An Interview with Saj Karsan
Jun 21, 12
At Vuru, we’re heavily focused on empowering individual investors and thought it would be a great idea to talk to experienced investors about how they got started. This is the first in a series that we’ll be doing around this topic.
Today, we’re interviewing Saj Karsan (@SajKarsan). He’s the founder of Karsan Value Funds and blogs about his thoughts on value-focused approaches and ideas at barelkarsan.com.
1. You were an engineer before completing your MBA and turning your hand to investing. What first sparked your interest in a change to focusing on investing and how did you get started?
I’ve actually always been passionate about businesses. But the reason I went into engineering instead of business was because I was caught in the hoopla that was the tech bubble in the late 90′s. As a teenager I bought into the notion that anything and everything to do with computers was going to take-off forever, and so I enrolled as a computer engineer with the expectation that companies in that industry would always have money/funding.
2. What or who has had the greatest impact on shaping your investment approach and how does that relate to the criteria you look for when evaluating a potential investment?
If not for Warren Buffett, I probably wouldn’t be in this field. I had studied market returns and came to the conclusion that it’s a waste of time to try to beat the market, until I came across the writings of the Oracle of Omaha. I immediately took to his common sense (which is not so common after all) approach as well as that of his teacher, Ben Graham. I was fortunate enough to meet Buffett a few years ago, wherein I got to hear his investing principles in person.
3. What’s the best investment you’ve made so far and why do you think it performed well?
There are a few successes listed here. If I had to pick one, it would probably be Quest Capital, which no longer exists. Basically, it fell to panic levels in 2009, it traded well below the value of its assets, and management was buying back shares with all of its cash flow until the company was sold. When you buy a company cheaply that is run by good stewards of capital, you will probably do very well.
4. And the corollary, what’s the worst investment you’ve made and what did you learn from it?
There are a few that haven’t worked out, as per my Value Fail page. A common theme has been that I misread management’s intentions and/or abilities. In many cases, the signs were there, but I missed them in my excitement for other features that made the investment attractive. For example, Blonder-Tongue Labs was extraordinarily cheap, but it’s run by a guy who went bankrupt himself a few years ago. Is this really the kind of guy you want running a business you own? Probably not! For some reason, I had to learn that the hard way, and I have no one to blame but myself.
5. It’s vital to learn from your mistakes in investing. Has your approach to investing evolved with these experiences?
Definitely. There’s no sense buying a company cheap if the assets are just going to be whittled away by a manager that cares nothing for shareholder value. As such, I’m much more cognizant now than I was a few years ago of the importance of good capital allocators at the helm of the companies I own.
6. What are the biggest potential pitfalls most retail investors are facing today and how should they avoid them?
I don’t think the biggest pitfalls have changed in many decades. Retail investors still think very short-term, buying when the market is expensive and panicking when the market gets cheap. Instead, they should be doing the exact opposite. Focus on safely-capitalized companies that trade cheaply relative to predictable earnings, and you will do quite well over the long-term.
7. From your reading your blog and tracking your fund’s progress, you’re obviously passionate about value investing. What inspired you to dive in and start your own fund and what is your highest conviction pick right now?
When I realized how the investment management industry works – that these firms are mostly marketing machines, with a short-term emphasis and little interest in truly delivering value to investors – I knew that there was an opportunity to do better. I don’t like to put all my eggs in one basket, but if I’m forced to pick one stock right now, it would be SuperValu, a company that is improving its operations while trading at a price to free cash flow of just 2. There are certainly some risks, but some potential rewards as well. I’ve written more about it here.
8. Lastly, what are the top 5 investment books you’d recommend for investors just starting out?
The Intelligent Investor by Graham
Irrational Exuberance by Shiller
The Little Book That Builds Wealth by Dorsey
The Aggressive Conservative Investor by Whitman
Contrarian Investment Strategy by Dreman