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March 31, 2016 at 10:28 AM
Mark Travis describes his investment approach this way: “I’m looking for a basic, boring business. I like to say, ‘beers, shoes and underwear.’”
Travis, co-founder of Intrepid Capital Funds, has built his business and investment approach by making use of private market valuation techniques to target undervalued securities.
“I’m trying to find businesses and be an equity owner of things that people need and use,” Travis told ThinkAdvisor. “I would say they’re defensive by nature, meaning there’s not a lot of volatility in their end market and we can reasonably value that business. It’s going to be hard for us to value a biotech company because we just don’t have the medical staff to say, ‘Hey, this drug is going to cure XYZ …’”
Travis is looking for businesses like Payless ShoeSource, The Boston Beer Co. (the maker of Samuel Adams) and Supercuts.
“The Payless store, as you know, is pretty simple. There’s like six racks of shoes, there’s no inventory and there’s a cash register,” Travis told ThinkAdvisor. “So we’re looking for businesses that generate a lot of what we call ‘free cash flow.’ And then we try to put a value on that.”
Once they’ve valued the business, Travis said they’ll wait until the price drops below that value.
“If we value that it’s worth $20 a share … and something happens and, boom, we can buy all we want for $14,” Travis told ThinkAdvisor. “We buy it and then we wait. We constantly revalue our ownership interests in that business until it reaches that valuation and that’s when we sell.”
Travis, who considers himself a “risk-averse contrarian,” is the lead portfolio manager of the Intrepid Capital Fund (ICMBX), the separately managed Intrepid Balanced portfolio and Intrepid Capital L.P., as well as a member of the investment teams for a number of other Intrepid Capital’s funds and portfolios.
“I’m trying to give people as much return as I can for as little risk as possible,” Travis told ThinkAdvisor. “I’m trying to make it a very low-volatility experience because if I scare them, they’ll get out at the bottom and they won’t reach their objective – whether that’s to educate a child, retire, buy a home, whatever it may be.”
And his investment approach is something he believes in.
“Everything I talk about is a position I have or my family has,” Travis said.
And Intrepid’s approach is working. For example, the firm’s two oldest funds, Intrepid Endurance Fund and Intrepid Capital Fund, rank in first and fifth percentiles of their respective Morningstar categories for the 10-year period. The Intrepid Endurance Fund, which ranks in the 28th percentile of its Morningstar category year to date, returns about 9% annually. The Intrepid Capital Fund, which ranks in the 28th percentile year to date, returns about 6.8% annually.
“Earlier this year, when the tide went out, people didn’t withdraw from our funds,” Travis told ThinkAdvisor. “…We actually had inflows into our funds in February, when most people would have thought the contrary.”
Travis offered his insights into the current market environment and provided what he views are attractively valued stock picks:
1. Royal Mail Group (LON: RMG)
“It is the privatized postal service of Great Britain,” Travis told ThinkAdvisor “They own some very nice real estate in the central business district in London. They’re going to develop it into residential housing.”
