Should Barry Schwartz be smiling? An 18-year compound return of 8.7% doesn’t put him at the front of the pack. Though his clients, who must invest a minimum of $1 million with Barry, sleep well at night knowing that their hard-earned money isn’t wildly gyrating year after year, but growing at a safe and steady pace, albeit above market returns. That’s why Barry is smiling.
Barry Schwartz tells it like it is. He’s direct and quick to answer, in such a succinct way that you’d swear he practised his answers days before the interview. To think that Barry pretty much stumbled into the investing world is unusual. Investing wasn’t his original game plan. David Baskin invited Barry into his firm, took him under his wing, and groomed him to be a prudent investor. Barry joined Baskin Wealth Management in 2000 and became a partner in 2005. Today, Barry is completely focused on strong large-cap franchise businesses with explosive free cash flow and an enduring competitive advantage. Throughout the interview, Barry repeats “free cash flow” over and over again to exemplify its importance. Seriously, as you read through the interview, count how many times Barry says “free cash flow.” In Barry Schwartz’s court, cash is king.
While Barry publicly describes himself as a value investor, it isn’t in the Graham and Dodd sense of the term — buying deep value stocks at below their intrinsic value. Rather, Barry invests in businesses for the long term. Businesses that will not lose their value in 10 years’ time. In fact, Barry invests based on Warren Buffett’s ideologies, ideologies that in my opinion are derived more from Philip Fisher than they are from Benjamin Graham, even though Buffett himself would say otherwise: he claims, “I’m 15% Fisher and 85% Benjamin Graham.”
Before heading up to interview Barry in his office, I grabbed a quick sandwich and drink at Starbucks on the ground floor of his building. It was only until after the interview that I realized Starbucks would fit perfectly into Barry’s ideal portfolio. Upon reaching Barry’s office floor, I was greeted by his assistant, who asked me to take a seat before seeing Barry. When he arrived, it was with a huge smile. Barry struck me as a man who was doing exactly what he wanted to be doing with his life.
Assets: what a firm or individual owns (e.g., buildings, inventory, and brands).
Asset Allocation: the percentage of capital that you invest into various asset classes (stocks, bonds, etc.). Your asset allocation is based on a variety of factors such as return objectives, risk tolerance, and income needs.
Bond: a debt instrument with the promise to pay interest and to return the principal amount on a specified maturity date.
Bull Market: a prolonged inclining market.
Buy-Back: when a company buys its own shares to then terminate or cancel them. This action reduces the amount of common shares outstanding.
Capital Expenditure (CapEx): improvements, projects, or new investments undertaken by management.
Competitive Advantage: a market advantage. Usually refers to companies that have such a powerful brand that customers buy their product on brand alone (e.g., Disney). Can also include companies that enjoy, for example, unusual pricing, service, or regulatory advantages.
Day-Traders: people who make it their daily business to trade stocks.
Free Cash Flow: the money left over in a company on a regular reporting basis (quarterly, semi-annually, and annually), calculated by subtracting capital expenditures from operating cash flow.
Index Fund: a mutual fund or ETF that strives to match the movements and returns of an index.
Intrinsic Value: the actual worth of a business, which may or may not be different than its book value or market capitalization. Can be a highly subjective figure.
Margin of Safety: the difference between a stock’s market price and its intrinsic value.
Mispricing: when investors, usually value investors, deem that a stock is being priced inaccurately on the market based on its underlying business fundamentals, or because of sentiment, or unusual events.
P/E: price to earnings ratio. Measures the price that investors will pay for a company’s earnings per share. Current stock price divided by its current earnings per share.
Return on Equity (ROE): a company’s ability to generate profits from their shareholders’ equity (not including long-term debt).
Stop-loss order: an automated order to sell a stock at a designated price below the purchase price. Used to limit downside risk should a stock decline in price.
Value Investor: an investor who buys “undervalued” stocks.
Value Trap: a value stock that continues to get cheaper and fails to rebound.