Monday, November 06, 2006

David Winters: The Fat, Slow Pitch

From Forbes:


The award for the most perplexing career move of 2005 goes to David J. Winters, formerly chief executive officer and chief investment officer of Franklin Mutual Advisers. Winters resigned from that $35 billion fund behemoth in order to found his own mutual fund. Repeat: mutual fund, not hedge fund. He calls his creation Wintergreen.

Ask him the question most often put to hedge fund jockeys by jumpy institutional investors: "What's your edge?" And he replies, "We're long-term investors."

Imperial Tobacco Group, whose stock is available in London as well as New York, is an example of what Winters means by fat and slow. He can hardly contain himself in describing this British cigarette manufacturer, which operates beyond the reach of the U.S. courts. "Ten years ago they were spun off from Hanson, and since then the rates of return are just wild," Winter says. "The compound rates of return have just been spectacular. They've taken it from being a domestic U.K. business to being a very global organization. And they've done a series of really intelligent acquisitions. They now buy back their own stock. They pay nice dividends. Excellent corporate governance and accounting." All this for the equivalent of 14 times the 2007 earnings estimate.

Newspaper publisher Gannett, for example, was trading at 12 times trailing net income, the lowest multiple in 15 years. "Wall Street loves companies that are growing at 35% a year," Winters said at the time, "but it has real trouble looking at companies that are either in decline or have some of the characteristics of a liquidation. The same thing was true when I invested in the steel industry a couple of years ago."


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