Strategy Overview:
Old West Long /Short Equity (OLDW) will employ a highly selective,
research-intensive investment strategy. On the long side, the manager will invest
in high quality, growing businesses, run by proven owner-managers, which are
available for purchase at a discount to intrinsic value. The manager will source its
long investments through many channels, which include: significant insider
buying and ownership; selective 13-F and 13-D “smart shareholder” screens, and
industrial scuttlebutt and insights. On the short side, the strategy will selectively
sell short companies with the goal of achieving an attractive absolute return on
capital. Selling stocks short allows for the manager to profit from the time already
spent monitoring all insider transactions. The focus is on shorting companies
where senior executives and insiders are liquidating large portions of their
personal stock holdings in both dollar terms and as a percentage of their total
ownership. Coupled with large insider selling, the manager then narrows its focus
on those companies with poor and deteriorating quality of earnings, related party
transactions that suggest a manipulative management team, and/or an industrial
or valuation argument to fundamentally support a short sale.
Strategy Philosophy:
Old West Long/Short Equity (OLDW) is managed with the goal of achieving
attractive absolute returns with limited risk of capital impairment. A focus on
people forms the core of the managers investment process. As a first principle,
the manager believes that the surest way to protect and grow its capital is by
aligning themselves with management teams who have high stock ownership
and smart pay. Incentives matter deeply, and Old West believes that there is no
surer way to understand the character and motivation of a management team
than to study stock ownership, and how management gets paid. In the time that
it takes to print out the proxy statement and study stock ownership, pay levels,
and the business metrics that drive incentive pay, Old West is able to intelligently
eliminate the vast majority of companies that would otherwise absorb much of
their time and resources. Simply, Old West seek to invest with management
teams that have more to gain or lose through their equity ownership than they do
through their compensation.
Portfolio Construction:
Portfolio construction will be solely determined by the return characteristics of the underlying
investments. In general, the strategy will eliminate systemic risk – “the unknown unknowns” –
through sufficient diversification across multiple businesses and industries. However, the
manager firmly believes that its best idea is better than its 20th best idea and that its clients
will be better served if the manager allocates incremental capital toward the former.
Further, the amount of knowledge about the underlying businesses inherently declines with
the number of businesses it owns, and the manager struggles to see how less knowledge
translates into less risk. As such, the ideal position size would be a 7% investment in a
great company at an attractive price that the manager can compound in for 3-5 years.
This is the optimal way for the strategy to grow the after-tax net worth of its clients. As a
result of this approach to investment sizing, the strategy will only invest its capital when it is
certain that its principal is protected by a demonstrable margin of safety between price paid
and intrinsic value received. The manager will also insist that such companies are run by
proven owner-managers who have a majority of their net worth invested in the business.
There will be many potentially lucrative investments that the manager will pass on because
of the stringency of its standards, but the manager will not risk its client’s principal for the
sake of incremental return, no matter how compelling. Because short sales have an
inverted risk/return profile, the manager’s average short position will be between -2 and -3%
and have an expected duration of 1-3 years
Risk Management:
When the manager thinks about risk, it does not consider short term market risk, but instead
permanent impairment of capital. Market price volatility only measures short term perception
of long-term risk. For example, if one buys a business for below its cash in the bank, and the
stock trades down a further 20% in a bout of panic, it is Old West's contention that one has
not lost any capital. Old West believes that mark-to-market declines are often temporary,
and instead focuses on earning attractive rates of returns from businesses over a meaningful
length of time. Given this definition of risk, the manager’s investment philosophy and process
are the most important form of risk analysis and control methodology. Old West’s focus on
owner-manager run companies, its intuitive and simple sourcing process, its need for a margin
of safety in price paid, its well defined circle of competence, and a conservative and grounded
temperament are at the core of Old West investment tenets, and are the most important forms
of risk management.
In addition to a unique investment philosophy and process designed to protect the downside,
the Old West Long/Short model also aims at keeping long leverage close to or below 100%.
In the last calendar year, exposures have ranged as follows; Long Exposure: 89.8% - 103.5%;
Short Exposure: 14.3% - 33.7%; Gross Exposure: 111.0% – 137.2%; and Net Exposure:
62.8% – 87.5%.
Winning Trade Example:
Old West purchased Clarus Corporation (CLRS) on 1/16/2009 after watching
Warren Kanders, Clarus Corporation's Chairman, purchase in excess of $5 Million
worth of his own stock in the open market from August 2008 – January 2009.
Clarus Corporation was available for purchase at $4.00 per share even though it
had net cash of nearly $5.00 per share. The company also had useable and long
dated tax assets that were worth another $0.00 - $4.00 per share. By buying
Clarus at a 20% discount to cash on hand, the manager was getting paid to buy
the company’s tax assets, and expected the company to deploy those tax assets
through a smart acquisition. In May 2010, Clarus announced the acquisition of
two companies: Black Diamond Equipment and Gregory Mountain Products, and
Clarus changed its name to Black Diamond Equipment (BDE). Between March
2013 and March 2014, the manager sold the majority of its position between
$8.75 and $11.25.
Losing Trade Example:
Old West shorted VistaPrint in multiple lots between 11/26/2008 – 7/2/2009
for $15.99 - $42.97 per share. The mistake behind shorting VistaPrint
was not fundamental, but technical. The fundamental thesis for shorting
VistaPrint was accurate, but the embedded technical risk of being short a
highly shorted stock in a major market rally led to short covering. Today,
as part of the managers discipline, and to prevent a similar mistake in the
future, the manager will no longer dedicate capital to selling short a
company with a high short interest. The manager covered its position
from 9/03/2009 – 12/08/2009 for $40.52-$57.97 per share.
Company Overview:
Old West Investment Management, LLC is an independent registered
investment advisor that was founded in 2008 to manage the investments
of individuals and institutions. Following its well-defined investment process,
Old West invests in publicly-traded equity and debt securities across various
portfolios and alternative investment vehicles.
The manager’s focus is on investing in businesses run by management
teams with large stock ownership, smart pay, and track records of
successfully compounding shareholder value. Further, the manager seeks
to buy into such businesses at discounted prices that offer us an attractive
forward return with limited risk of capital loss
Management Bios:
Joe Boskovich Sr. leads the Investment Team as Old West’s CIO and Portfolio Manager. At Old West, we believe in a
culture where the product Portfolio Manager is also the individual leading the research process. Supporting the Portfolio
Manger are Co-PM’s and Research Analysts, Spencer McCroskey and Greg Stefflre. These three individuals make up the
Old West Investment Team. The Investment Team is supported by Old West’s Investment Committee, which consists of
all Investment Team members, Joe Boskovich Jr., and Chad Cook.
Joseph M. Boskovich Sr. is Chairman, Chief Investment Officer, and Portfolio Manager. Joe brings over thirty years of
investment experience to the company that he founded.
Prior to founding Old West, Joe spent seven years as the Vice Chairman of Aletheia Research and Management, Inc.
At Aletheia, Joe’s responsibilities included co-portfolio management and marketing, and during his time with the company,
he collaborated in making investment decisions, and was instrumental in growing the firm’s assets under management from
roughly $80 Million to over $10 Billion.
In his previous career, Joe was CEO for one of the largest privately held produce growing and processing businesses in the
country, Boskovich Farms, Inc. During this time, Joe built multi-million dollar business relationships for Boskovich Farms
with companies like Wal-Mart, Costco, Sysco, Safeway, Albertson’s, Kroger, and Disney.
Joe also served as a Board Member of Santa Clarita National Bank for over 10 years and helped to negotiate the sale of
the bank to Security Pacific National Bank, which today is part of Bank of America.
Joe earned both his undergraduate degree and his MBA from the Marshall School of Business at the University of Southern
California, and he continues his association with the University today as a member of the Board of Trustees.