I recently came across a Bloomberg BusinessWeek article on Ron Burkle, a billionaire that wanted to take over Barnes & Noble. The link to the article is here.
He seems to be a private equity-type investor with similarities to Warren Buffett. He likes to take controlling stakes in private companies and makes money by flipping companies. His original success came from investing in currencies and commodities, and flipping small grocery stores (his background was in running the Stater Brothers grocery chain).
Burkle conducts extensive due diligence before deciding to buy a company. When he bought Whole Foods, his team conducted pricing surveys, met with suppliers, talked to customers, and visited stores. When he invested into Barnes & Noble, his team spoke with publishers, book agents, consumers, and technology companies on Barnes & Noble’s competitive advantage in this high-tech era.
Burkle was also astute in identifying that stock prices were too high in 2007, and converted much of his holdings into cash, with $7 billion by the fall of 2008. Needless to say, his investment results are spectacular with his investment vehicle Yucaipa reporting average annual return of 40%.
What caught my attention was his investment philosophy: “We always try to buy companies that are doing O.K. but that have some issues. We buy at a price that if they just muddle through, we don’t go broke. And if they do better, we make a lot. Since I was 13, I’ve been buying things because they are ridiculously cheap. I tell my people, ‘Don’t explain what we’re doing. They’ll think we’re geniuses if they don’t know.’ ”
That is exactly what Mohnish Pabrai wrote in his book on the value investing philosophy: “Heads I win, tails I don’t lose much.”. Essentially, always buy companies at a low enough price that gives you a good margin of safety.