Episode Summary
Executive Summary: David Marcos, CIO of Evermore Global Advisors, discusses his value investing journey from Mutual Series under Michael Price to founding his own firm. He argues that Europe presents a compelling opportunity due to cheap valuations, catalysts like EU stimulus and deconglomeration, and a focus on operational improvements. His approach emphasizes betting on management (jockeys), using keyword screening for ideas, and rigorous thesis testing through quarterly offsites. He sees a multi-year tailwind for European value investing.
Main Topics: Background and Mentorship (Priority: 4/5): David Marcos shares his early career at Mutual Series under Michael Price, learning value investing during the 1987 crash, and his progression to managing European funds. European Investment Opportunity (Priority: 5/5): Marcos argues Europe is undervalued with catalysts: EU stimulus (~€2 trillion), deconglomeration, shareholder activism, and operational improvements. He sees a confluence of value and growth in mid/small caps. Investment Philosophy: Catalysts and Jockeys (Priority: 5/5): He emphasizes buying cheap stocks with catalysts (breakups, spin-offs, restructurings) and betting on management (jockeys) rather than just assets. He uses keyword screening (e.g., 'spinoff', 'restructuring') instead of numerical screens. Risk Management and Thesis Testing (Priority: 4/5): Marcos discusses managing portfolio leverage, aggregating company debt, and continuously testing investment theses. He stresses the importance of compounding and avoiding excuses for underperformance. Specific Investment Examples (Priority: 3/5): He highlights Fagron (Belgian turnaround from €5 to €20), MTG (esports/gaming spin-off with value and growth), and GameSys (UK gambling at 5x free cash flow). Activism and Corporate Restructuring (Priority: 3/5): Marcos tracks activist investors and supports companies with credible plans. He distinguishes between 'smash and grab' activists and those creating long-term value.
Key Arguments: Europe is a fertile ground for value investing due to low yields, need for operational improvements, and EU stimulus programs. Value investors should seek catalysts (breakups, spin-offs, restructurings) to unlock value, not just buy cheap stocks. Betting on management (jockeys) is critical; understanding their track record and fit for the situation is key. Use keyword screening (e.g., 'spinoff', 'restructuring') to find ideas, avoiding overlap with traditional value screens. Quarterly offsites to review portfolio, successes, and failures help refine the investment process. Aggregate company leverage across the portfolio to avoid unintended risk concentrations.
Data Points: 1987 Crash Drop: 22.8% - Single-day drop in the stock market, which David witnessed as an intern at Mutual Series. Seed Investment from Jan Stenbeck: $100 million - Initial capital allocated to David's first firm, Markstown Capital Management. Evermore Global AUM: ~$600 million - Assets under management as of the podcast recording (2021). Fagron Stock Price Increase: From €5 to €20 - Turnaround case in Belgium; David participated in a rights issue at €5. MTG Market Cap and Cash: $675M market cap, $185M net cash (initial); $1.1B market cap, $170M net cash (later) - Esports/gaming spin-off from a larger conglomerate; David is a large shareholder. GameSys Valuation: 5x free cash flow (purchase); 9x free cash flow (later) - UK gambling business bought at a cheap multiple with growth potential. EU Stimulus Plan: ~€2 trillion - Multi-year spending plan for modernization, digitalization, and green transition. Portfolio Allocation to Europe: 70% - Evermore Global's global fund has 70% invested in Europe.
Pivotal Quotes: "We're betting on jockeys, not just horses." — David Marcos: Emphasizing the importance of management quality in investment decisions. "If you called 10 value guys into one of your classrooms and said, 'Hey, can you guys do some screens for us?' I can promise you that of those 10 people, you're going to get a lot of overlap... we screen using words." — David Marcos: Explaining his unique keyword-based screening approach to find ideas others miss. "I think this opportunity is as good or better than it was 30 years ago when I started in Sweden." — David Marcos: Expressing strong conviction in the current European value opportunity.
Implications: Listeners should consider European value stocks with catalysts, focus on management quality, and adopt a network-driven, bottom-up approach. The EU stimulus and corporate restructuring provide a multi-year tailwind for active investors.
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.