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This article was published 6/11/2019 (248 days ago), so information in it may no longer be current.
Veteran Winnipeg portfolio manager Larry Sarbit has joined Value Partners Investment and will manage its $100-million Value Pool fund.
Sarbit, 68, has a storied career as a fund manager for the likes of Investors Group, AIC and IA Clarington. A devotee of the Warren Buffett style of value investing — an investment strategy that searches for good companies trading below their real values — Sarbit has had a history of outperforming the market during or shortly after bear markets.
Steve Norton, executive vice-president of Value Partners, said it was exciting news to have Sarbit and his team — Tim Skelly and Tyler Baessler — join the Winnipeg mutual fund company that now has about $3 billion under management.
"He’ll have a wide-open mandate that allows him to do what he does best," Norton said.
"The mistake fund companies make is that they try to put shackles on people and put them in boxes."
For his part, Sarbit said, "It feels like I have come home," referring not just to the fact that he’ll be able to work for a Winnipeg fund company after a few decades running funds for Toronto and New York firms, but also because he will be working with people who share his investment philosophy.
"This is a firm that understands as much as we do about value investing, who believe in the Warren Buffett/Charlie Munger approach to investment," Sarbit said. "We have lucked out."
Having said that, current market conditions make that style of investing particularly challenging. With stock market valuations — especially U.S. equities, which are Sarbit’s specialty — at record highs, finding those undervalued companies is harder than ever.
Buffett’s publicly traded company, Berkshire Hathaway, just reported its third-quarter results, which include US$128 billion in cash on the books because the firm refuses to invest the funds in overvalued companies.
Although there are plenty of signs that the current bull market, which has lasted more than 10 years, is getting close to the end, no one knows when that might be.
Norton said, "I don’t want to say we are at the end of a bull market, but we are closer to a bear market than further away."
Sarbit has more than 30 years’ experience and knows how to read the warning signs when they are flashing.
"I have been through these cycles," he said. "I remember 1979, when no one wanted to buy stocks. Every company had a single-digit price-to-earnings ratio and you couldn’t give them away."
High-flying stock market companies now sometimes trade higher than 20 times earnings.
All that means is that it is a challenging time to start running a value fund and Sarbit is not going to be able to magically find those hidden gems now that he’s starting at Value Partners.
But what he is going to do is start fresh.
"We will be liquidating the portfolio," he said. "I have gone through this twice before. The first time, I started looking at the companies in the portfolio. It was a big mistake. The right thing to do is start with a clean slate and do that as quick as you can, rather than staring at names. I don’t even want to think of them. We will liquidate what we have and replace them with what we want."
The liquidation will likely be easier than the replacing part.
Just like Berkshire Hathaway with its US$128 billion in cash, Sarbit has been accused previously of being too reluctant to invest.
"I took a lot of heat in the past when I was sitting on cash," he said. "At one point, I think, my fund was 93 per cent cash."
Norton is not concerned about any of that. "We have told him to have as much cash as you want," he said.
"At the end of the day, what’s really exciting about this is that here we are with an opportunity to partner with someone with the same philosophical belief system about how we can help clients at a time when other people are looking in the rear-view mirror and saying we need managers that are more growth-oriented," Norton said.
It is also a chance for Value Partners to wave the flag a bit. The company, led by president Gregg Filmon, has been around for about 15 years, but it has had a low profile despite the fact it has ranked as one of the fastest-growing companies in the country and the only mutual fund company with positive net sales through that period.
"This (hiring Sarbit as a portfolio manager) is a huge marketing opportunity for Value Partners," Norton said. "We have been around for almost 15 years now, but people across Canada don’t know who we are. As a small little Winnipeg company to actually have positive net sales every year for the last 14 years... through a financial crisis... no one else in the industry can boast that."
Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.
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Updated on Thursday, November 7, 2019 at 9:11 AM CST: Adds reference to Lawton family, corrects spelling on Gregg Filmon's name, adds Filmon's title
9:55 AM: Corrects reference to company being led by president Gregg Filmon