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May2010

CGIValueVoices:InterviewwithJaeJun

April2010

CGIValueVoices

:InterviewwithJaeJun

DearMember:OurfourthinstallmentoftheValueVoicesInterviewSeriesfeaturesJaeJun.Wehopeyou’llenjoyhisreflections.ThanksforbeingaValueFocusMember.Bestwishes,RaguandJeff

Background

JeffAnnello:Tostart,tellmealittlebitaboutyourbackground.Whatwereyoudoingbeforeyougotintoinvesting?

JaeJun:

Mybackgroundisinengineering,andmystudiesandcurrentcareerisinthetelecommunicationsindustry.Tobehonest,until2007,Ihadneverreadortakenanyclassesrelatedtofinance,accounting,oreconomics.IalwaysskippedthefinancialcolumnsbecauseIfoundthemboring.

JA:Howdidyoubecomeinterestedininvesting?

:ItwaspureluckthatIstartedbecause,atthebeginning,Ihadverylittleinterest.Ihadafinancialadvisorfirst,andlaterfoundoutthathewaspartofapyramidfinancialadvisoryfirm.Ihadbeensigneduptothemostexpensivefund/planandwasconstantlylosingmoney.SoIdecidedtoforfeitmyaccount.Itwasabiglossatthetimecomparedtomynetworth,butithelpedmetorealizethatonlyIcouldtakeresponsibilityformymoney.

JA:Howdidyougoaboutlearningthecraftofinvesting?Whatbooks,resources,orpeoplewereyourearliestinfluences?

Istartedlikemostlyeveryoneelse–onthewrongfoot.Myinitialstudiesincludedtrading,technicalanalysis,andlookingatwhichdayoftheweekproducedthebestresults.Mycurrentwife‐‐fiancéeatthetime‐‐wantedtobeaCFAandownedacopyof

TheIntelligentInvestor

byBenjaminGraham.Outofcuriosity,Istartedreadingit.Tobehonest,Ifellasleepthefirst12timesItriedtoreadit.Eventually,though,Imanagedtoreadthroughitwithdrowsyeyes,andmovedontoWarrenBuffett.That’swhenthingsfinallystartingclicking.Later,IcameacrossJoePonzio’sblog,

FWallStreet,

whichismynumberonerecommendedbookforbeginninginvestors.

JA:Towhatdoyouattributeyourchangeinattitudetowardsbusinessandinvestments?Itwentfrombeingatotalboretobeingabigpartofyourlife.Whyisthat?

JJ:

It’sfunnybecauseIhadneverimaginedmyselfasabusinessowner,andconvincedmyselfthatbusinesswasn’tmything.It’sunbelievablehow



May2010

CGIValueVoices:InterviewwithJaeJun

wrongandnarrow‐mindedIhadbeen.Ineverrealizedthatbusinessandinvestingactuallygohandinhand.That’swhatBuffetttaughtme,andthroughthislens,Icouldvisualizehowacompanywasoperating.Ratherthanfocusingandfrettingoverstockprices,IbecameinterestedinhowbusinesseswererunandthepotentialofeachonethatIcameacross.ItreallywasluckthatIfinallycamearound.

JA:Tellmeaboutanearlyinvestmentyoumade.Howdiditgo?

:MyveryfirstinvestmentwasacompanycalledGenlyte.Itwasarecommendedstockfrom

TheMotleyFoolStockAdvisor

newsletterand,afterafewmonths,Philipsboughtoutthecompany.Thatwasmyfirsttasteofsuccessandproofthatsmall,well‐runcompanieshaveahighchanceofbeingboughtout.

JA:Howhaveyouimprovedasaninvestorovertime?

:I’malwayshungryforknowledgeandtolearnnewconcepts.SinceI’veneverhadaformalfinancialeducation,ItendtothinkthatI’vegotalottocatchupon.Asaresult,I’vebeenreadingbooksandnewideaslikemad.IfocusonbooksthatIcanapplytomyowninvesting,soifsomethingdetailsnewvaluationprocesses,modelsandideas,I’malloverit.Mybiggesthurdlewastryingtointerpretfinancialstatements.Icouldgothrougheachlineandunderstandwhattheywere.Butforseveralmonths,Icouldn’tfigureouthowtointerpretitinrelationtootherpartsofthefinancialstatementandbusiness.

JA:Whatallowedyoutoimproveinyourfinancialstatementanalysis?Wasitsimplyrepetition?

:Ijusthitaplateau.Nothavinganyaccountingknowledgemadeitaveryfrustratingplateau,butIknewtherewasananswer.Ikeptaskingmyself –ifotherpeoplecandoit,whycan’tI?SoIjustkeptreadingbooks,knowingthatI’dfindtheanswer.Finally,Idid.Theanswerwasinthebook

TheArtofShortSelling

byKathrynStaley.It’sanawesomebookthat’sfilledwithcasestudiesandexamplesofanalyzingthefundamentalsofthefinancialstatementsandbusiness.Withinthosepages,therewerebitsandpiecesofinformationthatIhadbeenlookingfor.

JA:Howdidyougetintowritingonline?

:Originally,itstartedasawaytodocumentmythinking,analysis,andprocess.Doingcritiquesisalsoagreatwaytolearn,andifIwasgoingtoputsomethingonthewebforthousandsofpeopletoread,ithadbettermakesense.ThisforcedmetothinkthingsthroughandmakesureIknewwhatIwaswritingabout.It’salsoagreatwaytoreadwhatyouwroteyearsbackandrealizethemistakesthatyoumade,orhowyourmethodologyhaschangedsincethen.

JA:Doyouliketoreadbooks?Whatareyourfavorites?

:Forinvestmentbooks,Ialwaystrytoreadtheonesthatarenotwidelyknown.Thesebooksarefarlesspopularbecausetheyplaceaheavyemphasisonprocess,method,andhardwork,whichtoomanypeopleskip.Oneofmyfavoritesis

QualityofEarnings

byThorntonL.O’glove.It’sabrilliantbookthatwas



May2010

CGIValueVoices:InterviewwithJaeJun

published10yearsago,yethardlyanyoneknowsaboutit.Everyonewhohasreaditsaysthesamething.Outsideofinvesting,ImainlyreadbooksaboutChristianity.

JA:Whataresomeotherbooksyou’veenjoyedthatyou’dconsider“notwidelyknown?”

:Onethatdoesn’treceivetheattentionitdeservesis

TheFiveRulesforSuccessfulStockInvesting

byPatDorseyofMorningstar.Othergreatbooksinclude

AppliedValueInvesting

byJosephCalandro,Jr.and

ValueInvesting

byJamesMontier.

JA:Whatareyourprofessionalgoals?Wouldyoumanageotherpeople’smoneyprofessionallyifyouhadthechance?

:Atthispointintime,professionalmoneymanagementisn’tatthetopofmylist.Nooneknowswhatwillhappeninthefuture,butIprefertosleepknowingthatmydecisionsaren’taffectingsomebodyelse'shard‐earnedmoney.

Philosophy&Process

JA:Let’stalkaboutyourinvestmentphilosophyasitstandstoday.Whatareyourmaintenets?Whatdoyoulookforinanyinvestment?

JJ:

I'vealwayslookedforcheapcompanies.WhenIsaythat,Imeancheaprelativetofreecashflows(FCF)andnetcurrentassets(NCA).Ialsowanttheinvestmenttobeprotectedonthedownside,eitherbyassetsormoat.IfIknowwhattheflooris,IknowwhatI'mworkingwith.Byplacingaquantitativefigureonthedownside,Icanmeasureboththeupsideprofitandthedownsidetodeterminetheattractivenessoftheinvestment.Thishelpswithmyportfolioallocation,aswell,becauseIgenerallydon'tholdmorethan15stocksatanyonetime.Byweighingandcomparingthedownsideandupside,youalsogetasenseofhowstrongyourportfoliois.Ilookformanythingsinaninvestment.Sometimes,toomanythings,whichiswhyIcategorizeorsplitupcertaincompaniesdependingonhowIfindit.ManycheapstocksfallintotheGrahamNetNetpile,forexample,whileothersmayfallunderspecialsituations.OtherscouldbecheapbasedonFCFmetrics,andsomerecentonesthatI'vebeenstudyingandtestingarenegativeenterprisevaluestocksandincreasingcashreturnoninvestedcapital(CROIC).

JA:Oftheprominentinvestorsweallfollow,whoseinvestmentstyleisyoursmostcloselyalignedwith?

JJ:

Honestly,Idon'tfollowanyofthemclosely,soit'shardformetocomparewhoIammostsimilarto.IfIhadtochoose,itwouldbeBenGraham.Ilovecheapstuff.Thecheaperthebetter.IfWarrenBuffettlikes50centdollars,Ilike25centdollars‐‐andevencheaper.Sometimes,a50‐centdollaristooexpensiveforme.

JA:Howdoyouthinkaboutportfoliomanagement?Doyouconsideryourselfaconcentratedormorediversifiedinvestor?

JJ:

I'mwithBuffettonthisone.I'mconcentratedbecauseIwantandneedtoknowwhat’sgoingoninmycompanies.Asapartowner,it’smy