Amit Wadhwaney Presentation

8/18/2019 Amit Wadhwaney Presentation

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Management Development Institute: Perspectives on Risk

Amit Wadhwaney

Moerus Capital Management LLC


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Disclaimer

THIS DOCUMENT, WHICH IS BEING PROVIDED ON A CONFIDENTIAL BASIS, SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUYINTERESTS IN MOERUS GLOBAL VALUE FUND LP OR ANY OTHER ENTITY MANAGED OR TO BE MANAGED BY MOERUS CAPITAL MANAGEMENT LLC (“MOERUS”) IN THE

FUTURE (SUCH ENTITIES ARE COLLECTIVELY REFERRED TO AS, THE “FUND”), WHICH MAY ONLY BE MADE AT THE TIME A QUALIFIED OFFEREE RECEIVES THECONFIDENTIAL PRIVATE OFFERING MEMORANDUM (THE “OFFERING MEMORANDUM”) RELATING TO THE FUND, WHICH CONTAINS IMPORTANT INFORMATION(INCLUDING INVESTMENT OBJECTIVE, POLICIES, RISK FACTORS, FEES, TAX IMPLICATIONS AND RELEVANT QUALIFICATIONS), AND ONLY IN THOSE JURISDICTIONSWHERE PERMITTED BY LAW. IN THE CASE OF ANY INCONSISTENCY BETWEEN THE DESCRIPTIONS OR TERMS IN THIS DOCUMENT AND THE OFFERING MEMORANDUM,THE OFFERING MEMORANDUM SHALL CONTROL. THESE SECURITIES SHALL NOT BE OFFERED OR SOLD IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATIONOR SALE WOULD BE UNLAWFUL UNTIL THE REQUIREMENTS OF THE LAWS OF SUCH JURISDICTION HAVE BEEN SATISFIED. THIS DOCUMENT IS NOT INTENDED FORPUBLIC USE OR DISTRIBUTION. WHILE ALL THE INFORMATION PREPARED IN THIS DOCUMENT IS BELIEVED TO BE ACCURATE, MAKES NO EXPRESS WARRANTY AS TOITS COMPLETENESS OR ACCURACY, NOR CAN IT ACCEPT RESPONSIBILITY FOR ERRORS APPEARING IN THE DOCUMENT. ONLY THOSE REPRESENTATIONS ANDWARRANTIES THAT MAY BE MADE BY MOERUS IN AN EXECUTED WRITTEN AGREEMENT SHALL HAVE ANY LEGAL EFFECT. MOERUS SHALL NOT HAVE ANY LIABILITY TO YOU OR ANY OTHER PARTY RESULTING FROM THE USE OF, OR RELIANCE ON, THE MATERIAL CONTAINED HEREIN.

AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL AND TRANSFERABILITY OF INTERESTS ARERESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE ISEXPECTED TO DEVELOP. THE FUND’S PORTFOLIO, WHICH IS UNDER THE SOLE TRADING AUTHORITY OF MOERUS, MAY LACK DIVERSIFICATION WHICH MAY RESULT INHIGHER RISK AND SUBSTANTIAL VOLATILITY. CERTAIN TRADES MAY TAKE PLACE ON NON-U.S. EXCHANGES. AN INVESTOR SHOULD NOT CONSIDER INVESTING IN

INTERESTS OF THE FUND UNLESS IT IS PREPARED TO LOSE ALL OR A SUBSTANTIAL PORTION OF ITS INVESTMENT. THE FEES AND EXPENSES CHARGED INCONNECTION WITH THIS INVESTMENT MAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS.

THERE IS NO GUARANTEE THAT THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED. MOREOVER, THE PAST PERFORMANCE OF THE FUND OR OF MOERUSSHOULD NOT BE CONSTRUED AS AN INDICATOR OF THE FUND’S FUTURE PERFORMANCE. THE INFORMATION PROVIDED HEREIN IS FOR INFORMATIONAL PURPOSESONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. ANY PROJECTIONS, MARKET OUTLOOKS OR ESTIMATES IN THIS DOCUMENT ARE FORWARDLOOKING STATEMENTS AND ARE BASED UPON CERTAIN ASSUMPTIONS. OTHER EVENTS WHICH WERE NOT TAKEN INTO ACCOUNT MAY OCCUR AND MAYSIGNIFICANTLY AFFECT THE RETURNS OR PERFORMANCE OF THE FUND. ANY PROJECTIONS, OUTLOOKS OR ASSUMPTIONS SHOULD NOT BE CONSTRUED TO BEINDICATIVE OF THE ACTUAL EVENTS WHICH WILL OCCUR. CERTAIN INFORMATION HAS BEEN PROVIDED BY THIRD-PARTY SOURCES, AND WHILE BELIEVED TO BEACCURATE, HAS NOT BEEN INDEPENDENTLY VERIFIED.

THE INFORMATION PROVIDED HEREIN, INCLUDING, WITHOUT LIMITATION, INVESTMENT STRATEGIES, INVESTMENT RESTRICTIONS AND RISK MANAGEMENTPARAMETERS, AND INVESTMENT PERSONNEL, MAY BE MODIFIED, TERMINATED OR SUPPLEMENTED AT ANY TIME WITHOUT FURTHER NOTICE IN A MANNER WHICHMOERUS BELIEVES IS CONSISTENT WITH ITS OVERALL INVESTMENT OBJECTIVE.

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Moerus Capital’s Approach

! Long-term value investor (3-5+ year holding period)! Bottom-up (macro-myopic, macro aware)

! Very risk averse

! Avoidance of business risk at the security level as well as the

portfolio level

! Embrace market risk as a source of opportunity

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Security Selection: Valuation

! Cheapness: deep discount is of paramount importance! Size of discount is a function of valuation methodology

employed: Not all discounts are equal

! Assumptions based upon minimal guesses about future

!

Methodology that yields “bedrock” (lower-bound) valuation! Focus on actual balance sheet data, not future earnings

projections

! First principle of risk avoidance/mitigation: buy as cheaply as

possible

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Buy Cheaply: Its Not as Simple as it Sounds

!

First principle of risk avoidance/mitigation: buy as cheaply aspossible

– Conceptually reduces price risk

– In itself may -- or may not -- provide a “margin of safety”

– Necessary, but alone not sufficient to provide an adequate

margin of safety

– Must address other risk factors in addition to buy price

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Security Selection: Risk Considerations

! Factors internal to the company! Factors external to the company

! Other Considerations

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Generic Sources of Risk: Internal

! Balance Sheet! Capital needs – recurrent or otherwise

! Inept / dishonest management

! Inappropriate governance / self-dealing potential for

control groups

! Risks stemming from the business model

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Generic Sources of Risk: External

! Government involvement – official or by suasion! Industry structure

! Industry / macro shocks

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Amit Wadhwaney Presentation