10 Questions With Conference Speaker Jonathan Boyar

- By Holly LaFon

Jonathan Boyar is the principal of Boyar Value Group and a distinguished speaker for the 2017 GuruFocus Value Conference.

How did you get into value investing?

I have been exposed to this type of investing my entire life. My grandfather was an accountant and gravitated towards it. This led my father to become interested in value investing and he decided to make a career out of it. He founded a money management firm and research boutique that has been in business since 1975, which I am helping him run. I basically grew up learning value investing concepts and to me it just made sense. Who would not want to buy a dollar for fifty cents? In college, I was fortunate enough to have the opportunity to intern at Fred Alger Management, which is a well-regarded growth shop. The people working there were extremely smart and their track record was excellent, but that type of investing just did not resonate with me.


Who inspired you the most in value investing? In which aspects?

I have been studying value investing since I was in high school and I could cite all the usual great investors like Buffett and Graham as inspirations. I worked for Mario Gabelli (Trades, Portfolio) after graduating from college and being around him certainly was a terrific learning experience. However, I would have to say my research clients as a whole are the ones I have learned the most from. I am in a fortunate position of having some of the world's best value investors as clients. Each has their own unique spin on value investing and when we discuss investments, I have a front row seat into seeing how they think about investing. The questions they ask, the topics they focus on have really influenced me as an investor.

What is the most important thing you look for in a stock?

We are always on the lookout for terrific businesses that are currently out of favor causing their shares to be temporarily mispriced. However a company that is intrinsically undervalued may remain that way for an extended period of time. That is why it is critically important for us to identify a catalyst that could elevate the company's stock price over a reasonable period of time.

What kind of companies do you avoid?

We will invest across both the market cap spectrum and within all industries. However we tend to avoid highly cyclical stocks and commodity oriented businesses. The reason for avoiding cyclical stocks is we prefer to hold stocks for as long as possible (to allow tax free compounding to work its magic) and with cyclical businesses by their very nature they need to be traded causing taxable events to occur. We also generally avoid commodity oriented business. The reason for this is we look at every stock we buy as if we are going to be purchasing the entire businesses and we would prefer not to own a business that is dependent on the price of a commodity (which you obviously have no control over).

How would you describe your investment approach?

The Boyar Value Group evaluates a corporation in the same manner as a mergers and acquisition specialist would. Our analysis of financial statements is driven by economic realty, not generally accounting principles (GAAP). Unlike traditional value investors who are known for investing in stodgy businesses with limited growth prospects, we consider ourselves opportunistic investors. We search for great businesses that have temporarily stubbed their toe causing the company's share price to sell at a significant discount to our estimate of its intrinsic or private market value. An equally important part of the investment process is identifying a catalyst that could make a company's stock price ascend in value within a reasonable period of time.

Where do you find discounted stocks in the current environment?

While the market it not cheap nor blatantly overvalued as a whole, there are areas where we are finding some interesting situations. We are finding cheap media, financial, and consumer discretionary names. Passive investing has been in vogue for the past few years and billions of dollars has flowed into funds that track a particular index. This has caused certain stocks within major indices to sell at artificially inflated prices. We have found that stocks that are not part of a major index are fertile hunting ground for finding inexpensive ideas as index funds have not distorted their prices.

What are your favorite investments currently?

Some of the more compelling ideas we are finding are Tribune Media, Discovery Communications, Brinker International, QVC, Madison Square Garden, Madison Square Garden Networks, and Bank of America.

What's the one piece of advice you would give individual investors?

Find a strategy that you feel comfortable with and stick with it through thick and thin. The worst thing you can try to do is chase what is currently "working." Having patience and the discipline of not becoming an emotional buyer or seller is probably the most important characteristics for long-term investment success.

What do you plan to cover in your talk at the GuruFocus Conference?

I will discuss our philosophy and how we go about searching for undervalued equities. I will spend the majority of my time going over some of our current high conviction investment ideas.

What is your outlook for the economy and the market right now?

From March 2009 through September 30th 2016, the S&P 500 has increased by 220%. The market as a whole is selling at 16.8x forward earnings. This is neither particuarly cheap nor expensive from a historical perspective. In March of 2000, immediatley prior to the tech bubble bursting and the S&P 500 subsequently decling by 49% in ~1.5 years, the S&P 500 traded at 27x earnings. However in 2007 right before the financial crisis, the market sold at a modest 15.7x earnings before declining 57%. As bottom up stock pickers, we try and not let such statistics influence our investment decisions, but this is information we believe that is at least worth monitoring.

In our opinion, the most important thing we should focus on are uncovering individual businesses that are selling below their intrinsic or private market value. Currently media names, the financial sector, and consumer disrectionary names are fruitful hunting grounds for finding such companies. In addition, due to the popularity of index funds, companies that are outside of the major indicies are also great places to find undervalued equities.

Interest rates have been at historically low levels for quite sometime. When interest rates will finally rise is anyone's guess (and we are the first to admit that we have been wrong about rates rising for quite some time), it is worth pointing out how abnormlly low rates are from a historical perspective.

The average yield of a ten year treasury since 1958 has been 6.17% compared to the 1.6% yield as of 9/30/2016. Interest rates peaked in September of 1981 at over 15%! While we are by no means predicting rates will reach that level for a very long-time (if ever), forecasters tend to extrapolate recent trends as if they will continue unabated when making their predictions. Investors thinking of buying long-dated bonds should remember from 1958-1981 Treasury yields increased virtually every year (with a few exceptions) and our bet is during that time frame no mainstream market forecaster predicted that one day yields would ever reach 1.6%. We are in a world full of distruptive change and making truly long-term predictions on almost anything (including interest rates) is a fool's errand. In the early 2000s who would have predicted that Blackberry and Nokia would no longer produce their own phones and Samsung and Apple would be the market leaders?

For an individual investors, we continue to believe that owning long-dated debt to chase yield is the wrong course of action. According to JP Morgan, investor's in "safe" 30 year US Treasuries would stand to lose 19% if rates increased by just 1%. In our opinion, to take that type of risk to capture a 2.32% (pretax) yield is a horrible risk/reward proposition. Investors looking for yield are better off either leaving their money in cash and waiting for rates to rise or buying dividend paying stocks that have the capability of growing their dividend overtime that are selling at reasonable valuations.

Register for the 2017 GuruFocus Value Conference here.

This article first appeared on GuruFocus.