the bigger issue is avoiding weak businesses rather than perfect precision. Value investing’s recent underperformance and the rise of value ETFs (Priority: 4/5): Andrew argues the last decade was weak for value largely because of benchmark construction and growth-stock mania, and that Lyrical created a cheap-stock ETF because clients kept asking for a pure implementation. Impact value investing and measurement (Priority: 3/5): Dan describes Lyrical’s impact fund, which combines value, quality, analyzability, and measurable social impact, using internal measurement work to quantify outcomes.
Key Arguments: Great investing starts with a repeatable process, not a romantic origin story; both guests entered the field through work that taught them to analyze businesses rigorously. The best value investing combines two distinct skills: understanding the business and understanding valuation discipline. Lyrical’s edge comes from hunting only in the cheapest quintile and then selecting a concentrated set of the best businesses among the cheapest names. Quality is mainly about avoiding structurally bad businesses and low ROIC situations, not about chasing the highest possible ROIC. Analyzability is a practical risk-control filter: businesses should be simple enough that investors can model them and, more importantly, make good decisions when bad news occurs. International value does not require a different philosophy; multinational businesses and weak benchmarks outside the U.S. create attractive opportunities for the same framework. Accounting for intangibles matters, but not enough to overturn the broad finding that the cheapest stocks remain a fertile hunting ground for value investors. The last decade’s value pain was driven by both weak value benchmarks and an extraordinary growth-stock/FANG period that caused broad contagion into expensive names. An ETF that owns the cheapest stocks directly can be a useful client solution even if active selection can potentially improve on it. Impact investing can be integrated with value investing when the firm can measure outcomes internally and find businesses trading at low valuations despite positive social effects.
Data Points: Lyrical portfolio size: about 30 stocks - Andrew described the firm’s concentrated strategy. U.S. flagship portfolio size: 33 stocks - Andrew and Dan repeatedly referenced the current number of holdings. U.S. investment universe: 1,000 largest U.S. stocks - The screening universe for the value process. Cheapest subset screened: bottom 20% / cheapest quintile - Lyrical focuses on the cheapest quintile of the universe. International universe: 1,500 companies - Dan described the clean-slate screen for developed markets outside the U.S. International portfolio geography: Europe, Japan, Canada - Main developed-market focus outside the U.S. Lyrical impact fund holdings meeting criteria: about 20 to 25 stocks - Dan said only a subset of the broader portfolio qualifies for the impact strategy. Impact fund portfolio size: about 60 stocks - The broader opportunity set for the impact strategy. Ashtead valuation: 9x earnings - Dan used Ashtead as a quintessential example of a cheap quality compounder. Ashtead ROIC: 15% - Dan cited Ashtead’s long-term return on invested capital. Ashtead market presence: 1,000 locations - Illustrating scale and density advantages. Ashtead order cancellation window: 30 to 45 days - Showed why capex is more flexible than it appears. Equipment needed within 24 hours: 70% - Used to explain local density advantage in equipment rental. Purchase discount vs mom-and-pops: 10% to 20% - Scale advantage in equipment purchasing. Impact metric for ELSE: 113 billion liters of water saved - Estimated over the next four years from outsourcing linens/uniform cleaning. Expected quality threshold: healthy double-digit ROIC - Andrew said that once returns are in the teens, growth matters more than incremental ROIC. Holding period: 7 to 8 years - Andrew framed the firm’s long-term horizon and recession preparedness.
Pivotal Quotes: "What I loved about asset management is you crack the case and then you put your money where your mouth is and your client's money where your mouth is." — Andrew Wellington: Explaining why he left consulting for investing. "The gems emit the junk." — Andrew Wellington: Describing the core idea of searching the cheapest quintile for good businesses priced like bad ones. "We're looking to generate an unfair return. So like all of our strategies, value is the fuel for those unfair returns." — Dan Kaskowitz: Describing the logic behind Lyrical’s impact-value fund.
Implications: Listeners should take away that disciplined value investing still works when paired with quality and analyzability, especially in neglected parts of the market. The episode also shows how firms can extend classic value into ETFs and impact strategies without abandoning process.
About Value Investing with Legends
Value investing is more than an investment strategy — it's a fundamental way of thinking about finance. Value investing was developed in the 1920s at Columbia Business School by professors Benjamin Graham and David Dodd, MS '21. The authors of the classic text, Security Analysis, Graham and Dodd were the very pioneers of their field and their security analysis principles provided the first rational basis for investment decisions. Despite the vast and volatile changes in the economy and securities markets during the last several decades, value investing has proven to be the most successful money management strategy ever developed. Value investors' success over the second half of the twentieth century proved not only the validity of the value approach, but its preeminence over even the most widely taught and practiced modern investment theory, which was developed in the 1950s and '60s and remains dominant even today. Our mission today is to promote the study and practice of Graham & Dodd's original investing principles and to improve investing with world-class education, research, and practitioner-academic dialogue. In this podcast you will hear from some of the world's greatest investors, their views on the investment management industry, how they developed their investment process and how they see the field changing over time.