Will Attending an Investment Conference Make You Sad?

Emerging markets investor Harvey Sawikin of Firebird Management has a funny post on his Substack, The Falling Knife, asking whether attending an investment conference makes you sad. His conclusion, after some pseudo-rigorous math farmed out to a fictional AI assistant named "Chet Gepetti," is that it probably does, at least slightly. 

The mechanism is well-known to anyone who has attended an investing idea conference: the asymmetry between the pain of a bad idea that you bought and the regret of a good call that you passed on. Losses feel worse than missed gains feel good, but both sting. Add in the 40% of ideas that are duds, some conference food, and the nagging memory of a General Growth Properties pitch you heard from Bill Ackman in 2009 and then did nothing about, and the math turns against you.

His post resonated with me because in 2014 I attended a value investing conference where twenty-four ideas were presented and I have been tracking them, off and on, ever since. (It's been with some schadenfreude, since the conference organizer wouldn't let me present my idea, a small bank for 63% of tangible book value.) The results are instructive, though not in the way that value investors usually hope.

The 2014 conference's dogs were spectacular in their failure. Civeo Corporation, a workforce housing company, immediately plummeted after the conference and is still around, down roughly 90%. Iconix Brand Group, a royalty-driven brand licensor eventually went to near zero, down 99.7%, a near-total wipeout. Forest Oil merged with Sabine Oil & Gas in December of that year and Sabine filed for bankruptcy the next spring. QR Energy merged with BreitBurn Energy Partners, which also went bankrupt. Resolute Forest Products held on long enough to be acquired for a modest premium, though the Canadian dollar's 20% decline over the period ate much of that.

What is striking about this list is not just the magnitude of the losses but the speed. Several of these companies effectively ceased to exist within twelve to eighteen months of being presented as cheap. 

It was a value investing conference. The central premise of value investing, going back to Graham and Dodd, is the margin of safety: the idea that buying at a sufficient discount to intrinsic value protects you from catastrophic loss. If you are right about the asset value and wrong about everything else, you should at least get your money back. The failures indicate that either the margin of safety calculations were wrong, or that the concept does not travel well to certain kinds of businesses. Perhaps both. Commodity-producing companies, leveraged companies, and companies with deteriorating secular trends have a way of going from "cheap" to "zero" while being "undervalued" the entire way.

The base rate of public companies going bankrupt in any given year is well under 1%. The proportion of ideas from this conference that ended in bankruptcy or near-bankruptcy within a few years was dramatically higher than that. This is not a random sample, of course. Value conferences tend to attract the contrarian, the beaten-down, the deeply discounted. Which is precisely the problem. There is a selection effect toward the kinds of companies that appear cheap based on flawed metrics.

There were some good ideas too, and one extraordinary one.

General Motors was roughly flat over the decade, which is perhaps the most value-investor outcome imaginable: you do the work, you are right about the valuation, you hold for years, and you end up where you started. U.S. Steel roughly doubled. Visa returned something like seven times your money on a total return basis, which is an excellent result, though it required you to own a wide-moat payments network at a time when you were surrounded by people pitching over-leveraged forest product companies and housing for oilfield workers.

But then there was Nvidia Corporation (NVDA).

Remember that at the time of this conference in 2014, it was primarily a gaming GPU company. (We, of course, had zero interest in anything linked to "gaming," for dorks.) Nvidia has since returned something in the neighborhood of 500 times your money. If you put 4.2% of your portfolio into each of the twenty-four ideas at equal weight, the naive strategy, the math is remarkable. Visa alone would have covered most of the dogs. But then Nvidia would have returned roughly 20 times your entire starting portfolio over twelve years.

The problem is what that looks like in practice. After a few years, a genuinely equal-weighted portfolio becomes anything but equal. Nvidia would have grown to dominate the portfolio so completely that you would have experienced 50%-plus drawdowns in 2018 and again in 2022, watching what was functionally your entire portfolio cut in half, twice, before the final ascent. Almost no professional manager could have survive that. Harvey addresses exactly this in some other Substack posts on art collections and Firebird's early portfolio: even if you have the right positions, the institutional constraints of managing other people's money make it nearly impossible to ride a 75% concentration in two stocks through a bear market without your limited partners concluding that you are a reckless gambler.

The only way to have actually captured the Nvidia return in its entirety was probably to put these stocks in a brokerage account you never checked ("coffee can"). The position sizing problem is not just psychological, it is structural. A manager who communicated to investors in 2022 that they were 70% in a semiconductor stock that had just halved would not have had LPs for long. The money would have left, locking in the loss, before the recovery came.

Sawikin writes about this dynamic in the context of art collections, noting that Keynes' collection at King's College has compounded well precisely because no one was tempted to "trim the Cézanne position." Stocks do not have that feature. You get a price every day, your investors are watching, and the pressure to do something is constant.

I only went to that one conference in the series and have occasionally wondered what I missed in subsequent years. It would be interesting to look at the other vintages. Did the hit rate improve? Did anyone present NVDA again in 2016, after it had already doubled, and catch the remaining 250x? At what point did the energy and commodity ideas, which dominated the 2014 vintage in a way that reflected the zeitgeist of that moment, give way to technology ideas in later years?

I do attend a different annual value investor dinner and have returned for several years now. One pattern I have noticed is that the best ideas (so far as I can judge) are also the ones that are best presented. This is not a coincidence. Clear communication is demonstration of clear thinking. An idea that can be explained simply and directly has fewer moving parts, which means fewer things that can go wrong. The people who can stand up and say quickly and clearly exactly what they own, exactly why it is cheap, and exactly what has to happen for it to work out, are people who have better mental models of the world.

The corollary is that a complicated pitch is often a warning sign. If the presenter cannot explain why a company is cheap without also explaining four offsetting factors that are currently obscuring the value, there is a decent chance that one of those factors eventually wins. The companies that went to zero from the 2014 conference generally had stories: the oil price will recover, the licenses will be renewed, the merger will unlock the discount. The thesis required multiple things to go right. They did not.

The simple ideas, like buy the world's dominant payments network, buy the AI-adjacent chip company when no one cares about AI, turned out to be the ones worth owning. The elaborate restructuring plays and commodity-cycle bets, the ones that required the most slides and the most assumptions, are the ones in the bankruptcy column.

This is not a new observation. But watching it play out over a decade, with a specific set of names and a specific date stamp, makes it more concrete than it usually appears in the abstract.